Real Estate 033: What is Driving for Dollars?

For investors who are just starting out, there are many great options to gain experience and get your feet wet with little to no money out of pocket. I recently attended a 3-day real estate investing bootcamp where they introduced various concepts from buy and hold, fix and flip, wholesaling to multifamily. One of the strategies mentioned during the bootcamp was "driving for dollars".

For those who are not familiar with the term, driving for dollars describes a method whereby investors drive around neighborhoods and look for properties that look distressed or vacant and contact the owner of the home to make an offer on the property. You may have seen these types of homes in your very own backyard. They may have broken/boarded up windows, tall grass, and no signs of tenants/homeowners. This is a very manual method of lead generation, and as you may have guessed, not the most scalable and time efficient method either.

Wholesalers typically may use lead generation software to identify non-owner occupied homes that are in foreclosure, financial distress, short sales, FSBO (For Sale By Owner) among others to conduct their direct mail campaign and qualify leads. However, sometimes people hire others to assist in their efforts. A subset of driving for dollars can be referred to as "bird dogging", where these individuals find the distressed properties during their drives, and send it to a wholesaler or investor willing to pay for that lead. 

Note: Please make sure you do your proper due diligence and check with local laws and regulation to ensure that what you are doing is allowable/legal. Varies by State.

Once you have found a lead, you now need to contact the seller to figure out their motivation and "qualify" that lead. Lead qualification can quickly be done with three questions:

1. Tell me about your property - Let the seller do the talking, and you will realize they may sometimes reveal much more than you sought. I have often encountered sellers disclose the amount of debt (e.g. line of credit, mortgage) remaining on the home, personal distress (e.g. death, divorce, or health issues), and other information that will help you understand the seller's motivation as well as strategies to purchase the property. For example, a seller looking to quickly move to another state may entertain a buyer taking over the property "subject to" the existing financing. On the other hand, a seller needing to pay off an existing debt may consider a full payment of the existing debt, and owner finance the remainder of the equity.

2. What would you like to be the outcome? - This question will reveal what the seller has thought of in regards to terms and price. If you listen attentively, you may find the seller negotiate against themselves and give you more equity that you thought possible. Remember we are looking for sellers that need to sell, not want to sell. 

3. If we were to reach an agreement, how fast do you want to close? - This question will separate the tire kickers from the motivated sellers. If a seller response with "less than 30 days", this is a sign that they are willing to hear reasonable offers and proceed with the transaction. The last thing you want to be doing is deal with sellers who simply "want" to sell may throw out unreasonable terms or price that eventually waste your time.

Once you have qualified the lead and negotiated the deal, place it under contract and control the deal. Maintaining control of the deal is the most important part. Once you have a good deal in your hands, now you have the option to use various strategies such as wholesale, fix and flip, or buy and hold. Since you have performed your own lead generation efforts without a middle man, it is more than likely that there is extra equity in the deal. In conclusion, driving for dollars is a great way for people who are starting out to network with other investors by sending them leads, and or acquire their own property with little to no marketing costs upfront.

As always, please make sure you do your due diligence and talk to your CPA/Attorney/Financial Adviser before making any investment decision.

Good luck!

Book Review 011: The One Thing by Jay Papasan

The ONE Thing: The Surprisingly Simple Truth Behind Extraordinary Results

The One Thing, by Jay Papasan and Gary Keller, talks about their journey in overcoming issues with focus and creating better habits. They discuss the idea that multitasking isn't as productive as some people make it out to be and maintains that success requires long periods of laser-like focus, and not scattered swats. Papasan states that if you focus on the "One Thing", everything else will fall into place.

By prioritizing on "One Thing", it allows us to get more done in a day when compared to to-do list and multitasking. Adding more projects to your list without cutting others will negatively impact your results, health, and relationships. If you want to achieve your goals, Jay Papasan reminds us that it actually takes subtraction and focus, not addition.

Papasan tells us that living according to the "One Thing" mentality is rather simple. The more difficult area is to ignore the "conventional wisdom" that we have been told all these years. There are so many myths and straight out lies about productivity that sound reasonable, but when tested against results, simply do not work out.

For many of us who work in Corporate America and have a W2 job. There are often talks of finding a "work life balance." Papasan tells us that work life balance is a myth, and we need to implement "counterbalance" to lead a life of significance and meaning as we strive to adjust our priorities to focus on the most important tasks at hand.

The main theme of this book is that the best way to get the answers you seek is by asking the right questions. Papasan encourages the readers to ask the following question: “What is the one thing I can do such that, by doing it, everything else will be easier or unnecessary?” This is a simple question, but not an easy one. It provides both an overview and a laser focus on what you must do today to achieve your one thing. The question propels you to go beyond simple tasks on your to-do list and directs you to what is most important, that “first domino” that will make everything else fall into place.

Favorite Quote: “Knowing when to pursue the middle and when to pursue the extremes is in essence the true beginning of wisdom. Extraordinary results are achieved by this negotiation with your time.”

Asking, “What’s my one thing?” defines your “big one thing” by prompting you to craft a conceptual path for your career, your business and your personal life. Asking, “What’s my one thing right now?” reveals the “small one thing” that drives your daily activities. This puts your top priority at the center of your focus and leads you to a productive workday and a properly focused home life.

Papasan challenges us to identify our priority each day and focus only on the present, the only moment you can affect. Stacking upon these moments leads to success, because most people work harder for present rewards than for the future. As with dominoes, visualization helps, as does writing down your goals. People who write their goals are 39.5% more likely to accomplish them than people who don’t.

Key ideas:

• Multitasking and following long to-do lists pose the biggest obstacles to achieving your goals.

• Align purpose with your one thing to bring you clarity and happiness.

• Your purpose will direct your single priority and inform you on how to spend your time.

• Learn to say no and accept the chaos that accompanies any pursuit of greatness.

• Create an environment that supports your goals.

• Take care of your health with good food, exercise, family time and sleep.

Hope you enjoy this book!

Click below to get your own copy. See our affiliate disclosure here

The ONE Thing: The Surprisingly Simple Truth Behind Extraordinary Results

Real Estate 032: Bookkeeping Tips for Rental Properties

If you are like most real estate investors, you may find joy in the "hunt", finding deals, networking, and growing your portfolio. A few handful will admit that they enjoy the administrative tasks that come with being an entrepreneur. Now that the initial tax filing deadline of 4/15 has passed, I wanted to share some best practices when it comes to bookkeeping and maintaining good records of your deals.

As much as we focus on the numbers and return on our investment. Not many talk about the money that may potentially be left on the table because of bad and/or inaccurate record keeping. Real estate investors have a distinct tax advantage when it comes to buy and hold rentals, and missing out on deductions directly correlate to a reduction on your bottom line. Below are 4 tips on bookkeeping and maintaining good records.

1. Use cloud storage to maintain your records

Nowadays, there are so many tools to help us keep accountable. Software such as Box, G-Drive, Dropbox, and others allow entrepreneurs to stay organized. Most have free basic accounts with 10-15 GB of storage that should be more than enough to store things such as receipts, purchase agreements, inspection reports, appraisal reports, warranty deeds, lease agreements, financial statements, and much more.

Good record keeping will help you defend yourself during an IRS audit, reduce CPA fees/costs, and ensure that you take all the deductions and credits you are entitled to as a real estate investor.

2. Utilize a checklist 

Apps like Google Keep, Trello, and Evernote have made it really easy for investors to create systems and processes to make sure that their business runs like a well oiled machine. With 15 deals under my belt, I still do not feel like I am good enough to "wing it". As such, I use buyer scripts, and purchasing checklists when I am making offers and closing deals.

I personally found that Trello is fantastic at creating checklists and notes for me to ensure that I cover all my basis as well as stay productive by prioritizing my to-do list. Below is an example of my "Real Estate Kanban Trello Board" that I use whenever I am closing on a new rental property.

3. Prepare timely financial statements

In addition to learning about the basics of bookkeeping such as the balance sheet, profit and loss statements, and rent roll, its equally as important to make sure that these are prepared and reviewed timely. Many investors wait until the last minute before tax time, or update them every couple of months. By not staying on top of your income and expenses, you may be exposing yourself to increased losses. For example, you may have not realized that the utility bill on a vacant home has tripled in a couple months which may signal a leaky pipe not properly winterized.

Whether you are using an old fashioned excel spreadsheet, rental management software such as Quickbooks, Buildium or Stessa. As you grow your portfolio, you may want to consider outsourcing the bookkeeping function to a virtual assistant or CPA firm so that you can focus on the most important part of your business: marketing and raising capital. Regardless of which path you take, best practice is to review these transactions on a monthly basis.​

4. Use a separate bank account/credit card

During my first year of real estate investing, I made the costly mistake of using my personal checking account and credit card for rental property related income and expenses. I did not have an LLC at the time, so I did not want to deal with the hassle of owning multiple cards and accounts, and also figured I would take advantage of maximizing the spend on my travel reward cards.

I quickly found this to be a time consuming mistake when combined with the fact that I did not review my statements on a monthly basis. This lead me to review over 1,000 rows of transactions online with only a couple weeks until the tax filing deadline. Even after going through the final list twice, I still couldn’t shake off the feeling that I may have missed hundreds of dollars worth of potential deductions simply because I lumped them in as a personal expense.

I have since created a separate business checking, saving, and debit/credit cards to handle all income and expenses related to my rental business. Furthermore, I created a separate Personal Capital account that aggregates these transactions on one excel form to be used during the bookkeeping process.

As always, please make sure you do your due diligence and talk to your CPA/Attorney/Financial Adviser before making any investment decision.

Good luck!