Vol 30 No. 6
PROCRASTINATION: THE EIGHTH DEADLY SIN
This letter is being written for those who are still waiting to get started on their personal paths to success. To that end, it’s going to be a little preachy. I hold Open House most Friday nights where subscribers are invited to drop in after work to punctuate the end the week. The composition of the gathering changes from week to week, so it provides for lively discussions of the weeks events, and the passing on of scraps of information separated by snips of juicy gossip. I recommend that you hold your own T.G.I.F. in your own area. It’s entertaining and enervating.
On a recent T.G.I.F. night, one person who was just getting started was asking a lot of questions of every one there. It was as if she were trying to learn all there was to know about investing in houses before buying her first one. She confessed that she had spent thousands of dollars attending seminars and buying “Home Study Courses” from a host of migrant gurus who had passed through town, and had been reading as many books as she could on the subject, yet hadn’t actually done anything yet to put all this information into practice.
I think she is like a lot of people who want to get into real estate, but who somehow don’t quite ever take the first step. It has always been a mystery to me why people go to a lot of trouble and expense to try to learn something of value, yet stop dead when it comes to applying it for their own good. It may be that fear holds them back; or it may be that they just can’t make a decision; or it may be that they look at the house business as a sort of hobby like stamp collecting where knowing all about the subject is reward enough. No matter where the root cause of their inactivity lies, over the past few years, by not taking action they have missed out on possibly the best real estate market ever; especially for new comers.
Procrastination has probably cost more people more opportunity and money than any other thing. How many times have you heard people complain that their lawyer didn’t file critical papers on time, so they lost their case, or rights, or financial opportunities? Or, that they had to pay penalties and fees because their CPA didn’t get their tax return prepared on time? Or that their engineers and/or cost estimators didn’t get proposals prepared in time to make a bid on a big project? While these delays might have costs thousands of dollars, delaying getting into the real estate business over the past few years could have cost millions.
Consider this; in many areas of the country, from 2000 to 2005, while stock prices were steadily declining and mortgage interest rates were falling to levels not seen in 50 years, the prices of houses at least doubled with very low inflation. This means that a person who bought ten houses worth $100,000 each, sometimes with zero down payment, would have seen his investment increase by $1,000,000. Of course he or she would have had to have rented them out and managed to meet the cash flow requirements of holding them. When you apply this scenario to houses in many areas of the country such as San Diego that were worth $300,000, people who jumped in and bought ten houses would have made $3 million; and this actually understates the case.
The question you should be asking yourself today is whether or not you took advantage of this fantastic market, or didn’t. If you didn’t, your next question should be why not. By procrastinating, you may have robbed yourself of what might well have been your best opportunity to become wealthy. Like many opportunities, it may not present itself again for many years; or it may repeat without warning. If it does, will you take advantage of it, or will you find an excuse to sit it out again?
DON’T LET UNCERTAINTY HOLD YOU BACK
There’s nothing at all wrong with getting your ducks all in a row before you start doing anything; especially when you start buying houses. On the other hand, there’s such a thing as paralysis of analysis where you spend so much time researching an investment that any opportunity disappears before you take action. This isn’t necessarily because a seller becomes impatient. It may be the result of some other action beyond your control. For instance, the interest rates could jump, or lender criteria could be tightened to the point at which you can’t get financing. Of course, it could also be because a competitor who was more mentally prepared to make a decision jumped in ahead of you and bought the deal you’d been researching.
Many times at foreclosure sales I’ve seen real bargains being returned to the lender because nobody would make a decision to buy them. Of course, like me, bidders might have already bought something else, and have spent all their money. But, in most instances, the house might have been outside their price range, or in a remote location, or in a bad neighborhood. All of these would certainly be reason enough not to buy at full retail prices, but when they go un-sold for a fraction of their true value, it’s often because people just procrastinate until it’s too late.
Napoleon once said that the difference between cowards and heroes was that heroes were able to overcome their fear. My new booklet entitled “Facing the Fear Factor” is based upon a survey of people who were endeavoring to get into the business of buying, selling, fixing, or renting real estate. They were having a hard time getting started because of a variety of fears including property condition and value, economic uncertainty, not knowing enough about real estate and management.
Many didn’t know how to raise the money needed to get into real estate. Another large component was reluctant to get into transactions that appeared to be risky. They were afraid of letting their families or investors down in the event of failure. And another group was afraid of rejection by lenders or owners to whom they might make offers. In my little booklet, I tried to show how to overcome the concerns that were preventing people from reaping the rewards that houses offer. Here are a few points I made:
1. There’s a relationship between risk and reward. The greater the reward, the greater the risk of failure or mishap that prevents one from achieving it. If you’re willing to trade yield for safety, lend your money rather than speculating with it.
2. Lack of practical know-how dramatically increases the risk in any venture.
3. There is no way to overcome lack of skill or experience without actually doing those things that give you both. It’s not possible to become proficient in real estate simply by listening to motivational tapes or reading of others’ exploits.
4. Lack of money and credit can be offset by know how and experience.
5. If you’re held back by fear of debt you may not be able to repay, don’t buy more houses than you can sell quickly. Option those you want to buy, and close your Options only after you’ve sold enough inventory to pay down worrisome debt.
6. You won’t disappoint family or investors if you don’t raise their expectations by promising more profit and/or income than you are sure you can deliver.
Regardless of the reason you haven’t started using you knowledge, unless you actually buy a house and sell it, or rent it, to make a profit, you can never reach the top. The sooner you start, the sooner you’ll get where you want to go.
IT’S TIME TO COMMENCE TO COMMENCE . . .
Even if you’ve studied real estate for a long time and have enough money or credit to invest yet still haven’t started buying houses, there may be other reasons for failing to get started other than fear. These could include family opposition, a demanding high salary job that leaves you no spare time, intense buying and selling competition that drive costs up and profits down, a shortage of properties that can be bought at bargain prices, etc. You should ask yourself whether or not anyone in your market is making money with houses. If they are, that means that they have somehow overcome all the obstacles that you perceive stand in your way. You should make a sincere attempt to find out how they did it, then do the same.
Family opposition can be a major obstacle. It’s much more difficult to reach the top without active family support, and you’ve got to make a special effort to get it. The key to doing this is to “sell” your vision of a future in which the family would be able to accumulate enough assets and income so that each member could reach their individual goals. The cost to them will be sacrifice and long hours, but the reward will be beyond anything that you could achieve as a salaried employee.
A good job can be a major obstacle to becoming a successful entrepreneur. The prospect of giving up a high salary for uncertain income that’s directly related to your work ethic and talent can be daunting at best. Unless you believe in your own abilities, and truly believe that you merit greater rewards than your current job can produce for you, it will be very hard to leave it. One way to bring things into perspective is to realize that high paying jobs can come and go without warning. Ask an Airline pilot whose pension plan has been turned over to ERISA; or high-tech employee whose seen his job exported to India. If you think these are exceptions, see if you can name 10 formerly salaried people you know personally who have a comfortable and financially secure lifestyle after they’ve retired. It should be clear that those who work for themselves to create a long term financially secure future have a much better chance of retiring rich than job holders; and single family houses offer a readily accessible route to wealth.
Every business has competitors. The more profit potential, the more others will try to exploit it for themselves. When there’s no competition, that’s a pretty clear sign that there’s not much opportunity to be seized. Entrepreneurs operate in a competitive environment most of the time. The way to beat the competition is to draw upon your own unique talents to find ways to do things in your own unique way.
If you think houses are priced too high to make them feasible as rentals, doesn’t that mean that landlords aren’t making any money? Clearly, something is wrong with this reasoning, because many landlords are thriving today. The key is that they are finding ways to finance their purchases without using conventional loans. Some are using Lease/Options. Some are sharing profits with investors who are putting up the needed cash. Some are using creative seller financing that provides cash flow. The point is, that they are overcoming an obstacle that you are using as an excuse to hold you back. The solution is to create new ways to finance and manage houses so you can get your piece of the pie.
Waiting for the market to come down so you can buy at the bottom, or waiting for all the potential risks and problems to disappear really means that you are willing to give up all the profit you could earn and the appreciation you could get with houses in the interim. If prices are too high today, what will make them lower tomorrow? If they keep going up, wouldn’t you make more money buying today?
Without making the decision to actively start building equity, this time next year you’ll be in the same place lamenting the fact that others seem to be getting ahead while you’re just treading water.
THE SOONER YOU GET STARTED, THE SOONER YOU CAN QUIT
I joined the Army Air Corps a month after I turned 17. I finished 20 years and started drawing a pension by 37. I helped build my first house at 22. I bought my first waterfront lot at 23. I built my second house at 26. I bought and paid off three houses, and become a landlord, by age 27. I closed down my Brokerage office, retiring a second time at 45 living off rental income.
There are plenty of people who exceeded by far anything I might have done at an even earlier age; but like me, most of them began at a young age to earn the success they finally achieved. You can’t recapture those years that you may have let slip by while you got ready to get started. You won’t be able to recapture 2007 if you allow it to pass without taking that first step, and as many succeeding steps as it takes, to get what you want out of life.
At the risk of negating everything I’ve said because what I say next will be so self-serving; one of the best ways to catch up some of the years you’ve let slip away is to learn the essentials of the business from someone who has been where you are, and who has arrived where you want to be. One of the ways to do this is to read as much as you can of what they may have written. The problems is that your choice will be limited. Very few worthwhile books on real estate and finance were written by people who actually earned their success doing what they have written about.
Another way to make up lost years is to attend seminars that focus on education rather than on motivating you to buy something. When I began, I really struggled over investing $65 for a six day course presented by the Graduate Realtors Institute. Once I saw how much I could learn, I never looked back. In 1974 alone, I attended 19 seminars, most of which cost more back then than mine cost now. I set a cardinal rule for myself: I had to recoup my costs for each seminar by applying something I’d learned there before I would allow myself to attend another seminar.
This restriction had the dual effect of forcing me to do more, and to earn more, by putting my new found insights to work. Another completely unforeseen effect was that frequent attendance at seminars broadened my circle of like-minded aspiring associates whom I could share advice and counsel with, and enabled me to earn much more because I knew more than my competitors who didn’t want to invest the time and money required to improve themselves. They remain mired in the trenches trying to out-work their competitors while I’ve moved onto much greener pastures; all because I set out to be the best I could be by learning as much as possible.
Over the years, a tremendous by-product of my seminars for attendees is the opportunity to network with others before, after, and during classes. To that end, I’ve always tried to incorporate social gatherings with the seminars. The problem was that the group dispersed quickly after class, limiting the amount of information attendees could exchange. They I discovered that people who attended seminars held on cruise boats could remain in close contact with instructors and other attendees day and night for the duration of the cruise. It didn’t take people long to see that the cost of the cruises was little more than the cost of attending a seminar in a hotel, but the benefits were multiplied many times over.
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