A Blog, A New Day

We just finished doing an in-house renovation of our blog. See websites are much like houses, they require maintenance, utilities, and upkeep. We are punching out small items so if something doesn’t work, by all means, let us know. The goal of this blog is to “change the conversation” about investing in Memphis real estate. We’ve been around the country (and world) traveling, meeting with clients, and hearing stories (good/bad) of real estate investing. We hope you choose to participate in the conversation there

VISIT THE NEW BLOG

Click Here to Read More..

Facing Reality: Tenant Headaches

Amidst all the cheerleading by local Memphis wholesale ‘experts’ about how they have sold ‘x’ many properties, and the promise of ‘turnkey, headache free’ solutions, comes something unexpected:

Reality.

Time and again, at The Feol – Hinricher Companies we watch as investors who purchase through other wholesalers get caught up in the hype of cheap Memphis real estate, plunking down hard earned money based on promises of equity and cash flow, only to forget about such things as vacancy, maintenance, and appropriate rent ranges, and in doing so wake up with a little surprise known as 30 years of negative cash flow.

Has this happened to you?

I pray it hasn’t, and in order to help you avoid such situations I have put together a little guide to owning Memphis rental property that some of you may find enlightening, although it may clash directly with the snake oil you have been sold from wholesalers who are interested solely in whacking you over the head for a massive commission.

Rental Property Ownership: Guidelines

1) You will rarely, if ever, have 100% occupancy.

I am speaking from experience here, but let me say that, even when you think your portfolio is purring like a cat, there IS something unexpected around the corner. Last month, for example, I was riding high with 100% occupancy only to have one tenant declare bankruptcy and another have to get evicted for refusal to pay rent. The point? You have to accept such elements as an integral part of property ownership, and be prepared to deal with such things without getting emotionally involved. Such is the key to successful property ownership(and don’t forget good tenant screening!).

2) Rent ‘ranges’ are easier to have success with then singular rent values.

What happens if a wholesaler tells a new investor that a property should rent for $750? It is month one, and the new investor receives offer to rent the property $695. What does the new investor do? Well, of course he(or she) turns it down because they were told $750 was the rent, and they allotted for that in their cash flow figures, so maybe at $695 the numbers don’t work so well.

So they wait. And wait.

Finally, 3 months later, they take $675 because what REALLY happened was they were told(by a wholesaler, trying to make a quick sale) that the property would rent for $750, which was the quintessential high end, when really what should of happened is they should have been given a rent range of $625 - $725, and then all of a sudden $695 looks really good. In the meantime, they have serviced the debt for 3 months, which has eaten their cash flow for the next 14 months. Oh well, maybe they can be profitable in 2010.

3) You do not have to over - improve a house to get a great tenant.

Too many times, new investors come in and over - improve the house, trying to emulate the lifestyle that they would want to live in such a house. Really, I try to stress to new investors the importance of purchasing properties that need only cosmetic repairs. Why? Simply put, because it easier to paint, clean, and carpet than it is to do massive renovations and have to make the decisions involved(cognitively and monetarily), plus it is an easy guideline for what to do when a tenant moves out. Just wash, rinse, and repeat. So, don’t spend that extra money for granite countertops when formica will do.

4) Price is important, but location is superior.

Buy a house in a good area, that is friendly to tenants and able to provide the amenities necessary to attract a good tenant. In Memphis, I like to purchase near ‘optional’ schools, city schools that have a program for gifted students, admitted by intelligence test only. Why? Parents WANT their children to live in these districts, and are willing to rent these houses specifically to send their children to these programs. Caring parents = great tenants, and an ample supply of them. Don’t purchase a property based on price alone. Houses are cheap for a reason, and you need to investigate why they are cheap, and not just assume that it is because you are getting a good deal.

All told, I have told my wife to expect the ups and downs that rental property ownership brings, and in doing so, we see owning investment property as a truly long term investment, a game to be played patiently, with conservative approach and sound judgment. Remember, there are not always clear cut answers when you own rental property, but wise judgment and sound decisions usually are the keys to win the day.

Also, while it may be simply common sense, it is critical to evaluate the due diligence provided to you regarding a property you are considering buying. Look at the numbers given to you by your seller: have they been verified by experts in their independent fields? For example, has the estimate After Repair Value been validate by a certified appraiser? These are the questions you need to ask as you begin to construct the foundation of a successful Memphis real estate portfolio,

Click Here to Read More..

Just Announced, New Seminar: November 15th

Saturday November 15th, 2008

Church of The Holy Communion(St. Mary's School)

9 AM - Noon

Preparing Yourself For 2009 - Building a Successful Power Team

In the current changing financial environment, people are beginning to wonder if any investments can be successful or if you should just 'hole up' at home with your cash and ride the storm out. Fortunately, the good news is that real estate investing has NEVER been more alive and vibrant than in Memphis right now! But, you need to prepare yourself properly so you can take advantage of the inexpensive housing that is becoming available, even when credit is tightening up. Our hand picked panel of community experts and leaders will explain to you what, and exactly HOW, you need to prepare to be successful in this changing market.

Featured Topics and Speakers Include:

Preparing yourself through banking relationships: Speaker TBA

Working with a Realtor: How to take advantage of the opportunities the MLS offers: Speaker TBA

Understanding Appraisals: Whatjavascript:void(0) to expect as home prices fall - the world is NOT ending: Speaker TBA

Working with a contractor: Keeping them on a leash Speaker TBA

How to use wholesalers effectively: Speaker TBA

As always, workshop materials and breakfast will be included! We will be having a brief presentation from Save One Pets and will be trying to assist them as we continue in our mission of supporting small local charities through our educational seminars!

Click Here to Read More..

Embracing Destiny

Earlier this week I was talking to one of my mentors about success, and how it can be difficult at times to envision your success. Like, it is easy for people to think about buying houses but maybe it is more difficult for them to see themselves as a full time real estate investor. There is a significant difference between the simple act of purchasing a house for investment purposes and doing it successfully so many times that you can leave your job and live off of the income generated by such investments. The first one(buying a property) seems easy because it is a simple act that can be executed. The second one(becoming a successful real estate investor) is not simply something that can be crossed off a list – it’s win conditions are ambiguous at best, shadowed in the lines of success, failure and personal growth.

Anyway, I was talking about this with my mentor, very successful in his field of business, a very competitive one at that, and he said a few things to me which I found personally inspiring, and want to share with you today. First, he said ‘my father told me that success and luck don’t matter: work hard and continue to work, and in doing so you will find the success you are seeking.”

Now, that makes sense. Let’s throw away arbitrary standards of comparison and focus on ourselves. In doing so, if we work diligently, then we can potentially reap the success we are looking for to begin with. I like that idea. But, I like what he said next even better…


We were talking about the merit of a champion, what it takes to become one, to really excel in a field of your peers. The problem is, I think, that too often as children we are taught that if people are ‘good’ at something it is because they are ‘special’ and we are not. Often, we begin to believe that there is something supernatural about people’s success in any given field and it is almost like they were ‘destined’ to succeed, while the rest of us go on with the daily routine, waiting to hit the lottery or something. But my mentor Bernard said to me something fascinating, and I now share it with you. He said:

“You know Robert, at some point when all of the thinking and wondering about success is done, you just have to believe in yourself. You just have to believe.”

Now, I am coming to a crossroads in my life, and it has to do with this last statement. You see, I have been, like many people, so close to success, so many times, only to see it slip away. And, I think for the reason for this is that it was very difficult for me to believe that I was meant to be a champion. But I realized yesterday that maybe the difference between people who are champions and those who aren’t is that the champions realized exactly what they were before there was validation of their status. For example, at some point before Tiger Woods was recognized as the best golfer in the world he just did the same things he does today: hit balls, practice a lot and visualize about his success. My point is, he had the heart and merit(makings) of a champion long before he ever won a major. He knew he was going to be a champion. It was only a matter of time before everybody came along.

Fast forward to the world of wholesale real estate 2008. What we find is, among competitors, there is just so much cheering about how so and so is # 1, who has sold the most deals, and just lots of cheerleading and bullying about facts that are, at best, clearly unsubstantiated. At it was in this sea of cheerleading and saber rattling that I found myself at the Hudson and Marshall Real Estate Auction last evening in Memphis, surrounded by interesting people who did things in a very…well let’s say unorthodox…way.

It was my first auction. But I went there with a very specific purpose, and with very clear objectives in mind. There were three properties I was planning on buying.

I walked away with two.

I would have gotten the 3rd one but some jackass got really competitive and kept bidding up my bid(evidently this is common at auctions, obviously) to the point where the house was no longer a deal. And what was interesting is that I stopped bidding at 15k, and he was the only one left bidding but in the frenzy he kept upping his own bid, and ended up paying 19k. He felt like he was a winner, anyway.

The interesting thing though is this: when I left the auction, something in me clicked, and I began to realize that maybe the greatest gift I have ever been given is the art of finding deals. I think this skill had never really been praised in me, either by myself or people that I had worked with previously, but I knew at that precise moment that something had taken place, and I was finally realizing that, over 400+ deals later, there is a reason Ryan and I are transacting so much business. And, if finding deals that are great investment opportunities for clients is my small contribution to The Feol – Hinricher Companies, then I am ok with that. I think what I realized is that I have been doing this for a long time, but really playing it down, when I should have been focusing on it. As if finding deals was some byproduct of real estate investing, when in fact it is an incredibly critical and integral component.

So now, I’m on a different tack – focusing specifically on finding deals that are so incredible that investors will look at them and wonder why they looked anywhere else. I have come to accept who I am.

At some point, you just have to believe in yourself.

Click Here to Read More..

Acquisition Strategy: Dollar Cost Averaging

What is so interesting about real estate investing is that you can take techniques from other forms of investing and apply them, usually more profitably, to acquiring investment real estate. With that being said, dollar cost averaging is generally applied to the stock market, as defined below:

Dollar Cost Averaging: is an investing technique intended to reduce exposure to risk associated with making a single large purchase. The idea is simple: spend a fixed dollar amount at regular intervals (e.g., monthly) on a particular investment or portfolio/part of a portfolio, regardless of the share price. The premise of dollar cost averaging is that the investor wants to guard against the risk that the market may lose value shortly after making his investment.

Putting it into simpler terms, when you are buying stock in a company, if it doesn’t increase(suppose it decreases in value), then you average the cost of your dollars by purchasing more stock at the lower price. The theory is, if you have done your research on the company’s fundamentals, then you should have no problem buying at lower price, and should actually see it as bargain shopping. You get more of the stock you wanted, and paid a lower price.

Of course, that works if the stock price then proceeds to go back up. But, what if it goes down? Then, you feel like you made a bad mistake. “I never should have bought that stupid stock”, you say. “Now I have lost my money.”

So you sell. Then, 2 years later, the stock quadruples.

Fantasy? An extreme example, you say?

Perhaps. But take this scenario, and apply it to residential real estate. What if you could buy bargains, but they paid you valuable monthly dividends, giving you massive returns on your investment, and realizing 3x – 5x what you paid for them, over time, through historical appreciation?

This scenario is happening, right now, in Memphis. The house prices are actually falling a little. Yet, investors all over the country are running scared and hoarding cash. “Things are too scary”, they say. “Let’s hang on to cash”. And, credit seems to be getting a little tighter(can you say credit crisis?) So, why would an investor even consider, in this volatile environment, purchasing investment property?

Dollar cost averaging.

The prices in Memphis are dropping right now. Why? Is it because the properties are no longer sustaining their values? Not at all. Prices are falling in Memphis because the amount of foreclosures negatively skew the comparables and make it look like no houses are retaining their value. Often, when you discard the foreclosures, what you find is that recent normal sales are still strong - and that is very positive news.

Now, some readers of this will say “well, it doesn’t matter, appraisers can’t necessarily just ignore foreclosure comparables,” and that of course is true. But, it is also true that appraisers offer an opinion of what a property is worth, but the insurance professional has to furnish a number that is much more important: replacement cost.

Replacement cost is the total cost of reconstructing a home that has been destroyed. All insurance policies have to include the replacement cost, at least in their estimate – homeowners ultimately decide what they will insure a home for, but one thing is for certain: the replacement cost dictates what the actual cost is to furnish a replica of the home, including labor, and especially, materials.

With the skyrockerting cost of commodity prices today, real estate investors are given a pretty good tip about the fact that home prices in areas such as Memphis cannot realistically stay this low forever. The falling/depreciating dollar, coupled with rising commodity prices, clearly point to home values increasing in value, even if we see a short term decrease in prices. Naturally, at The Feol – Hinricher Companies, we advise investors to consider residential real investments for the long term. But, with that being said, even the intermediate term holds great promise if you do the following things:

1) Buy your properties correctly, with careful attention being paid to location, appraised value, amount of work needed.

2) Focus on purchasing properties as cheaply as possible. Often, you can buy two properties today for what you could have bought one for 2 years ago, and contrary to popular belief that is actually a good thing.

3) Look to construct a viable portfolio – don’t try and ‘dabble’ in the Memphis market by purchasing a single investment home and then letting it ‘work out.’

4) Use a team that is reliable and that you can trust. There are merits to using a company that offers a host of ’in - house’ services, such as overseeing renovations and providing property management. While this can, depending on the integrity of the vendor, be a workable solution, at The Feol – Hinricher Companies we believe that a jack of all trades is, generally, a master of none. We try to leave all of these things to experts in their respective fields. Either way you go, make sure you have the relationships in place to make a purchase and have peace of mind and an action plan if something goes awry.

Dollar cost averaging is an interesting concept, but the concept of timing is perhaps even more critical. For example, everywhere in the world right now(at the time of this writing), gold supplies are dwindling, to the point where Mints around the world are no longer making certain types of gold coins, yet the prices of gold keep falling. From a free market perspective, this makes no sense, but we know that the value of gold relative to the number of dollars in circulation(essentially, an undisclosed number since the discontinuation of the M3 report, reporting newly printed US Dollars in circulation) would be in the thousands of dollars per ounce – yet gold’s price today is about to drop below $800/oz. So, nobody really cares and points to the crazy markets, but bargain hunters who understand that, at some point, there has to be a correction in the market to commodity prices, are snatching up available gold(hard to come by), knowing that free market economic laws, while suppressed and manipulated by various financial/government institutions, will come calling some day. Memphis homes are identical in this way – there exists an incredible and robust opportunity for people who are willing to look, beyond the crowd, and take advantage of investment opportunities that make sense. The timing of the market and the price points make purchasing and constructing a portfolio in Memphis a logical and sound decision, nothing more, and nothing less.

The next time that you are considering making some investments, stretch the purchasing power of your dollar further – look to acquire assets as cheaply as possible, and capitalize on a robust rental pool to make some substantial gains.

Click Here to Read More..