July Ono REAL ESTATE INVESTMENT HUB

Have you ever heard of the Biosphere experiment? The University of Arizona built a $200 million self-contained biosphere of the planet in the 1980’s. They discovered that without wind to create stress, the trees in the biosphere were weak and fell over. The lack of stress in an environment is actually detrimental to its being able to flourish and thrive. http://en.wikipedia.org/wiki/Biosphere_2

I was reflecting on this after reading another Human Resource issue that surfaced over the weekend. HR is a department that is constantly challenged as the number of people increase in proportion to the growth of the company. The issues are constant because people require constant management whether you are responding to staff, suppliers, tenants, contractors or stakeholders. And knowing this, it is imperative that your staff is clear on your core values, mission, vision and purpose, including your team member’s vision. Second to this is creating protocols and systems to assist in streamlining the various inputs for maximum efficiency. Sounds simple enough but it’s not easy. It takes a plan and time to implement and establish that foundation.

Consider it a gift and a blessing for the wind in your business. For without the wind, there would be no positive stress to create a strong team. In the book “The Fifth Discipline” by Peter M. Senge, he explains that the essence of personal mastery is learning how to generate and sustain creative tension in our lives. Creative tension is the energy between current reality to future desired reality. You can choose to direct this energy for positive growth or choose to ignore it to maintain the status quo. And remember that there is no such thing as status quo. If a tree is not growing, it is automatically dying. This is a universal principle. The same principle applies to your business and to your people. Be grateful for the wind for it is helping you to create a team that can weather any storm.

If you’re going to flip a property, then become an expert at flipping. If you’re flipping a property as a way to generate a lump sum of cash for another project, then you need to take a look at the other project and your reason for flipping.

It takes on average two to three years to become good at real estate investing in a specific niche market. It’s not wise to jump around in different types of real estate investing when you first get started because you never become proficient at any of them. You merely obtain mediocrity.

This subject came up during a conversation with a newbie investor whose desire was to flip two or three properties and would use the cash from those flips to buy an apartment building. First of all, this investor has no experience with flips, has not researched any markets except on a surface level through Real Estate agents, has no idea what supplies cost or how to General Contract the different trades. The dream of flipping properties and making a profit was evident. The skillset to actually pull this off was not evident. However, if this investor had a plan to volunteer sweat equity and work for free for someone who has a successful track record at flipping properties, that’s another story. This is a more cost effective strategy than attempting to flip a property with no experience and potentially risking investor capital out of ignorance, but with loads of good intention.

The fact is you can flip in practically any market. It doesn’t have to be Phoenix or Florida or Las Vegas to make decent money in flips. I know local investors who make a more than decent living flipping properties in Surrey, Langley, Coquitlam, the Fraser Valley. I know local investors who have the ability to flip properties in other provinces. They flip properties because they enjoy it. The savvy flippers created a solid cash flow base with ongoing passive income so they never have to worry about money if a flip goes sideways.

Let’s take a look at the newbie investor’s original reason for flipping properties. Get enough cash saved up to buy an apartment building. I’m explaining how to joint venture the deal as a no-money-down play when I realized something was amiss. Why can’t this investor buy the apartment building now with no cash saved up? I don’t need my own money to buy an apartment. I bought a $1.6 million building in 2012 with none of my own money, negotiated a 10% equity stake and also take a management fee. If the multi-plex is this investor’s end goal, then why go off-track in a completely different area of real estate investing when they should be focusing their learning curve in this arena.

Every real estate investment that I flipped was not its original intention. It was part of a list of options with the primary focus (referred to as Option A) on long-term hold for ongoing cash flow and passive income. The minimum holding period was five years as most mortgages come with a 5-year term. Option B was to refinance in 5 years or sooner if the property appreciated more than 25%. Option C was to either (a) distribute the refinancing to the stakeholders or (b) buy another investment property. Option D was to sell to another real estate investor. Option E was to condo convert the building and sell off the units individually (which is a form of flipping).

In the worst case scenario, if the flip took longer than anticipated or if the market goes into a downturn, then your back-up plan should always be to rent the property out and cash flow it until the market conditions are conducive to flipping again. Otherwise there is little point in flipping properties if your timing and your systems are less than profitable.

If your ultimate goal is to own an apartment, then why are you wasting time learning how to flip properties. The model for buying an apartment is very different from flipping a single-family dwelling. And it’s not serving your money partners if you have no real plan to become an expert in flipping. How would your investors feel if they knew the flip was an interim project, one of three or four or five? How would your investors feel if they knew their money was at risk while you are going through your learning curve? Do you plan to become an expert and therefore produce better and higher returns? Or do you plan on being mediocre until the “real” project comes along?

Commit to your desired real estate niche and become an expert. Then share your knowledge and expertise with others, give one-on-one or group-on-one mentorship, host seminars and Meetups, write columns for newspapers and magazines, blog about your experiences, create value.

It’s when you create value for others when the real money shows up, whether you choose to flip or not. How can I add value to other people? This is the real reason for investing.