We need to change the way we think about doing business in Real Estate.

I’ve met dozens of real estate agents and investors who make great money and appear to be very successful. There’s a lot of the same people who work 60 hour weeks, never see their (now ex-) spouses or children and are ultimately unhappy. It’s an industry which attracts money-hungry over-achiever types. This post and the ones that follow it are about looking at how I’m changing my business using ReWork to look at it piece by piece. If you don’t have a copy yet, go get one and read along.

Introduction

37 Signals is a small company that is intentionally staying small. There’s a lot to be learned from their experience in keeping your company simple and small. I’m the same way with my own business, both investing and in my work as a REALTOR®. I own relatively few investment properties and I have no desire to grow a giant Terry Paranych-type team.

They designed Basecamp when they didn’t like the industry-standard project management software. I decided to change how I run my business because I didn’t like what I see in the market. There’s a willingness to make decisions based on our own which I think Jason Fried and David Hansson share with me. I see lots of new agents base their business model on what they see other successful agents doing, copying the FSBO and MLS® Mere Posting discount-companies. It’s time to stop copying everyone else in a race to the bottom. I refuse to work at the WalMart of real estate companies, where clients just pick me off the rack next to thousands of other agents who do exactly the same things for $495.

It’s time to expect more from your REALTOR®. And it’s also time for REALTORS® to do more, be more transparent with their clients and adapt to the changing reality of the market in a way which brings more value than just cutting costs.

Small, Frugal and Profitable

You don’t need a big fancy car, suspenders and french cuffs or an army of suit-wearing and crackberry carrying flunkies. You don’t need a gigantic advertising budget and full-page colour print ads. You don’t need bus benches and billboards. You need to gut your business down to the studs and examine what the real core of the real estate business is. I already think I know what that is for me, but we’ll explore it together while we go through ReWork.

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I became licensed as a REALTOR® at the end of November. I got some systems set up in December and wrote handwritten cards to over a hundred of my friends and associates, then took the second half of December and first half of January off for the birth of my son. Since getting going it took me 34 days to get to 120% of what I now consider to be a full client load and still deliver what I consider to be great service.

It’s time for me to revisit my business plan and make sure I’m ready to deal with what I think is coming.  This book is helping to transform how I run my business, both as a REALTOR® and an investor. Rework is changing how I look at the Real Estate industry, and how I achieve the goals I’ve set for myself and my family.

For the next several weeks I’m going to do shorter posts reflecting on the chapters of Rework. The book itself is a series of very short (1-2 page) stories, making it very readable and utterly brilliant. To quote from one of the reviews (emphasis mine):

Its 270 pages are mostly white space and tangential illustrations;you get about 100 pages here. It doesn’t go into any depth, simply skimming the surface of very many different notions. Nothing here is new, it is 80% common sense and you can read most of it for free on the Signal vs Noise blog.

And yet I highly recommend buying and reading it. It will only take you a few hours and will enrich your business life. Why? Because you are stupid.

Its okay though, I’m stupid too; we are all stupid. We constantly forget what we know; we backslide; we lose courage. We listen to overpaid overfed corporate execs and their ghost-writers and don’t listen to what our sensible grandmothers tell us, and heck those grandmothers would never have let the economy go crunch.

So we need books that remind us what we already know to be true, and reiterate it a distinctive and friendly way so that remember it for a little while longer than normal.

This book does this so well that it sets the benchmark for slapping yourself in the face. Along the way it reminds you that you wasted several hundred dollars on wordy business books that told you what to do and how to do it, by authors who did a 180 a couple of years later.

If you don’t already own it, I’d suggest getting a copy, following my posts and also checking out their Signal Vs Noise blog. You can buy Rework on Amazon in hardcover, paperback or audiobook.

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Inspired by this weeks’s entertainment, I got thinking about the commonalities of real estate, economics and investment blogs, whatever their slant.

I think there’s a lot we can agree on.

Your house is not a damn ATM

If you put a HELOC (home equity line of credit) on your home, be damn careful what you use it for. Spending it on consumer goods, excessive renovations and entertainment are right out (forget about the 52″ plasma). Reasonable renovations and smart, careful investments can count, but you need to be cautious and a HELOC should never be your sole source of investment funds (see the next point).

Canadians need to save more

Our national savings rate went from better than 10% of after tax income in the early 90′s to only a few percent. We’re not as bad as our friends down south, but this is going to be a potential long term problem for many Canadians as we get older.

Live within your means

This shouldn’t surprise anyone, but it’s not quotes often enough. David Chilton, author of the Wealthy Barber, probably the best book on financial planning for retirement ever written, lives in a house of less than 1,000 sq ft (see the great interview on CBC’s The Hour here). I drive a used VW, live in an older townhouse and don’t really carry any consumer debt. I don’t really see that changing too much, except sizing up as my family grows.

Give money away

No one ever went broke by donating money to charity and it’s an important habit to get into particularly when you don’t have any money. 10% is a great goal, and you should also donate your time. If you want to make sure you’re hitting your 10% goal, try adding up your volunteer time at minimum wage or $10/hr and see what that does. Giving your time and talents to those who need your help when you barely have anything to give teaches us about what’s possible (and trust in God, but that’s another post).

Diversification can be a good safety net

There’s no doubt that your asset mix should reflect your goals and the time in your life. When you’re young (like me) and have few obligations, but high earning potential, you can handle more risk. When you’re getting to be 50-60 you should be looking for some more stable, fixed income assets with a lower risk profile. You should use the advice of a good financial planner. One big caveat on diversification though – as Warren Buffett says, “Wide diversification is only required when investors do not understand what they are doing.” Invest in what you know, and if you’re really serious about investing and building a business, keep to what you know. This leads us to:

Diversification is for the weak

Warren Buffett doesn’t buy tech companies because he doesn’t understand them. I avoid complex market plays (shorts, etc) because I’m not as familiar with them. I buy stocks I know and trust like Coca Cola, Cogent (makes some great fingerprinting hardware) but the majority of my active investing goes into real estate. I gained a lot of knowledge by osmosis, working on a team managing other people’s properties and because I made a point of learning as much as I could. The 3 years since I bought my first property have also been full of some great lessons.
If you really understand tech stocks, or mining, or real estate, put your money there. The nice thing about real estate is everyone has at least a little familiarity with it and we’re all capable of learning. What each person needs to decide (with some help) is what mix of diversification vs. single minded focus is right for them.

Look Behind the Curtain

There’s a lot of sources for information and opinion. You should do a lot of research on your own, and also pay for other people’s analysis. I trust REIN’s analysis more because they don’t sell real estate. Same deal with the IMF; they couldn’t care less if you or I buy another piece of real estate. I also listen to sources like RBC for their housing affordability index. Sure, they sell mortgages, and more activity in the housing sector is good for them. I think Garth Turner buries his good points in a lot of rhetoric intended to sell more books. Does it make their opinion worthless? No, you just take it with a grain of salt.

There’s a lot we can agree on, and a lot more that bloggers, professionals and friends can be doing to help people out.

Photo credit: Stuseeger

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There’s a scam that comes around every few years. You put an ad up for one of your units. Someone copies it, drops the price and ends up suckering someone out of a damage deposit or a month’s rent and running away. It’s the oldest trick in the book – sell something you don’t own. Here’s six tested and proven tips to help prevent people getting screwed and your name potentially being smeared by angry people.

1. Watermark your photos. Include your website and/or phone number. There’s a number of free options to do this, including the Picasa desktop app.
2. Pick a unique sentence that’s just in your ads and set up a Google Alert for it (in quotes). Then every time it shows up on the web you’ll get an email about it, which should only be when you put up a new ad. **You should also do this with your personal name and the name of your business.
3. Include several references to your name, phone number or website. This means in the body of your ad, not just in the fields where they say to put your name/phone number/email.
4. Inform your  caretakers or existing tenants when you’re advertising and if there’s a property that’s been hit by fraud like this. Also let them know when there’s people who are coming to view the suites.
5. Take your ads down when you’re done with them. This should be a no-brainer, but lots of people go for a shotgun strategy with their ads, meaning they’ll take forever to get them down. (You should be smarter and use a more focused approach to online advertising, but that’s another post.)
6. Include a link to your website and keep an eye on your Web Analytics. You should see each site under ‘referring sites’, or if you want to get sophisticated create URLs that label each site and then shorten them using a service like bit.ly so even if people share the link or copy and paste it you’ll get the referring information.

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You can have it cheap, good or on time. If you’re good, you can maybe have two out of three. You cannot have all three.

Cheap and Good – This will take a long time and you’ll likely end up doing most of the work yourself (assuming you’ve got some skills or like learning)

Cheap and On-time – You’ll get the suite filled, but usually for less rent or less resale, and you’ll have more complaints and more deferred maintenance.

Good and On-Time – It’ll be great, you’ll get things moving but it’ll cost a couple bucks.

I’m a fan of #1 and #3. I’ve seen to much crap and way too many management problems with #2. It’s just not worth what you save.

And don’t expect to get all three. It’s nice when it does happen, but it’s usually only one project in five or ten when you have solid relationships with your contractors and are working with quality properties.

Photo from Lenore M

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1. Call some FSBO‘s.
2. Go look at properties for sale.
3. Call your mortgage broker about new financing.
4. Check the renewal dates on your mortgages.
5. Call a friend who could be a JV partner just to catch up. Don’t talk about real estate (yet).
6. Sit down with your Realtor and define exactly what types of properties you want. Know prices, bedrooms, bathrooms, neighborhoods, amenities and transportation down to a very narrow range.
7. Check your records to see which of your tenants pay late on a regular basis. Call them up and see how you can improve the situation. (Online rent payments? Post-dated cheques?
8. Write some offers. Use a good backup clause and just do it.
9. Look at the cash-flow analysis from when you bought it. Compare it to the actual monthly expenses. Use that information to improve your next cash-flow analysis projection. I use different assumptions for repairs and maintenance depending on what reno I have to do and the condition when I buy it.
10. Find out what new rents on similar properties in your area are. You want to be reasonable. Don’t be the cheapest on the block; you’ll attract scum. Don’t be the most expensive, you’ll never keep it full. Be reasonable.
11. Make sure you’re advertising your vacancies on the best rental websites.
12. Go fix something. We call it preventative maintenance.
13. Do your ‘annual’ inspection of a unit. Decide what renovations might payoff with your exit strategy.
14. Run the numbers on a 3-bedroom townhouse (my favorite property).
15. Run the numbers on a four-plex.
16. If you’ve done #14 and #15, return to #8.
17. Take the time to learn more about a topic like commercial real estate investing, RRSP Mortgages,  Joint Ventures, Renovations, Rent to Own or Condo Conversions.
18. Write a story about one of your experiences: tenants, deals, financing, friends, people you’ve helped. Post it on a place like myREINspace or offer it as a guest blog post.
19. Make sure you know your tenants’ birthdays. Send them a $10 Tim Hortons’ gift card on the big day.
20. Make a list of all your properties and rank them from best performing to worst.
21. Try listing the worst performing one for sale. See if you can unload one of your dogs and move on to something better.
22. Go take some good pictures of a property.
23. Learn more about internet marketing.
24. Have some fun. Figure out how much you’d make if prices suddenly went up 30%. What if rents went up 20%?
25. Ask an experienced real estate investor if you can buy them lunch and pick their brains.
26. If you’re an experienced investor, offer your time to some newbies.
27. Remind yourself why you’re going to all this trouble.

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Your computer, your life and your business all need a restart every so often. Unload everything, wind down, unplug, go have a cup of coffee, and then fire things back up one at a time.

I just came back from one of REIN’s ACRE weekends, which is really Real Estate Investing 101 and 102. For me, it’s a great time to reset and re-focus what I’m doing to drive my business forwards so I can have more freedom and time with my family in the future.

These are seven steps to reset your own business.

Revisit your Personal Belize – This is your raison d’être for investing in real estate. I’m doing it because I want to be a stay-at-home dad, or at least be able to devote as much time to my wife and future children as possible.

Do a Financial 360 – Figure out your assets, debts and available credit. Examine the loan-to-value ratio on all your properties, the financing you have in place, including making note of when your mortgage renewals are. Check the current rents, market rents and when the next possible opportunity to raise the rents are.

Pull your credit report - I use Credit Alert which sends me regular updates and notifications. You can pull your bureau for $23.95. Take the time to repair any problems with old collections, check for entries which don’t belong to you and make sure your addresses are up to date.

Call your mortgage broker – See what financing you can get, see where rates and terms are heading and start a discussion on your goals. As Peter Kinch is fond of saying, you need a portfolio approach, not just a transactional approach. Talk about how you’ll be able to buy your next 10 properties, not just your next one.

Go have coffee with your Realtor and Property Manager - Find out where the market is, what opportunities are out there and what’s happening with rents. Help your property manager out by sending them a copy of the rental site ranking report.

Call some FSBO’s - The for sale by owner properties are often your best opportunities to find motivated vendors. They’re great to buy, and they’re also a great way to find out how the market is doing.

Write some offers - It’s the critical success event in real estate investing. You can find all the money, management or tenants you want, but without writing offers and buying properties, nothing will happen. I went and looked at three last week and I’m checking out three more this week. I’ll write 2-3 offers between this week and the weekend. All else will follow.

Photo Credit: http://www.flickr.com/photos/arenamontanus/ / CC BY 2.0

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Well, Saturday morning in Calgary will find a bunch of people in a room with Russell Westcott, Don Campbell and a bunch of exceptionally successful real estate investors. I wish I could be there, meeting people, seeing what’s new and being inspired. It’s an ACREs (Authentic Canadian Real Estate Seminar) weekend, put on by REIN.

If it’s your first time at at REIN event (which will be most of the people there), here’s a selection of the over 300 posts on my site. It’s a mix of the most popular, most controversial, most useful and most personal. Enjoy!

My first ACRES/Quickstart weekend, my personal Belize (vision) and family.

• My Personal Belize – a vision statement, expressing what I want my life to be like in the future and how real estate will help get me there. It’s working out pretty well, as Megan and I have been in Ireland for the last two months…
• Kudos to my parents, who have been a major influence on my journey. And Mom and Dad enjoying a bit of their personal Belize.
• Accepting real estate’s place in my life and on this blog.
• A guest post from my younger sister. You’ll start to get the feeling that real estate is something that’s been baked into my family for quite a while (four generations actually).
• And a some words on picking a niche. Particularly apt with all the Ron LeGrande stuff going around right now: What Do I Do? and Define Your Investing Niche

Tips, Tools, Mistakes and Systems

• Six Steps to Finding Cashflow Creek
• The Black Triangle of East Edmonton Eats New InvestorsEdmonton’s Black Triangle Presentation
• The Top Ontario Rental Websites – Fall 2009
• Canadian Rental Website Rankings – June 2009
• Get Used to Scum
• Canadian Internet Marketing Resources
• 6 Things You Should Do To Your Mortgage When Interest Rates Drop

Property Management Experiences and Tips

• What to do with dead tenants
• Need a Property Manager? 10 Tips to Land the Best!
• Three reasons to put the phone down instead of calling your property manager
• Bugs in your Buildings? (Protecting your Real Estate Investment if you Self-Manage)
• How to Cut Vacancies by 50%
• Property Mangement Rocks!

Joint Venture Partners

• Five Ways to Flush $50k
• Six Reasons No One Wants to Buy Your F-ing Real Estate Investment

Business, Stats and Misc

• 20 Years of Detailed Edmonton Real Estate Prices
• Economic  – What Stats Do You Want to See? and everyone’s responses.
• Mike Rowe on Hard Work and Dirty Jobs
• 8 Essential Real Estate Investment Business Processes
• More Fun with Stats- Monthly Edmonton Statistics
• Edmonton Real Estate Prices Since 1962
• Why Real Estate Works in a Recession
• 8 Tips for Recession Proofing Your Real Estate Business Model

And some roundup posts:

• 2008 in Review
• Most Popular Posts of 2008

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Tom and Nick Karadza run a Toronto area real estate brokerage that does a lot of investment-related work. They’re investors themselves and I know that some REIN members out east know them reasonably well. Some of their stuff is a little too over-the-top, but they sure know their stuff.

Nick makes the good point in this video (orignially posted here) that if your business is investing in real estate, your customers are you tenants.

His experience (like mine) of going to the Apple store to look into buying a Mac is a great introduction to the extraordinary customer service they offer.

What type of atmosphere or culture are you creating in your real estate business? Do you work across a big intimidating desk? Do you work side-by-side with your tenants? What types of things are you doing in your renovations that creates that type of environment?

Nick, buy a MacBook pro! I did, and I wouldn’t go back in a million years. Then again, I haven’t gotten VM Ware to work yet, so I don’t have Windows running on it yet.

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The book I’m reading right now is called Design Matters: How great design will make people love your company. (In North America it’s called Do You Matter? and you can buy it on Amazon here)

The areas they’re talking about in this book and many other similar books are called Interface Design and Customer Experience design. The idea of customer centric design isn’t something we talk about very often in real estate circles, no matter how much we think about our investors. It seems to be particularly problematic in US real estate circles where there’s a significant hard money lending industry. In Canada, there’s a much stronger emphasis on personal or private loans, and most of us experience a closer personal relationship with our investors.

REIN does one of the best jobs I’ve seen for creating an experience out of investing with the Personal Belize exercise. Helping people create a vision of what their goals feel like is an important lesson.

To apply this design/experience mentality to our investors we have to look outside the typical issues we concern ourselves with. This is more than doing your ROI and cash-flow calculations properly. It assumes your management, book-keeping and accounting are figured out.

It’s about how the experience, from purchase to return, feels, smells, sounds and tastes. Approach it from the JV partner’s side:

- How does it make them feel when they receive statements, emails or phone calls from you?
- Does the layout of your emails, statements, letters, website and other marketing create a feeling of unity? Conversely, when you send things out in 3 or 4 different formats/fonts/colours does it create feelings of chaos in your investor?
- Is there an advantage to physically taking your JV partners to the properties? How will those experiences make them feel? Does it fit with their goals? Is it a good use of their time?

Your real estate business is about more than properties and numbers. It’s about relationships and if, like most of us, you don’t have all the money you need, your business should be designed from the perspective of your investor.

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