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The last half of the title came to me as I recalled one of Johnny Carson’s most memorable lines. He was talking about how economists are supposed to be the smartest kids in the room, but at the same time can’t agree with each other what day it is. He said, “If we laid all the economists end to end around the world…it would be a good idea.” (Insert rimshot here.)

There are two basic schools of economic theory — Those who believe economies can be centrally controlled, engineered if you will — And those who believe economies should be as free as prudently possible, with regulation in place to abort fraud etc., i.e. they avoid central control as much as possible.

The engineers think they know better what ‘needs’ to be done, while consciously eschewing human responsive behavior as part of their equation. They believe if you raise/lower taxes the result will be arithmetic in nature, and that you and I won’t modify our behavior in either circumstance. That’s surely an oversimplification, but accurate.

The free market crowd says if you raise taxes you slow economies down, and if taxes are lowered more jobs are created due to more capital venturing into the market because of the lowered cost (taxes).

Then there are the folks who think they’re smarter than both schools. They try to blend what they think are the best ideas from both theories. Good luck.

We’ve all seen the argument between the two camps rage since we learned to spell economics.

I bring this up only to illustrate the current example of how the smart kids in at least one of the schools just doesn’t get it. I’ll leave it to you to decide which school that might be.

The argument today is, Are we in a deflationary cycle or are we about to enter what could be a hyper-inflationary cycle?

I lean toward deflation. Every single time an economy, any economy in the last eight centuries, has gone through a massive deleveraging, it’s been deflationary in nature. There have been no exceptions found in the research, as in zip, zero, zilch, nada. The last time we, as Americans, experienced deleveraging at this intensity level it resulted in massive deflation. According to the research, the time leading up to, and the subsequent deflationary cycle were almost textbook examples of the consequences of massive deleveraging.

I realize there are folks, (I used to be one of ‘em.) who point to the massive money printing going on by the Fed, coupled with their buying of treasuries. They say that’s the working definition of inflation. Not true. For it to be inflationary, the liquidity it creates must overwhelm the economy’s ability to absorb it. The analogy might be water into a huge sponge. If the sponge is bone dry, and has a capacity of 10 gallons of water before it ‘leaks’ water (inflation), yet we only pour eight gallons into it (money printing), there’s no leakage. It was all absorbed. No inflation.

My crystal ball is as cracked as the next guy’s. But I think I’m right about being on the road to deflation. Whether on Wall Street, Main Street, or real estate in general, there’s simply far too much deleveraging to accomplish for inflation to win this battle. The sponge isn’t impressed so far.

We can’t say, “The Fed’s printin’ too much money, we’re gonna have double digit inflation” — While outa the other side of our mouths decry all the negative leverage on Wall Street and the monster default tsunami about to hit lenders. We gotta pick one. We can’t be morbidly obese and a marathon runner at the same time.

Of course, this is where the stagflation crowd enters, stage left. Go ahead, make your case. I’d love to hear how we get inflation amidst all this deleveraging — not to mention the incredibly growing federal/state deficits. The fact remains, for over 800 years there’s not been one exception to the result of massive deleveraging in a macro economy — it’s deflationary.

I’m not only willing, I’m praying to be found wrong as we look back several years from now. I just hope I’m wrong by degree, and not because we endured hyper-inflation.

What say you?

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Your thoughts? (Hat tip to Tom Royce for the heads up on this.)

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It speaks for itself.

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I love talkin’ with people. My heroin if you will, is the first couple conversations I have with a prospect or new client. It’s a fix I need often, and greedily seek. Political discussions also interest me. I love the rational give and take of a spirited political debate. What I can’t stand though, is the emotional claptrap, the avoidance of facing tough questions head-on, and the favorite technique of empty headed smart-asses, answering a question with a question.

Obviously, liberals and conservatives are both guilty. My experience however is with libs, who sometimes seem literally incapable of addressing simple questions asked in plain, one to two syllable words. I’m to the right of Atilla the Hun, and make no bones about it. The only reason I twice voted for Reagan was cuz Goldwater didn’t run. And HE wasn’t conservative enough.

Back to political debate.

I’ve developed some hard and fast rules. If ya wanna play with me, you abide by them, or we don’t talk politics. It tends to get libs’ panties in a bind, but it works well. Those who agree to them, usually end up admitting it made for a much calmer, more honest, and certainly friendlier give and take.

The Rules

1. If I ask you a question, you must answer THAT question — nothing more. Take as long as you need, but you must limit your response to the specific question. It works both ways.

2. Without exception — NO answering a question with a question. It’s almost always the way out when you have nothing to say. Either give the other guy the point, or make your case.

3. No personal attacks. The discussion ends there, without warning. You’ve obviously shown your gun is loaded with blanks. You’ve embarrassed yourself. Quit while you’re behind.

4. Don’t dress up your opinion as fact. You look foolish, and it’s an insult to my intelligence. It’s either fact or not. The intensity of your belief doesn’t make it so.

Here’s a recent example of a talk I had with a lib in Starbucks the other day. It was a great example of what’s possible.

We were standing in line and began talking about the Scott Brown win. He was appalled by it, and I was elated. We hit it off, so he invited me to share a table and chat about it over our coffee. Cool.

Although ‘John’ was a little surprised at the ground rules, he smiled, and readily agreed.

We started, at my suggestion, by establishing our core beliefs. He admitted to being an avid Obama supporter. I said I was to the right of Reagan. Then it was on.

He went first, asking me what I thought of W’s presidency. I told him with the exception of the tax cuts and national security (no attacks on his watch), his presidency was an abomination to conservatives everywhere. John was taken aback by that response, saying, ‘Man, nobody can accuse you of not tellin’ it like it is.’

I then asked him, “Values matter. Are you hoping your 13 year old daughter follows the example of the entire Kennedy family, and/or Bill Clinton when it comes to marital fidelity?” I love that question cuz it’s an easy one to answer if you’re gonna be honest.

John began to answer with a question about Republican sexual scandals, but I put my finger to my lips while shakin’ my head no. Answer the question, Big Guy. He smiled, then to his credit, said, “My heart would be broken if a daughter of mine treated marriage that way.” Good answer — honest to be sure.

This went on for over an hour. Every time he thought I’d get squeamish, I looked him in the eye and answered him directly. Nixon was an embarrassment. Both Bushes were spineless when going against Dems. Any war is a mistake if we don’t go in to wipe the enemy out, and damn quickly. Kill ‘em all if that’s what it takes.

John, as time passed, became more and more comfortable admitting his misgivings about the libs over the years who’ve disappointed him. Neither one of us changed our core beliefs. I’m still the most conservative guy most folks will meet — a Neanderthal in John’s eyes. He’s still mixin’ the Obama Kool-Aid — a hopeless Kumbuya groupie.

Yet, we became friendly acquaintances talking about a topic most folks avoid like the plague. We promised to look for each other whenever we’re in that Starbucks. And I think the Rules made that possible.

What think you?

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Don’t know about you, but I’m sick to death of all the propaganda about Free being the future of ideas. Really? Let’s take that to the extreme. Ideas should be free for the asking? Not in my world. But if you listen to all the utopian crack smokers pontificating while enjoying their afternoon expressos at the local Ivory Tower Starbucks, they’ll tell ya — and I swear I’m not making’ this up — you’ve seen it everywhere — ‘information wants to be free’. Information doesn’t want anything. Duh. Folks who don’t/won’t/can’t come up with new ideas/information — they want information to be free.

Allow me a major, albeit, related detour. I promise it’ll swerve back to the whole concept of Free. I’m reading one of the best books I’ve come across in quite some time. Outliers, written by Malcolm Gladwell. In it, among other things, he gives some astounding examples of what he empirically proves are totally erroneous conclusions based upon false assumptions. These false conclusions are then ‘proven’ by future results. In other words, horrible analysis produced WAY wrong conclusions, which were then proven ‘correct’ years later. Confusing? Here’s an example I lived in real time.

Gladwell talked about this in his book, though he chose youth hockey as an example. Their system mirrors Little League exactly. We all know how Little League works. The kids are kept within their own ages more or less, so as to keep things on as even a keel as possible. When it comes time to pick All-Star teams, performance, merit if you will, is the criteria. It’s been the same since before I was born. It’s also been universally accepted as the best system. Why? They simply point to the kids they chose as ‘the elite’. As they grew older, a percentage became stars in high school. From there, some went to college and thrived at that level. Some eventually became Major League players. How much proof do we need, right? Those not chosen didn’t amount to a hill of beans for the most part.

Wrong, analyst breath. The entire theory is built on a foundation of manure tainted sand.

My experience in Little League was that, especially in the majors where 99% of the kids are 11-12 years old, relative age often matters — big time. See, the cutoff for what age they’ll be slotted is July 31st. (It’s January 1st in hockey.) Compare a boy born on August 16th to one born July 4th. They’re almost a year apart, but they’ll both be listed as 12. This makes a huge difference physically at that age. That difference results in better play, stronger bodies, more thoroughly developed skills, superior hand/eye coordination, etc. etc. Bottom line is that the August kid almost always out performs his July teammate easily. Yet LL says they’re both 12.

The August boy makes the elite team at the end of the season. What happens then is what makes this self-fulfilling prophesy come true. As soon as a kid is recognized as special, usually at 8-10 years old, they receive more attention, more coaching, often superior outside coaching, and more playing time. This is only intensified as he ages. He’s often picked to play on traveling teams, the elite of the elite for youth ball. The coaching at that level is almost always very good to excellent. This only serves to widen the gap between him and the ‘younger’ 12 year old.

The trend continues into high school, college, then, if he’s good enough, the pros. See? Those Little League geniuses were right all along. Little Timmy was special. But what about poor Johnny July?

Since he never got picked for post season play, he went on to either play other sports, or stopped participating in sports altogether. He just couldn’t compete with those who’re empirically more physically developed. He never received the higher quality coaching, nor the extra time. Even if he went on to play in the 13-14 leagues like Pony, he was still a likely victim of the same system. Eventually he gives up. Who knows how many Hall of Fame players are now in middle management somewhere simply because their parents were in the mood in November instead of December?

Confession time

A couple of us here in my neighborhood figured this out long ago. In five years of LL coaching, my teams won four championships and finished second once. Trust me, I was a pretty decent coach, but not that good. At the start of the season, while drafting players, when a pick wasn’t a no-brainer we opted for the oldest of the kids in question during that particular round. Several times over the years, quizzically raised eyebrows were aimed our way after one of those picks. We almost always had the last laugh. Older kids are bigger, stronger, more developed, and learn more quickly. Their fastballs are faster, and doubles for others are homers for them.

Here’s the clincher.

When Gladwell analyzed nothing but the birth dates of Youth Hockey All-Stars by the thousands, he found that well over 75%, in some cases way over, were born in the three month window of Jan-Mar. Hockey’s cutoff date is January 1st. Surprise surprise surprise. This was found to be true in Canada, the U.S., and Europe with no exceptions, not one. Universally true.

Guess what month boasts the most birthdays for Major League baseball players? You guessed it, August. They were the most physically mature in the group in which they grew up. Are we shocked at this discovery? Hardly, but Little League still clings to its claim of a merit based system which, as you can now readily see, is hogwash. What makes it more galling is how they can correctly point to the success in the sport of those they labeled as elite when the kids were 12.

If we wanted to remedy this, we could simply slot kids within more narrowly defined age groups, say within four months. Can you see the nightmare? Never gonna happen. So if you want your future son to become the next Willie Mays or Sandy Koufax, wait ’till December to begin production.

Back to Free, which is, IMHO just as fundamentally flawed as the above example.

YouTube has been tryin’ the Free approach and has been hemorrhaging cash since Day 1. Turns out Free hasn’t gone according to plan. The idea is to give something away while figuring ways to profit around the traffic Free provides. Of course, this ignores Economics 101 which begins with supply/demand. Sometimes Free works, sometimes it doesn’t — hardly an economic law. Ask YouTube how it’s workin’ out for them. Or Google, who could be second guessing their purchase of YouTube. The losses are impressive.

If your idea has real value, actual merit, as perceived by the buying public, it’s worth more than nothing. Of course, if you can be more successful than YouTube in monetizing the traffic generated by Free, more power to ya. Some people are doing just that, most aren’t. But then again, you could be wildly more effective than YouTube and still only break even. Go figure.

Gladwell presents an argument orders of magnitude better than I can here. If you’re considering going the Free route, Gladwell will give you plenty to ponder.

In the end we learn the same lesson over and over, don’t we? The physics of economics will not be mocked.

Oh, and by the way, Gladwell’s post is Free.

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I’m the expired listing king of the hill — NOT. The only reason I’ve ever initiated a conversation with the owner of a property on the expired list, was if I had a specific buyer/exchanger who might fit. I began this policy due to the consistent and predictable dual attitude — mistrust of brokers/agents, and massive denial as to why their property didn’t set the brokerage world on fire.

Don’t get me wrong, as we all know agents who make much if not most of their living from marketing to expireds. Part of my reasoning, maybe the driving force if I’m gonna be honest with myself, is that my direct mail marketing was so reliably successful, dealing with expireds was like lookin’ for ways to get painful splinters.

When it comes to the 1-4 unit market, their are two generic classes of owners. Those who occupy, and those who don’t. I look back now and marvel at how myopic my thinking was back then. I specialized in investment property for Heaven’s sake, why wouldn’t I choose to leverage my knowledge advantage with investors who were recently unsuccessful in selling? Double Duh.

If you feel comfortable with your current basic investment knowledge, including pertinent Internal Revenue Code Sections, or are confident you can get yourself there quickly, here’s how you might garner some new listings. To save space I’m not gonna spend time on specific strategies implied here. You either know them or not. I’m easy though, and will freely share if you call.

First, let’s understand exactly the advantage you have with an investor vs a homeowner. Before we continue, I don’t bother with bank owned listings or short sales — merely a personal preference.

The reasons for selling/exchanging are mostly objective, not emotional. There are all kinds of solid reasons for an investor to make a move. Chances are, since they own just one or two local rentals, they’ve really never spoken to someone who knew which way was north on the investment map. You’ll stand out as a very positive exception. The best thing that could happen though, is you answering a question they never knew to ask. Once you do that — you’re in.

Here’s your homework — Research the property

How long have they owned it?

Do they own more than one?

WHEN were they acquired?

Have they refinanced themselves into oblivion?

Are they high, or low equity?

If several owned, are some ‘equity winners’ some ‘losers’?

Do they live locally, or outa town?

Is there a common acquisition date for two or more properties?

Go see the property — a Captain Obvious Duh.

Write them first, though due to experience, I’m so comfortable with my ability to think on my feet, I don’t mind calling them first — if I can find a number. But experience is the key there, cuz trust me, ya ain’t gonna fake knowledge of the Internal Revenue Code to even a new investor. They may not know what you said at first, but they’ll eventually ask you a question eliciting your best impersonation of crickets. Not a good thing. I find when talking with them, their questions are like gifts that never stop giving. More chances for me to set myself apart from the house guys with whom he’s been dealing. The typical initial conversation usually results in me answering 3-5 questions they’d never of asked in a million years.

If they’ve owned it long enough to have emerged with exchangeable equity, they’re a prospect. This can be easily ascertained by the acquisition date — and checking to ensure they haven’t blown the equity away with a foolish new loan. If they own several local 1-4 unit rentals, finding out they bought some on or before 2001-2 and some after 2004 is gonna be golden for you. They live outa town? Even better, but not as big an advantage as most folks think. If they have two or more props bought at the same time, it’s possible it was part of a tax deferred exchange. Don’t ever assume that though.

Let’s construct an example

An expired listing of a local duplex, acquired in 1999. It has a net equity, in your opinion, of roughly $100,000 or so. Your research shows he also has two other rentals bought in early 2004. They both appear to have net equities of what amounts to a family dinner at Sizzler’s IF nobody orders dessert. This guy will love hearing from you.

Here’s what you now know about the property, and maybe about the owner.

1. The listing stated any sale would be subject to his intent to effect a tax deferred exchange per IRC Section 1031. Translation: He thinks that’s his only option.

2. The two props bought in ‘04 are in areas, and encumbered with loans you know are now generating him negative cash flow — not boatloads, but easily enough to irritate. Opportunity: You can eliminate that for him.

3. Those last two props were bought a few months apart — not an exchange. This means: He doesn’t have the baggage of ‘adjusted basis’ from previously traded property(s). Mikey likes that.

4. His duplex rents are woefully low, and the property doesn’t show well, sporting some deferred maintenance. Translation: He really believes since he bought it that way, then so will the next guy. Really? FAIL

5. His broker was a house guy, who treated the duplex like, well, a house. Opportunity: Once he’s impressed with your obviously superior knowledge, he’ll be far more likely to listen to your marketing wisdom too. You’ll have gained some credible authority.

You are now armed to the teeth with the key to the vault.

Here’s an outline of how your letter might lay out

Think he’s received a buncha letters from agents since the listing expired? You bet. What did most of ‘em say?

I’m the best, blah blah blah. I’m a huge producer, here’s my resumé. You know the rest, right? Right. But you’ve told him at least one if not two or three things he didn’t know. The letter is about him, not you. You’ve also established better credibility through superior knowledge. He’s an investor — investors are interested in their goals, either capital growth or cash flow. Makin’ a move is necessary periodically, but an irritation for them. Failure just really pisses ‘em off.

On the other hand, you’ve not only differentiated yourself, you’ve told him you might be able to eliminate negative cash flow, get rid of his crappy props, increase his tax shelter, while possibly avoiding capital gains taxes without resorting to a tax deferred exchange — all without once claiming to be in the Trillion Dollar Production Club.

If you’re able to call him a day or two after he’s received this letter, all the better. Also, the letter should be hand signed and addressed, using a real first class stamp. I’ve even contemplated using a plain white envelope, but with my letterhead for the paper. Haven’t done that yet, as I don’t want them to feel deceived in any way. I also don’t use a window envelope — ever.

Another advantage I have is the ability to put url’s in the P.S. It references any posts I think might be germane, while magnifying my credibility as an investment broker. In one case, I linked to a post detailing a real life example of a client in her exact position. She called me two days after I’d mailed it.

I frankly don’t know how this approach would work for owner occupied expireds. The last time I listed an owner occupied home, Carter was in office. Gotta think though, that the principles would work there too, just not as often. You’d hafta gimme your input on that one.

I haven’t done this in awhile, as most of my business hasn’t been local for about six years now. But I’m comin’ back in a big way, so this practice will resume shortly, and with much vigor.

Frankly, it’s like shootin’ ducks in a barrel. My conservative guess would be a batting average of roughly 10-20%, possibly more. When I did it in the mid-late 90’s, I averaged just over 30%. But I was very picky about my targets.

Answer a question or two they never knew to ask, and you’re in. You’ll become the agent who knows.

I’m willing to lend you a hand

Wanna try this, but need more knowledge? Email me with your cell number, and I’ll take you to school, so to speak. Furthermore, if you prefer, I’ll even talk with you and your prospects/clients on a conference call(s). If I do this, and you’re successful in listing and selling the property, I’ll charge a referral fee. It’ll be less than you’re used to, as I’m Old School on that subject.

Your thoughts?

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My stompin’ ground is San Diego. When the bubble burst here, the median price for a single family residence was within shoutin’ distance of $600,000. To give you some perspective on that number, my first ever listing was a 4 bedroom home in a blue collar area in October of 1969 — $18,100. It didn’t sell during the 90 day listing period, as it was um, a tad overpriced. Gimme a break, it was my first day on the job, and I was just 67 days past my 18th birthday.

Let’s say you and I are partners in a bank making real estate loans in San Diego. In January of 2005 we approved a couple’s application to refinance their well located 2,500 foot home with a view. Our own appraiser came in with a value of $675,000. The borrowers wanted 80% which was $540,000 — very doable considering their 770+ FICOs and impressive credit history. The interest rate was 6% fixed for 30 years — a payment of $3,237.57 monthly. Add taxes and insurance — just under $4,000!

Their home is now worth $450,000 — more than $100,000 above the current median price for the county. She’s had to resume full time work due to her husband’s job loss. He’s now workin’ two jobs at drastically reduced pay. They’re goin’ through their savings like a mower spits out grass on Saturday morning.

What do we, as the lender wanna do?

Our Board of Directors thinks either the government or the market will eventually save us. But then the White House floats a plan calling for principal reduction. Crap on a cracker.

Even if we reduce the loan balance by $90,000 (Almost 17%), the payment will only be reduced by $540 — hardly a real life solution when we consider the couple’s severely reduced income.

If we offered them a significant reduction in interest rate, say 4.5% with interest only payments for two years, then 5% the next three years, then 5% fixed for 30 years fully amortized — it would make the difference in going through foreclosure or not.

Their payment the first couple years falls to $2,025 sans taxes and insurance, a monthly savings of over $1,200. It then rises per the agreement. We now don’t have a problem loan, which means no huge loss for our books. Sure, we’ve taken a hit on return, but only temporarily.

So I pose the question: You’re the lender/investor. Would you rather take a minimum $90,000 hit in foreclosure — very likely more, much more — or take a smaller haircut monthly ’till the ship rights itself?

The rough numbers for us as lenders: Over five years of the new agreement we collect just under $130,000 in interest. Under the original note we’d have collected about $156,000 or so in interest — a cash loss in terms of yield of less than $30,000. Principal reduction is suspended for the five year period, which we don’t particularly like, but it beats the heck outa the alternative.

You’re the chairman of the board, and the investor leaves the decision to you. What do you do?

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Books on marketing and service — gotta love ‘em. Most, at least in my view are best utilized after shredding — they’re so fulla crap they make stellar fertilizer. ‘Course I say that fully cognizant of the reality I’m pretty much BawldClueless when it comes to effective marketing, so I guess that review should be taken with a boatload of salt. I could spend a year studying it and still not know what real marketers have forgotten. Truth be told, most folks using the moniker, marketing specialist would be Von’s checkers if it wasn’t for the greater sucker theory working so well.

Do I sound bitter? I was for a few days, but I’m over it.

I’ll confess to more than my share of marketing blunders, and openly acknowledge I’ve wasted more money on marketing over the last few years than even I can fathom. A few days ago I was lamenting this sorry fact with a friend, who made the oh so witty observation that if that cash had been kept under the mattress I’d now be able to buy several free and clear homes in the Phoenix area. A recent accounting shows just over $250K down the drain — and only in the last five years!

When first seeing that number, I began staring in the mirror while chanting “Learning curve…learning curve…learning curve…”

Do I still hire folks to, gulp, market for me? Yep. I’m not a DIY guy, nor do I kid myself that by reading books, posts, and watchin’ videos that somehow the marketing light will suddenly show me the way. Many can make that work, I’m not one of ‘em.

I’m not blessed with the love of what I do for a living. Don’t get me wrong, I love much about it, just not the whole. I love the process of talkin’ with new prospects — diggin’ into their particular circumstances, mining for problems, then creating solutions. It’s like heroin to me. I need regular fixes or I tend to get cranky. I love seeing and hearing folks as they first begin to see the light at the end of their previously dark and foreboding tunnel. I also love a Plan’s implementation. The rest of what I do? You can have it.

Back to marketing and service.

I’m not only on the little bus, but the late one too. As I’ve retooled my firm’s entire personality and infrastructure the last 18 months, epiphanies have abounded. Maybe the most promising has been the simplest to apply. Before I lay it out, please don’t make reference to the obvious, which is twofold. First, I’ve already copped to being on the late bus, so don’t pile on. Second, it’s so Captain Obvious you may wonder how thickheaded I really am. Oh yeah? Well, if it’s so damn obvious, why isn’t everybody doing it? In fact, why is it so little used out in the real world that it stands out like a sore thumb?

Whatever it is you do for prospects/clients in your day to day business involves production of some service, document, analysis and so forth. The luxury of being an investment guy in real estate is the positive results that can be shown, then realized empirically — tax savings, capital growth, cash flow and the like. It’s a luxury home agents generally don’t enjoy, as they’re constantly navigating through the perilous waters of never ending subjectivity. It’s the nature of the home side of the biz.

I’ve realized that luxury has been a crutch for me. How? In my own Mr. Literal way, I’ve allowed results to be the basis for any measurement of success. Though certainly that factor is huge in clients’ perception of their experience with us, merely getting to Point B, the expected result, won’t be enough for most. The paradox for me, the investment guy, is that for most investors, results alone are, generally speaking, good enough. I’ve concluded the reason for that is the fact that 80% of my clients have never worked with an investment guy who actually knew exactly what he was doing. Most started with C/21 Larry, who also ‘did investments’. They’re so grateful to have reached their Point B, I tend to look pretty good.

But I now know better — and with knowledge comes the obligation of application, right? Right.

Here’s where Captain Obvious comes in.

I spent last week callin’ a buncha clients, asking them about their experience with me during the process of making their last move — which was either buying, selling, or executing a tax deferred exchange. Without exception they were, as I’d insisted, brutally honest. They were asked to rate various things, using OK, good, great, amazing, and OMG! Here’s what I learned.

Wow — talk about a reality check…and a half. Who wants to be thought of as just OK or good enough when it comes to anything related to their clients’ perceptions? Amazing to OMG! results are the gold standard, but the rest, IMHO must also rise to that standard.

This is all to arrive at this conclusion.

This year I’m taking one mind numbing part of the process at a time, and deciding how I can make it a slam dunk OMG! experience — an unexpectedly delightful adventure for my clients. Some of this will be relatively easy. I’m not sure how to make cash flow analysis an orgasmic event, but I’m sure gonna take a pass at it — and I’ll get it done.

This year I want to raise the bar on every aspect of what I do for clients. From now on, the lowest acceptable grade for even the most mundane part of the process will be ‘amazing’. I’ll know success in this endeavor will be mine when a referral says my client couldn’t stop raving about my analysis of the seller’s compliance with repair requests.

We don’t hafta love everything about what we do. Frankly, I don’t trust folks who do. Do You? Do ya even believe ‘em when they profess such love? FAIL

What we do need to accomplish, is to become living breathing examples of the OMG! standard of performance — even in the smallest, most mundane, boring, mind-numbing parts of the client’s trip to Point B. Results remain the ultimate report card, but the trip’s experience is what will make them evangelists for us.

Marketing? Whatever gets us the number of at-bats we need. Most any boob can get their clients to their Point B — after all, that our clients’ most basic expectation. However, it’s the trip we wanna make Amazing to OMG!

See? Captain Obvious. I will skin this cat.

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Live long enough and you’ll pretty much see and hear everything. I’ve seen a pitcher strike out five — count ‘em — five batters in one inning, standing right behind the catcher. I’ve seen a so-called conservative president actually increase the requested spending of a bill authored by Ted Kennedy. Hell, I’ve even seen, be still my heart, the Chargers in the Super Bowl and the Padres in two World Series.

I wonder what odds Las Vegas would lay on me agreeing with the Huffington Post that today is New Year’s Eve? Let’s just say she and I could save each other a buncha time on election days by not voting, since we cancel each other’s vote every time out on virtually every issue/office.

But then it happened. Huffington coauthored a post with Rob Johnson on the topic of what we, as regular folk, can do about the abusive conduct of most of the To Big To Fail banks. It’s both simple and brilliant. They even provide a pithy video and a link to a list of local banks in your community.

The idea? Let’s all take our money outa those thug-like banks and move it to local institutions. The money will still be equally insured. Imagine the message it’ll send to not only the TBTF’s but to Pennsylvania Avenue and Capitol HIll who, so far, have been the poster folks for clueless in D.C.

Anywho, thought it was worth sharing.

Happy New Year!!

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Over the weekend I was reminded of an illustration of what true commitment is. The story was about breakfast, specifically ham and eggs. You’ve probably heard it. Grandma first told the story to me when I was in high school.

It goes like this. The chicken is involved in the breakfast. She laid the eggs, and went about her business. The pig however is committed to that breakfast. A huge difference.

Think about any part of your life and ask yourself whether you’re the pig or the chicken. How about your business? Are you ‘involved’ like the chicken, or ‘committed’ like the pig?

I’ll only speak for myself here. When I take on a client, time is not an issue. Most of my clients will require many years to achieve their goals. Geography isn’t an issue. We’re already in several states, headed for more. Furthermore, I require the same piggish behavior from my clients. I simply will not work with a client who cares less than I do about their outcome. No exceptions.

You can, as I have, look at areas in your life and your level of commitment to them. How about your kids, your marriage, or your core beliefs. Put them to the test: Are you the pig or the chicken?

Maybe most importantly, why are you one or the other?

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Here’s an example, using real properties recently purchased by real clients. I’m gonna modify some of the numbers, but the modifications will not in any way make the bottom line better by an inch. (Worse in fact.)

What if you paid $245,000 apiece for four properties, each with an annual gross scheduled income of $28,800. The renters sign year long leases, and tend to stay a little longer than two years. We’ll set the operating expenses and vacancies at just under 40% — $10,950 a year. This results, when using currently available loans, in a negligible cash flow of less than $250 monthly — essentially a break even.

The down payment used will be 20%, though I’ll use 22% for any return figures. In these transactions you’ll be credited up to 2% of the sales price for your closing costs. The first year’s cash flow will be just under $3,000 or so for each property. We’ll assume any increases in expenses will serve to cancel out any rent increases. The loans are fixed rate, amortizing over 30 years, with a 6.5% interest rate.

If in five years the value is still $245,000 — what will you have gained? Of course, you didn’t invest to find yourself in a non-appreciating asset. Since your crystal ball is in the shop, we’ll just consider it your time in Murphy’s barrel.

So, what will you have gained in this scenario?

Income tax savings of around $7,500 a year, or $37,600 over 5 years

After tax cash flow of almost $12,000 annually, or $59,800 over 5 years

Principal reduction of just over $50,000 over 5 year holding period

It took about $54,000 +/- to close each of the four purchases, meaning you’ve invested a total of $216,000. In 5 years without values increasing, here’s what happened.

Add up your 5 year total for tax savings — $37,600. Your after tax cash flow for the same period is a couple hundred less than $60,000. What that means to you is simple. Your Levi’s garnered just under $20,000 ($19,520) annually in spendable cash. That’s an after tax cash on cash return of roughly 9%.

You also owe about $50,000 less than the day you closed escrow. Let’s look at what you might’ve done, if the after tax income was expendable for you.

If you’d taken most of that after tax cash flow, say $18,000 a year, and applied it monthly to your loans, your total loan balance for all four loans combined, would’ve been only about $77,500 at the end of the holding period. If you did it for just another 31 months, you’d own all four properties free & clear. The income would be, give or take, $18,000 a year apiece — before depreciation.

Your after tax income would run around $62,000 a year. You would’ve created this without a dime of appreciation — or a dime outa your own pocket. Not bad for less than eight years, would you agree?

This is only to illustrate what’s possible for those of you wondering about your retirement. If you now have that $216,000 in capital this illustration is to demonstrate something I was taught when I first made the transition from homes to investments.

Appreciation is a luxury — period — end of sentence. If you go into every real estate investment with that axiom in mind, you’ll be changin’ the way you analyze and acquire property.

For those of you who’ve been decimated via your 401K or similar plan, this is a potential lifeline. Could things go wrong down the line? Absitively. Could those numbers be affected negatively? Yep. But they’re fairly conservative as used. Even if we apply what I’ve called the Vanderwell Rule — cut it in half and see if it’s still attractive.

If you could invest $216,000 today and end up with 36,000 in before AND after tax income, half of what would be the most likely scenario, would you be OK with that? Your original capital would’ve more than quadrupled — in less than eight years. The after tax income at that point would be over a 16% yield on the original capital — again, using only half the most likely scenario.

And all without any appreciation whatsoever.

Something to chew on while perusing your latest 401K statement.

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Ever umped a baseball game at any level? It’s a rush. You haven’t lived ’till some stud has winged a 95 mph fastball your way. It literally takes a couple of ‘em before your brain adjusts to the velocity. First one I saw? Told the hitter and catcher it sounded good to me as my right arm went up signaling a strike. True story. Most umpires never get past youth ball, even fewer to high school, and only a trickle get the experience NCAA baseball offers.

There’s a cliché in baseball that says when the game’s over and you really didn’t notice much about the umpires, they did an excellent job. As is true with most clichés that’s a pretty accurate statement. In fact, the only reason folks should notice umps is if they’re able to do their job with a little flare, a little passion — but it’s not required or even necessary. Just deliver the goods.

Same goes for real estate agents. Just as the excitement is in the ball game itself, the excitement for your clients is moving into their new home — possibly after movin’ outa their old one. Our job is making sure the excitement happens the way it’s supposed to.

One of my favorite memories on the diamond was a day I was to ump the plate in a junior college game in a pretty highly talented league. JC’s don’t get four umps, just two. As you might imagine, with only two men, hustle and seamless, preordained teamwork is a must, not a luxury. There’s simply no room for anything short of that when you’re part of a two man team umpiring at the college level — even junior college. Anywho, in the second inning, my partner became ill, and had to leave.

Me ‘n You, Lord.

As luck would have it, things remain more or less quiet. I’m runnin’ around like crazy, but it’s doable. Before we resume the game, I call both head coaches to the plate for a quick powwow. I tell them in no uncertain terms I’ll be in no mood for any crap from their dugouts. I’m alone, will hustle my ass off, and give them the absolute best I have in me. One of ‘em was a pretty funny guy, and said, ‘That’s what you called us out for?’

Then, it happens.

The home team’s rabbit hits a laser beam down the line in right. I hafta do all kinds a things at this point. Haulin’ ass down the line I must make a fair/foul call. It’s fair. Did the runner touch first? Second? Oh, crap on a cracker! He’s goin’ for three. I sprint directly over the mound to the third base cutout, doing a popup slide as I arrive. (Still don’t know what the hell possessed me to do that in full plate gear.) Almost immediately the runner, the ball, and the third baseman’s tag happen almost simultaneously. I was in perfect position so could easily see that the third baseman tagged nothing but the ground — touching no part of the runner. I made a very loud call of ‘ He’s safe! There’s no tag!!’ while dramatically giving the ’safe’ sign with my arms. There was no doubt to anyone there about what I saw.

The third baseman’s head coach popped outa the dugout, calling time as he came towards me. He said, “You know why I’m out here Blue, I had no choice.” True enough. Continuing, he said, “I’ve got no complaint about the call. Just wanted to tell ya, great hustle, good call, what the hell’s with you and that slide?!”

I was dumbfounded, and just started laughin’. We both did. I learned something that day, and I’ve been able to apply it to my business.

Our job is to keep things moving the way they’re expected. The bottom line for any buyer or seller is, did the job get done in time, without hassle, and with professionalism? We’re not the excitement, the property is. The transaction is. The closing especially — but not us.

Sometimes, like that day on the field when I suddenly found myself umpiring a college game solo, you find yourself seemingly alone in a transaction. Just like the players that day, your clients don’t care about you, relatively speaking. They care about the results you deliver.

In other words, did you skin their particular cat, or not?

It’s about excellence — which isn’t about meeting the standard. It’s about setting the standard. It’s about making your clients’ experience insanely enjoyable, which in ClientSpeak translates to easy — cuz you delivered. You did it better, faster, and with better quality than they’d ever hoped or expected. When things got crazy, you ran over the mound, executed a perfect popup slide, and made the right call.

You set the standard. Other pros hafta measure up to you. Folks do business with you cuz they wouldn’t have anyone else — you’re indispensable. Your not the best choice, you’re the only choice.

It’s about insisting to yourself that anything short of insanely, wicked good performance misses the mark.

If you’re able to get yourself into that frame of mind permanently, you’ll kick more 2010 real estate ass than you ever thought possible. Folks out there are desperate for agents with that mindset. They’ll knock down your door to do business with you.

That’s why, in my rookie year in the NCAA I was put on the coach’s preferred list for post season work. One coach actually wrote, “I want Brown, period” on his request sheet. And yes, he was the same coach from the above story.

Great performance generating the client’s desired results can’t be trumped by anything. They don’t want you, they gotta have you. Once you get yourself to that way of thinking, your potential for success will literally fly off the chart.

Lord, I miss umpiring.

Merry Christmas!

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There surely are more than just a couple schools of thought when it comes to using real estate as a vehicle to get them to an abundant retirement. The two that almost always garner most of the attention are Buy & Hold for cash flow from Day 1, and Capital Growth First THEN a transition to cash flow upon anticipation of imminent retirement.

Will either one get you there? Yep.

The real question is — do you want your Social Security check to be used for groceries, or spending money? And yeah, I know, what SS check?

Proponents of the Buy & Hold school are from the Old Old School. Don’t try to talk them outa their strategy. Show their results side by side with the Capital Growthers though, and they really get loud.

I urge you to check out a comparison I’ve done over at my place. Caveat: It’s over 1,600 words of reading. It goes into clear detail. So far, folks who’ve read it, have been pleasantly surprised at how much solid info they understood and can now apply.

If you’re a real estate investor, or wanna be one, this ‘case study’ is for you.

Merry Christmas!

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Ever looked over at the agent down the hall and wondered how they get from home to the office without hands-on help? They usually didn’t get past the front door back in the 1960’s, at least in our offices. I remember vividly that you were tough or you found another place to work. Cream puffs generally didn’t get too far into Dad’s job interview before they knew they weren’t in Kansas anymore. There was no such thing as laser beams back then, unless he was starin’ right through ya.

Dad used to conduct what I’ll call no nonsense weekly meetings back in the mid-20th century. Attending my first one three days after my virgin day at the office was, um, eye opening. It was Tuesday, October 21, 1969. Dad was his usual toned down Zig Ziggler self, with undertones of Darth Vader nursin’ a toothache. It was the first time I’d ever seen how others perceived him as a boss.

They soaked in every word as if he was readin’ off the third tablet Moses lost while coming back down the mountain. Though I could believe it cuz he was hugely successful (1,000 sides/yr), and arguably charismatic, I wasn’t sure about ‘why’ he was viewed this way until much later. One thing for sure, you worked for him or you took up space elsewhere. Even though the firm did so many sides a year, he never had more than 28 full timers, complimented by a dozen or so part timers. To this day I’m convinced the profile of his typical agent was ‘assassin’.

This is all prelude to explaining how a one act pony like Dad (his words, but painfully accurate), went from zero to over a 1,000 sides yearly in just over a year. Ryan Hartman’s excellent post about dominating the market struck a deep chord with me. Not just because it reminded me of the ‘good ol’ days’, but because I think he may have found the key to the mint.

That aside, the plan, whatever it may be, is secondary to the combination of unflappable belief and consistent, long, uninterrupted periods of hard work.

Here’s a Captain Obvious Axiom: The one guaranteed common denominator shared by successful real estate agents is the number of people they talk with each day. The more successful they are, the more folks they’re yakkin’ with. Agents um, not as successful? The only people they ever talk to are other loser agents. Surveys have shown conclusively this has never been a winning strategy.

Seriously, your 2010 can be pretty productive even on a cheapskate budget. I’ll give you a BawldGuyGaurantee: Spend 50-75% of your first quarter days talkin’ with folks who can either tell ya to go to hell, do business with ya, or refer someone, and your year will be better than last year by July 4th.

Once the money starts rollin’ in you can make use of all the cool marketing stuff here. ‘Till then? Don’t make excuses — make good.

Merry Christmas!

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