How To Make Money At Real Estate

taxiEffective last month, my family owns a house in North Boulder for a net cash cost of US$100,000. It took me a decade to get that deal done. I did a similar one in New Zealand in 2001.

When I buy, I look for a good asset, at a fair price, with built-in options that can create upside.

If you’re going to make superior returns then it will be due to an option embedded in the deal.

For example:

  • Excess land gives the option to subdivide (Boulder 2010)
  • Buying outside my “home” currency of US dollars gives the ability for international arbitrage (New Zealand 2001)
  • Buy homes for less than their cost to build (Tucson 2010)

The goal is not having a property that you would be proud to show off to your friends. Until recently, I owned a “pride” property. A 6,000 sq. ft home that earned my family nothing for the time we lived in it. Truly fantastic house, mediocre investment.

Likewise, the option should not be created by using a ton of leverage. High leverage is appropriate only when you’re using other people’s money in a non-recourse vehicle. More here.

When should you buy?

#1 – Buy when you need the asset. You rarely need the asset! Be patient.

#2 – Buy when the cost to own is FAR less than the cost to rentsee my free ebook for how to do this calculation.

#3 – Buy when banks are foreclosing – banks, governments and trustees often sell for less than fair value.

#4 – Buy when the local debt market has collapsed – a cash buyer in a liquidity crisis will receive favorable terms.

Note, these tips apply to every asset and you’re going to need substantial liquid assets to take advantage.

All of the above, imply that you should study your target market for a decade before you buy. I also recommend that you limit your equity investment to 15% of your family’s balance sheet.

Right now, we’re in a bull market and you probably feel like you will never get another chance to buy at distressed prices.

You’re wrong.

In my working life, I remember bear markets in 1990 (UK), 1997 (Asia), 2000 (US) and 2009 (Global).

Take your time and remember you don’t need to do the deal.

Once a decade, the patient investor will be sent a fat pitch.

 

Correction Without Resentment

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A coach is someone who can give correction without causing resentment.

— John Wooden

Coach Wooden hits the nail on the head. Looking deeper, I ask myself, as the corrector, “What am I seeking to achieve here?”

Constant correction, mostly non-verbalized, floats through my head.

Criticism, dissatisfaction, endless tweaking and optimization… what purpose does it serve?

What is the source of this correction?

  • Is it habit?
  • Is it altruism?
  • Is it a desire to alleviate the pain I see from watching you suffer?

Too often, my correction-by-habit makes my family suffer.

Sit quietly in a room full of children. Notice two things…

  • How little the master teachers correct.
  • How much the novice parents correct.

The frazzled parents beg for the children to listen.

When I catch myself, I slow down to see if the situation will resolve itself.

It’s humbling to realize how much of the distraction I create by hurrying.

How do the masters get through to us…

  • Fix myself first
  • Shared laughter
  • Wait until asked
  • Keep it short

When I am tempted to carpet bomb my Facebook feed, I remind myself that the world is filled with good people, particularly in the homes of my enemies. What might those good people need from me?

Share a laugh, keep it short and remember…

…the important stuff happens under my own roof.