Tuesday, March 31, 2015

Investing Strategy for the Long-Term

I've been practicing creative real estate investing for eleven years.  It hasn't always been easy.  In fact, there were times where it was a downright struggle.  Part of that is I didn't really ever embrace the level of networking and educating myself that I do today.

But when I look back on the long road I've been on, I do realize that every year gets easier.  Every year I make more money.  And every year the future looks brighter and brighter.

What I have done right is employ a strategy that is built for the long-term.

Which is good since I am having so much fun, I don't ever want to retire!

We talk a lot to our agent/investors and those thinking about joining us, that our brand of real estate is one for the long-term.  But what exactly makes it so?  What is the strategy for the long-term?

Treating Sellers with Respect

It's easy to look down on someone who is in trouble.  We are all guilty of not understanding how they got behind on their mortgage payments or the poor choices they made that led them to the situation they are in.  But the fact is, they are flawed humans, and we are no different.  We all have made mistakes and we all have needed a little help from time to time.  My wife, Angie, is good at reminding me that we are "all God's children", particularly when I get frustrated at other drivers on the way to the next seller meeting.

Treating your sellers with respect and offering them the solutions that best fit THEIR needs does pay dividends later.  I recently had a seller meeting where this absolutely helped.  One of our agent/investors got to witness this first hand.  I handed the daughter of the seller my card and her reaction was immediately positive. "StepStone... I've heard of you, you guys are really good".

The fact is, people today do a lot of online research.  And if you try to squeeze out every last penny on a deal by putting your needs ahead of the seller, your reputation can and will eventually suffer.  We strive extra hard to make the seller's experience positive through the whole process of either buying or listing their house.  Through these years of effort, we have built a reputation that gives us a competitive advantage in the marketplace and we are set-up for the long-term.

Treating Each Other with Respect

When we get a property under contract that we want to wholesale, it is vitally important to us that we offer that property to other investors (first to our StepStone Agent/Investors) in a way that is fair and honest.

I see roughly ten "wholesale" deals come across my email every day.  Not a single one do I bother to look at anymore unless its from a StepStone Investor/Agent.  Why?  Because all too often the numbers they present are downright lies.  We can disagree on the ARV (after-repaired value), but we all know the difference between a disagreement and a lie.

Or the repair numbers are ridiculously low.  I see investors marketing their property as an easy paint and carpet job, only to walk in and see a pink bathtub from 1954.  On top of that, they want a $5,000 non-refundable deposit to secure the property.  So if you find out later that the repair costs are higher (which they probably are), you have a choice to either wave goodbye to your $5,000 or close on the deal anyway.

This is not treating fellow investors with respect!

By working WITH my buyers to get a good deal for both of us, I have built a buyer's list that pays attention to my deals when I email them out.  By sending out deals in an honest way, and leaving meat on the bone for the investor that is going to flip it or rent it, closing deals is easy for me.

At StepStone, we want buyers to clamour for our deals, not cringe at the sight of our emails.  We want buyers who want to work with us for the long-term and we have been successful at doing just that.

Being Flexible and Immune to Market Cycles

By being both an investor and an agent, our investor/agents have made themselves immune to market cycles.  By being equally ready to list property as to buy it, they are prepared when the majority of leads are short sale listings.  They have an advantage when it comes time to offer more property out as owner finance because they can list the property on the MLS.

We currently are making the majority of our money on flips, new construction and wholesales to other flippers.  But in 2009, when the world looked bleak for many, we were doing just fine with our 25 short sale listings and monthly owner finance closings.  Throw in our occasional wholesale to buy and hold investors and our business didn't miss a beat!

The StepStone Way

This truly is the StepStone Way and it is a strategy that is for the long-term.  By treating sellers, investors and each other with respect, we are establishing ourselves as THE go-to company that has integrity and presents ourselves and our deals honestly.  By being flexible with what we offer sellers, and by offering them what will be best for them, we have developed a strategy that makes us immune to the market.

The StepStone Way is a strategy for the next hundred years, not the next three.

Wednesday, March 11, 2015

How About a Pay Cut?


Because most of my marketing is to distressed sellers, it's not often that you will find me doing a “listing presentation” for a traditional listing. I recently found myself in that exact situation, however, when I was referred to a seller, Mindy, from a friend. I didn't know that she was interviewing other agents but I did what I normally do... I brought some comps and we reviewed them. Nothing fancy.

After we finished discussing the sales data and her listing, she told me that she was interviewing other agents and wondered if I was negotiable on my commission. This is the point where most agents have that Deer in Head Lights look. Oh no! I just got a pay cut!

For those of you who don't know, although there is a common amount of commission that many listing agents charge, typically 6% of the final sales price. The amount is not regulated and is instead determined by the listing Broker and the seller.

My agents occasionally call me and ask if they are allowed to do a discounted listing or reduce a commission for a long term client. The answer is absolutely! However, before you do so give yourself a minute to determine if that's your best move.

I have certainly reduced my commissions for clients. I have a previous seller/buyer now ready to sell/buy again. Am I going to reduce their listing side commission on a two sided transaction for repeat clients? Of course! Reduce my commission to save a seller from foreclosure when we are squeaking by on a payoff? Yes, to get the deal done I have done it. I'm not greedy but....

Back to Mindy. We left off after I gave her a very simple listing presentation, I had been told that I was competing with other Realtors for the listing and I am faced with taking a pay cut to get the job.

My response:

“Mindy, you are smart for asking because commissions are negotiable. However, how would you feel if the person who is supposed to be negotiating for you wasn't even able to negotiate effectively for themselves? No, I will not reduce my commissions. But, if you hire me you can rest assured that I will work just as hard for you and your bottom line as I do my own.”

Guess who got the listing... and a full commission.