“Luck is what happens when Preparation meets Opportunity” yields 95% ROI in less than 3 months!
Part 1 of 2:
This quote by Seneca, a Roman philosopher from the mid-1st century AD, has been one of my favorites for years. Some variations have spun off from it over time, one of which I tweeted last week at( www.twitter.com/TheRealMikeLima ). It’s a great saying because it reminds us that we create our own ‘luck’ based on the things we do, or do not do. Whether you’re just getting started in real estate, or whether you’re an experienced investor, this advice is sound.
But never did this phrase resonate so strongly with me than it did in my early days as a full-time real estate investor. That’s when I first seized the meaning of this saying and put it to quick and successful work.
It happened in January 2004, when I was still a “rookie” investor. It had been only 8 months since I had left the corporate world, after 18 years of “working for the man”. I had been fortunate to gain a wide variety of experience, with 5 years in public accounting for a huge CPA firm; 6 years as the Corporate Controller and Director/VP of Finance for a $100 million consumer products company; 3 years gaining Sales/Marketing/Operations experience with a Fortune 500 technology company; and then 4 years as COO/VP for an international software company. My jobs took me to many places, here in America as well as overseas, including Europe, Asia, and Africa. I made a good living, averaging 6-figures compensation plus expense accounts, medical benefits, 401k contributions, and the like. But I was still “working for the man”. No matter how well I performed, the company would receive the vast majority of the dividends for years to come. I made a decent living, but didn’t have the luxury of significantly improving my lifestyle or controlling my own schedule. So when the opportunity presented itself, I began earnestly building my new future, and that started with a real estate shopping spree in mid-2003.
At the time, I had been a full-time investor for less than a year, and a part-time investor since 1992, and while I had already done 25+ deals, they were all traditional buy-and-hold transactions. I would buy the houses below market, get them into rent-able condition, and then find lease or lease-option clients to cover my mortgage (and provide some cash flow) while I built up equity. I had yet to step outside of that comfort zone, even though I had read about the many other ways one can make money in real estate. It’s one thing to read about it, but quite different to take the plunge and dive in. What if I missed something in my analysis? What if I don’t have the correct documents to protect me properly? What if….???
Maybe that was my collegiate and corporate brainwashing coming out– get education, then analyze. Make a list of all the downsides, and then analyze some more. Paralysis by analysis can be the result.
But my corporate and fiscal background did provide me with many tools which, when drawn upon successfully, would lead me to success within real estate. One such tool was the foresight to plan and prepare for the future. I had been diligent about building a strong FICO (credit) score of ~ 800, which served me well as I purchased and financed many houses the year before, quickly amassing a $3 million portfolio. I had also prepared by selecting a strong bank (Wells Fargo) and developing a good relationship with them. I had become a preferred customer of the bank, which I leveraged by asking them for an unsecured line of credit (LOC), and they gave me a $35,000 line! That meant instant access to cash if/when I needed it. An unsecured LOC is not backed by any collateral, such as cash in the bank, or property, and thus it is harder to obtain from a lending institution, and the interest rates are higher. My unsecured LOC carried an interest rate of about 12%, which wasn’t the cheapest money, but was still a lower rate than nearly all credit cards offered, so it made good sense to have it in place, just in case an emergency or opportunity presented itself.
In January 2004, such an opportunity did present itself, and I was prepared. A business acquaintance, who later became my business partner (Sean Terry), came to me with a deal that he was involved in. Sean had a very different background than I did. Rather than going to college and climbing the corporate ladder, Sean was busy climbing real rope ladders and trudging through muck as part of his Marine Corps training, before moving on to start several businesses in true entrepreneurial fashion. The Marines taught him to essentially disregard fear, which served him well in these entrepreneurial endeavors. In this case, Sean was working with another investor and they had found a below-market house in a nice neighborhood, where remodeled homes were selling at good prices. This house needed to be fully renovated — including a new roof, new kitchen and baths, more livable square footage, a more open/efficient floor plan, new flooring and paint, and new landscaping — in order to fetch their targeted market pricing and profit goals.
They had purchased the property with hard money (translation = private, high interest rate financing), and were halfway through the remodel. But their extra cash was tied up on other projects, so when the General Contractor fell behind schedule and behind budget, they didn’t have the additional cash reserves needed to service the hard money debt and finish the remodeling project. That’s when Sean approached me and offered me a great deal if I could inject $25,000 of quick cash. (Hmmmm, I thought…”Luck is what happens when Preparation meets Opportunity”).
In exchange for the $25,000, I was offered a return of $5,000 on my money for a 6-month promissory note, plus a one-quarter share of any remaining profits on the project, all to be paid when the house was completed and an exit strategy was realized. This was potentially a sweet deal, but there wasn’t time for procrastination, as the parties needed the money fast and were undoubtedly seeking funds from other sources in parallel. So I knew I had to assess the risk and make a decision quickly…
Part 2 of 2 is coming tomorrow.
Make it a point to spend a few minutes this month to prepare yourself for whatever it is you’re interested in, so you will be ready when opportunity knocks. If you are interested in investing in real estate, take the preliminary steps to get pre-qualified with a lender, know your FICO score, line up traditional and creative sources of capital, and identify people whose knowledge you can leverage to increase your chances of great success. I will launching a step-by-step investing series on this Blog, starting next week, so be sure to check back in or sign up for RSS feeds by clicking the button on the upper right corner of this page. In the meantime, feel free to improve your ‘luck’ by visiting Sean’s and my website, www.FortressInvestor.com , where we deliver turn-key, remodeled, cash flow investment properties below market.
Submitted by Mike Lima, real estate investor & principal of Fortress Investments 3, LLC.
- Getting Started in Real Estate requires Preparation, not “Luck” (Part 2 of 2) “Luck is what happens when Preparation meets Opportunity” yields 95%...