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The Shotgun Investment Strategy

March 8, 2019 by  
Filed under blog

In my opinion, and from my experience, the best type of asset that lends itself to forced improved value is good ol’ real estate, and specifically properties that need a face lift. These are beat up houses, duplexes, apartment buildings or what I have often refer to as dirt bag properties.

The key is to just do a face lift, not perform bone surgery, so you would need to find properties that are run down mainly on a cosmetic level. You really don’t want a property that needs to be fully rewired, have plumbing pulled, or the foundation replaced. I look for properties that haven’t been painted for 25 years or the front lawn is dead and the fence is falling apart. It may just need new carpet and window coverings to turn it around. Those kinds of properties can make you a fortune and can do so in a few short years.

I do want to add that when I was introduced to leverage, I was a stock broker. I began trying to use leverage with stocks and bonds, but I found out very quickly that the real problem was I really couldn’t fix up a stock and I didn’t have any control over the company whose stock I was buying or the stock market itself. I did, however, have some control over a little beat up house that I would buy, even though that is where the real work began.

Once you have found the dirt bag property, the next big chunk of work is actually doing the fix up to greatly improve its value and give you those big fat returns on your invested dollar. So how do you find those fixer uppers and exactly what kind of work does it take?

There are several ways this can be done. You could drive through the right neighborhoods that are a bit run down and in your price range, but that is the hard way to do it and it takes a ton of time. Since time is one of those things that none of us seems to have enough of, I recommend what I call the shotgun method. The concept of a shotgun is that when a hunter shoots at a bird the shotgun blasts hundreds of BBs that spread out as they speed toward the target. Most of those BBs miss the mark but it only takes one or two BBs to bring down the target. Likewise, my shotgun method of finding the right properties is very efficient and a real time saver and it only takes one or two hits to score your target.

All you do is use the internet to observe all the for-sale properties that even roughly fit your specs and then make low ball offers which would be around 20% to 25% lower than the asking price. You do this without even driving by the property. The real key here is to be sure you have a “subject to” clause in your offer, which basically says that this offer is good only if certain conditions are met. Those conditions can be acceptable financing or even something simple like “subject to my spouse or partners approval.”

So now when you shoot your shotgun at many dozens of properties each week or each month, you only get in your car and drive by and/or do an inspection after you get a counter offer or, sometimes, an actual acceptance on your super low-ball price! It does happen once in a while!

Using the shotgun method works if you make enough offers. Eventually, you’ll score a property and then the physical work begins. It’s not easy but it’s simple and, most importantly, increasing its value is within your control.

Leverage to Lift Your Profits

November 7, 2014 by  
Filed under blog

Today I’m going to continue talking about making those huge returns that I touched on last week. Remember, with only a $30k salary and saving just 10% for only 5 years, you can bring in as much as $21 million dollars by age 70! How is it done?  It’s done by using two different types of leverage.

No. 1: Financial leverage. This is Other People’s Money (OPM) as in mortgage loans, personal loans, signature loans, loans from family or friends, or even through having family and friends as partners.

No. 2: Labor Leverage. This is Other People’s Efforts (OPE). You bring on other people, including employees, part time contract labor, day laborers, contractors and the like, to do the fix up work that will create added value in an asset.

Basically what these two types of leverage can do for you is help lift something that is bigger than you can take on yourself. To paraphrase what Archimedes said, give me a long enough lever and a place to stand and I could by myself lift the earth.

Using these two levers is exactly how it is very possible to receive a return of 15% or 20% or even more, turning a meager income of $30,000 into $21 million! The math is pretty simple. As I said in my July 25th blog, if you go out and buy a $500,000 dirt bag type property, one that needs some fixing up, and do this with a $100,000 down payment (a down payment that itself may be borrowed) and then go out and use some OPE and improve the value by $50,000, that gives you a 50% return on your money,

But of course it will have cost you something to fix it up. Let’s say it cost $30,000 in material and labor to fix it up. That puts you at a 20% return. Now keep doing that on additional properties and you’re looking at a cool 21 million by the time you hit 70 years old. Let me emphasis that you can only do this if you control your own money and do the work or have others do the heavy physical work.

Anytime someone comes along and offers you a 20% or 30% return on your money without you doing a thing, grab your wallet and check book and run away as fast as you can.  These very high returns are possible but, for the most part, only with your efforts or the efforts of other people that you control.

Think of it this way … if you are making 30% or more on most every deal you do, why would you go tell others about it? Wouldn’t you just borrow more money at 5% or 6% and take home the difference? You certainly wouldn’t give someone else a big fat return of 20% or 30% in passive income for not doing a thing to help.

I’m not saying these returns are easy and take no effort and there are other details such as income tax that will eat into that profit (although there is a way–see the IRS 1031 section of the tax code to help delay some taxes) so these numbers aren’t exact. But what I am saying is that it doesn’t take as much savings capital as most people think.  In fact it takes relatively little savings to reach some very big financial levels.

By the way, I’ve had more than a few deals that have topped the 100% return level. Compound that for a few years and your eyes will pop out! That’s the potential. Now, doesn’t that get you motivated?