Posted on July 24, 2007 @ 1:01 am - Written by BawldGuy
Attention San Diego investors: This is primarily addressed to you.
Oh, and if your area is currently getting more than $400,000 for a duplex, this is for you too.
If this was a bull market would you sell or exchange? If the answer is yes, would it still be yes if we’re talking about the real market we’re in? It should be the same answer. Let’s make this even closer to home. Would you buy the San Diego area units you own today? No?
Why?
That’s a trick question. We both know why. It’s because you can’t make sense out of a duplex with a market value of $500-700,000 or a fourplex for $850-1,000,000 — nobody can. And if you wouldn’t buy your La Mesa, or North Park or wherever (San Diego) units for their current value, what makes you think other investors would?
Graduation from M.I.T. isn’t a prerequisite for arriving at a numbers based decision. 
This correction may not last too much longer (from my lips to God’s ear ). Who really knows for sure? I don’t. But let’s say by next spring, we’re back on an even keel. It’s time to sell, or probably, exchange.
Here’s why. It’s as simple as A B C.
Yes, it’s a buyer’s market, and yes I’m telling you to sell or exchange — because you’ll be taking your net equity to much more attractive regions which A) Have much lower prices B)
will allow for increased leverage with all its benefits, when used prudently and C) will very probably out-appreciate most areas. Even if San Diego enjoys higher appreciation — to what end? To be even less attractive than before? And lest we forget, far off regions are now far more accessible to the relatively smaller investor who. Because of this, they are conducting comparisons that don’t put San Diego, and places like it, in a very good light. (He says, with a straight face.)
Part of the analysis has to include where you’d put your equity if you did sell or exchange. We don’t need to go through each area. Let’s just agree, there are several from which to choose. And the reason to invest in them is because even though you took your equity out of San Diego during a buyer’s market, you’ll also be buying in the same conditions — but for a lot less money — which means a lot more properties.
Take Boise, Denver, or Kansas City as examples. If you sold one
duplex in Lemon Grove and netted say, $200,000 — you’d soon be the proud owner of over $1.5Mil in property. It’s kinda like getting a refund on a real expensive suit at Nordstrom. Imagine being able to buy Nordstrom quality clothing, but being able to find those same clothes in the Dollar Store. 
Our experience in taking income property owners from expensive areas to lower priced and solid growth regions, has shown us that analogy is pretty much on point. (OK, it’s a little exaggeration.)
Let’s take a look at what I just said. If you effect a tax deferred (1031) exchange from a duplex yielding a couple hundred grand, you’ll be able to buy at least $1.5Mil in lower priced, growth areas. Now you find yourself with three times the property you left in San Diego. If San Diego bounced back a little more quickly than your new region and appreciated at 5%, while your new stuff went up only 3%, what the result be?
Your old SD duplex was sold for $500,000 — at 5% it went up $25,000.
Your new properties were acquired for $1.5Mil — at 3% they went up $45,000. 
Helllooo — 80% better.
Look — what I’m saying here is this: You can stay where you are and stagnate until retirement. Or, you can take control of your situation, and get your net worth jump-started and growing again. Remember when it used to grow so nicely? It can again - but not ’till you realize what, in fact, your real situation is.
Imagine how well you’d be doing at 5%, 7%, or 9% appreciation. It’s far more likely the growth areas with lower prices, an increasing job market, and a predictable long term increase in population, will appreciate at roughly the same level of almost any comparable region — given similar demographics.
This isn’t rocket science. There are many who’d like you to believe it is, but it simply isn’t.
If you’re in San Diego, or any So Cal income property for that matter, you need to seriously review your current situation. Get out while the gettin’ is good. Once this correction runs its course, and your property starts slowly rising in value, remember the question I asked you first:
Would you buy your income property now for today’s value? Of course not.
Some silly questions now — but I guarantee your answers will be dead serious.
Does it make sense to trade into a growth area, while simultaneously doubling or tripling what you own? A trick question if there ever was one. (This isn’t predicated on negative cash flow, by the way. We don’t like it either.)
Can you use another $40-70,000 in depreciation? (Yes, we’re kidding. Who wouldn’t want more?)
Does cranking your capital growth up from a lousy 5-10% up to at least 20-30% or more sound like a prudent move to you? (Come on, smile. These questions are meant to illustrate the obvious.)
Finally: Write down on a piece of paper exactly why you’re not trading your San Diego (So Cal) income properties right now — if not sooner?
My guess is, half the folks who actually do this will end up with either a blank sheet of paper, or one full of squiggles.
Get outta Dodge now — it won’t be long before that option will become much more difficult to execute.
Posted on July 22, 2007 @ 1:46 pm - Written by BawldGuy
The subject today is Kansas City Mortgage Brokers.
Are there any mortgage brokers there who are as reliable, experienced, 
and just plain good as either Jed Galbraith or Brian Brady? I know there has to be — and probably a lot more than one. We’re looking for a mortgage broker that will measure up.
We’ve already brought our right hand guy on board for our team there — but he’s not a mortgage broker. Are you our Kansas City mortgage broker?
I’m bound and determined to be in KC before too long. In fact, I’d like to be there around 4:30 yesterday afternoon. My firm however (he says, as if he and Josh aren’t the firm), has a policy that we simply do not make our initial foray into a new market without local clients in tow. How do we do that you ask?
Why do we do that?
HOW — We give a seminar to folks culled from the database of a local, high quality mortgage broker. These are clients who’ve already done business with him, and have expressed a sincere desire to begin investing in real estate. Many of them may already have an investment property or two, but aren’t satisfied with their results. They know they can do better, don’t have someone like me or Josh to guide them. 
These seminars have proven very effective in acquiring local clients in the new area. This also helps give us credibility locally.
WHY — I just mentioned local credibility. We also use all the local professionals needed to create a seamless process for our clients. In Boise, it’s Jed Galbraith, (Opie in the picture). If they want, a client can (and most do), invest all over the country with Brown & Brown and never leave their living room. So having access to the most excellent lenders, property managers, title pros, inspectors, and the rest, is not negotiable for us. When the locals see we’re using pros right where they live, their comfort level grows. In fact, so does ours, for obvious reasons. The pros live there too, and know the area and its practices way better than we do.
Why would a mortgage broker want to sponsor our seminar? Chris Lengquist says he can’t find any KC mortgage brokers who would vote for making more loans. I can’t believe that’s true.
It’s as simple as this: Any seminar attendee who becomes a client of ours will use the lender hosting the seminar — period. This could include a refinance of the client’s home. Then there will be his subsequent investment property purchases. (yes, plural) And it doesn’t stop there. When, down the road, it’s time for that client to pull the trigger on a tax deferred (1031) exchange into more property — who do you think gets all the loan business? Duh.
This is why we’re so careful when allowing a mortgage broker to host our seminars. They must understand what great service is. They must perform — period. They must understand what we do — we’ll explain it to them in detail — it ain’t rocket science.
What else must the mortgage broker understand? First thing is, that they’ll need sufficient support staff to handle the additional business. Jed in Idaho, is now busier than a one-legged man in a butt-kicking contest. Not only that, but the new borrowers are not only from the seminars he hosted. (He’s hosted five by the way.) He’s performed so well for us, and proven himself so completely, we’re now giving him much of our Idaho business generated from sources totally unrelated to his efforts.
He’s just started with us, and between loans in the pipeline, and ones closed — he’s already approaching a couple million. Remember, that’s in Idaho prices, not San Diego values. And that’s just the first month of doing business with us. He’ll end up doing roughly $5-10Mil in loans in the last six months of this year — by virtue of hosting seminars with Josh and I.
So, KC mortgage brokers — who is gonna step up to the plate? I want to hear from you ASAP. Once we pick our guy, that’s it. We like to find one home run hitter in each area. You’ll get the business we do there — as long as you an do it. Do you see yourself as being on deck, watching the sold out crowd, waiting for your chance to perform big-time? Then you could be our guy or gal.
Our Phoenix guy has done well over $10Mil and counting. When those clients begin exchanging, (in a year or two) that mortgage broker will have his hands full. He’ll be forced to deal with finding roughly $25Mil worth of loans. Nice problem, eh?
Oh, and our San Diego mortgage broker? He was the guy we used to beta test this approach. He is 27 years old, but second generation banker. So far, he’s booked roughly $7Mil in loans — and counting — in a relatively short time.This is for a grand total of — five clients. And they were all beginning investors. The guy flat gets things done.
If you’re a Kansas City mortgage broker, and think you’re of the quality for which we’re searching, please, contact us. This is a top priority for us. We’d like to have found our KC mortgage broker by the middle of August — preferably sooner. You can go through this blog or our website — we’ll respond immediately. We’d love to talk with you. Don’t be shy.
Anyone out there?
Posted on July 20, 2007 @ 11:06 pm - Written by BawldGuy
Several times monthly I’m asked a recurring question. If someone doesn’t have a ton of money to invest, would I still consider working with them? Before I answer that question, let me shed some light on what makes me tick.
I love the part of this business that allows me to take folks from where they are today, to a very nice retirement — hopefully earlier than they had anticipated. It’s like a drug for me. If I don’t get to talk with new people with enough frequency I begin to get a tad jumpy. I love it. It’s those first couple conversations that puts me in a totally different state of mind.
Athletes call it the zone. I’ve also experienced it as a bodybuilder, and most recently as a college baseball umpire. But when it happens at work — there’s simply nothing better. I work harder for that feeling than I do for money — cross my heart.
Last night I nearly ODed.
Between talking with a very cool Brooklyn couple, and again to Bill (from Boise seminar - spoke about him the other day) and his wife Jenna, I was nearly unconscious.
Since both conferences took place after work hours, while at home, my 
(trophy) wife had to put up with me walking all around the house as she was trying valiantly to do some work for her company on her laptop. She long ago reconciled herself to my pacing. (Sometimes at the office Josh and I will both be on the phone, with both of us pacing like hungry lions. With non-verbal communication we figure out which patterns the other is using, and weave our separate laps without running into each other.)
After the second phone conference was concluded, I sat down to relax. But no luck. I was already thinking about what I could do to help them get going. In what region should I put them? Would the latest builder deal we made work for them? Oh, stop it, and relax. Good luck.
Neither couple has tons of money. Do I work with relatively sophisticated investors who are fat with cash? Yep.
Is my relationship with them any different than with my clients who start with just enough to get them in the door? Nope.
I get a bigger kick out of taking newbies and getting them from point A to point WooHoo! than I do working with those who’re well-healed by years of impressive success.
I still work with the bigger fish, because they’re just as cool, and they let me know how much they like what I bring to the table. Still. the younger couples who just aren’t sure what to do — I love them to death.
So who’re Brown & Brown’s clients?
They’re regular folk — no matter how much money they have.
Here’s a peek at the latest group to join up with us.
A 30-something couple with a couple kids making $50-70,000 a year. Refinanced their home to get started.
A young couple with one child (more planned) making $40-45,000 a year. Like so many others they just took some cash from their home’s equity, and are chomping at the bit to get going. They’ll buy one property to get started. He’s 25 — wow. His company is paying for his slow but sure march to a college degree. After I spoke with him the first time, I was higher than a kite. Talk about starting from ground zero. He and his wife have a super vision of their future — and I’m jazzed to be able to contribute.
A pharmaceutical salesman, who travels more than a diplomat during a crisis. $Six figure income. Married with one child. Late 30’s — I think. Again — refinanced home to get going.
A executive in North Dakota, married and in his 30’s. Again, refinanced to get some capital. Will start with one property and work from there.
A father partnered with his son and daughter-in-law. The father is a retiree in his 70’s — the son is a truck driver making $45-60,000. Between them, cashing out annuities, they’re starting with a few hundred grand.
See what I mean? Regular folk.
And they’ll have something in common down the road apiece. They’ll be retired — with a bunch of dough coming in every month. And they’ll all be using their Social Security for spending money.
Posted on July 16, 2007 @ 9:55 pm - Written by BawldGuy
Meeting with new clients is among my favorite natural highs. I need a fix at least once a week — more if I’m Jonesing. While in Boise last week, I was able to feed this addiction on Friday afternoon by way of a hastily arranged meeting with a new client, who very conveniently happened to live in Boise.
‘Bill’ attended one of my recent Boise seminars hosted by the now famous Jed Galbraith, lending’s answer to Nordstrom’s. Bill was interested in what we said there, and planned I’m sure, to give me a call about getting started. Time passed though, and I hadn’t heard from him.
Turns out he and his wife were a tad busy — adopting their first child, a two year old boy. As it happens with a lot of us, me included, becoming a dad can lend a new sharpness to your focus in life — an understatement if I’ve ever heard one. He contacted me, and when he learned I was going to be in Boise the following week, said he’d do whatever it took to meet with me when I offered.
How can you not love a guy with that attitude?
We met at my favorite coffee house, Rembrandt’s, located in Eagle. It’s a converted church and they did a superb job with the remodel and design. It’s like you’re in a giant living room at your rich aunt’s home. Old, deep cushion chairs and couches that invite you to sit and feel right at home. Trust me, it works.
I set the place for the appointment because everyone seems to like Rembrandt’s. I felt kinda bad though when it dawned on me he worked at Micron which is not the place to be in the afternoon of a workday when you have to take Eagle Road to get to the appointment. Oh, did I mention he’s Mormon? Maybe a coffee house shoulda been on the B-List for potential meeting sites. Ya think?
It didn’t matter because Bill was excited to talk — new fathers are fun.
We talked about his current financial status. He’s one of those guys we all love to hate, as his FICO score begins with an eight. He owns his home with a bunch of equity, much of it gained not only by way of the most recent run-up, but through his hard work fixing and adding. He has some stocks, a significant 401(k) balance, and a great job with good pay. In short, he’s a perfect candidate to begin his real estate investment journey to retirement.
We then discussed my policy of Sominex (Ambien) Accounts. A client without generous cash reserves (stocks, annuities, and bonds count too) is not, and cannot be a client. Bill liked this approach, as he’d had it explained at the seminar. I sometimes use the analogy of squirrels gathering acorns in anticipation of food becoming scarce. Whatever, I explained he had to have adequate liquid reserves — though generous is preferred.
He knows Jed because of the seminar, so I had him contact him to get pre-qualified ASAP. He already has a great 1st loan on his home, and an almost approved line of credit with the same local bank. I advised him to keep his 1st in place as it was fixed and under 6% — Duh. His line of credit will be about 7%, also a pretty good number.
He’ll be able to initially purchase around a million bucks worth of investment property. It’s possible not all of it will be in Boise. He’ll end up with the maximum allowable deprecaition ($25,000) — plus some to offset a portion of his capital gains in the future when he sells.
Part of his Purposeful Plan will include the fact that because of his recent adoption he’s the recipient of a $10,000 tax credit!. That, along with his anticipated $25,000 annual depreciation will allow him to pull out significant cash from his fat (for only 38 years old) 401(k), while paying little or no taxes.
I’m excited for Bill because he’s about to ensure a magnificently abundant retirement.
I was pretty tired going into that meeting. There’d been a day and a half of nearly non-stop appointments phone calls — you know how it goes. But once Bill and I were about 10 minutes into our conversation, it was like he’d given me the magic elixir of boundless enthusiasm and energy. Bill’s excitement and enthusiasm, mostly borne of his new son I’m sure, was contagious. He had me banging the drum for sure.
New daddies often have a more powerfully focused financial agenda. I remember when Josh was born, and overnight I became much more purposeful — so to speak.
Bill’s already been in touch with Jed, and the wheels are turning. The whole trip was worth it because of that 90 minute window. An unexpected fix never hurts.
Posted on July 12, 2007 @ 11:29 pm - Written by BawldGuy
While in Boise for a couple days, I’m spending as much time as possible meeting with builders who might like a BawldGuy to take out a bunch of their homes for them. You know, we pay low, low prices for well located product, with perks built in for our clients, and a nice premium for the guy with no hair and the company with the redundant name.
This is a great time to be buying property in growth regions — and Boise sure qualifies.
During our last visit we met and made a deal with a builder for his last seven townhomes. All the appraisals are in now, and say our clients bought under market — considerably in some cases. All their closing costs were paid as part of the deal too. The management company is cutting them a great price — 30% off if they pay a year ahead. Our investors said yes almost in unison. They’re happy campers, and the builder can now proceed to his next project (breaking ground this year) without the anchor of seven unsold homes. Everybody wins.
Today however, we didn’t run into a builder who has figured out his position in the market. First, he sent his dad to front for him. Then he wouldn’t answer our phone calls. When we gave up and told his father what we were trying to accomplish, he looked at us as if we were the ones smoking the funny smelling tobacco.
Tomorrow we’ll be talking to yet another builder who is sending us a spreadsheet on what’s available and what’s possible. We like this guy, even if it ends up without making a deal, because he’s not pretending it’s 2004 with the world as his oyster. Fear, and the anxiety that follows, can sometimes spoil the chance for clear thought, especially when one has to think of the consequences of facing the reality of losing money on a dozen homes.
The way the first guy looked at it was with a clear eye toward cutting his losses, turning the page, and moving to his next project. I’ve seen his next project, and he has an incredible winner on his hands. He’s also a magnificent old school builder who is proud of his work — and should be. It’s gorgeous. He’s not like others who think turning the page will lead to worse endings.
When I return next month to talk with more builders, I’ll give a call to the guy who wouldn’t return our calls. By August he’ll want to talk to anyone who will be serious. And we’ll be very serious — for less money per home than we’d of paid today. And he’ll also have lost another month’s carrying costs. Of course, we can’t buy everything out there, so we might not even have him on the A-List on our next visit. Who knows?
When you find yourself needing to cut your losses, facing reality is the cheapest way out — and there’s no substitute. Building homes is one thing, but building your own reality, especially one that the world doesn’t recognize, isn’t the way out. It’s the way to dig the hole deeper. This builder is a good guy, with a stellar reputation. This is something that happens from time to time to all of us. We’re in a little bit of a bear market. So What? It’s not the end of world — unless of course you make it worse by repeating to yourself and everyone else who’ll listen — “We’re just fine.” When the bear gets a little too close, it can get scary.
Losing everything can be scarier. Live to build another day. I’ve always wondered why builders don’t have massive Sominex accounts. Where would some of them be today if they’d had one? I’ll wager they’ll at least think about it next time out — though I’m thinking for some of them there won’t be a next time.
Next month he’ll be another $16,000 in the hole. He isn’t fine. And I forgot to mention, he’s pulled more permits. No kidding. You can’t make this stuff up — nobody would believe you.
I feel a tremendous sense of empathy for the builders who find themselves in this position, because for years they’ve been providing a product much in demand. What some of the smaller ones are learning now, is that the trend isn’t always up. Sometimes Murphy decides it’s your turn in the barrel. I speak from experience. I’ve been to the ugly side of the rainbow.
Just because one investor’s problem is another’s good deal, doesn’t mean it’s not hard to watch. So far, every one of these builders has been a very hard working and straightforward gentleman. (fantasy reality aside) They’re just caught in some bad timing as a result of their crystal ball being unreliable this time out.
Repeating the mantra, “We’re just fine”, doesn’t make it so.