Don't Be a "Goof!"
By Joseph M. Kaiser

Don't be a "Goof!"

If you’re talking about being a big goofball as a newly minted real estate investor, you’d better include me and my start in this business.

That’s because I started out with what I actually believed was a simple goal, really - create an overnight empire and retire in 2 years. How dumb is that?

Simple? Hardly, but I was new and had been to a seminar!

Okay . . . my plan was to get 100 houses as quickly as possible, what did I know?

I was in my early twenties and planned on “retiring” early, and the way I’d decided t pull that off was to put together a portfolio of 100 houses.

I could not have been more wrong but being brand new, had no way of knowing that.

In those days, controlling vast amounts of real estate was everyone’s idea of “securing their future” and the guys and gals down at the investors group all wanted to do nothing else but build little empires.

And strange as it might seem, some of us did.

You may have heard me talk about Scott and Dolly before.

They are legends in my home town of Tacoma, Washington, because in the early 80’s Scott and Dolly created an empire envied by all.

The legend is “a thousand” units, but I’m guessing it was somewhere closer to half of that. But heck, even if it was only five hundred, I’d say that’s good enough.

It took years to build . . . and it took mere moments to all come crashing in.

What you need to know is this . . . a dozen good properties is worth a lot more than a hundred bad ones.

It’s not the number of properties you control that matter! Numbers are meaningless here so forget about getting lots and lots of houses in your portfolio at the moment and instead focus your energies on ONE GOOD ONE.

I still have houses I bought that I’d never touch today. Some turned around after years of being “not so good” deals and are fine now, but some are still dumb deals and whenever the opportunity presents itself, I dispose of one of those at once.

Today, I understand, it’s not about quantity . . . it’s quality that matters.

But don’t be confused here, I’m not talking about quality in terms of the condition of the property, or the area, or the financing. A “dumb” deal can very well be a brand new home in a gorgeous area of town.

And a “great” deal can be a clunker looking home in not the best area of town. I own a three year old home I bought from a military gal transferred out of town.

It’s worth $160k, she owed $153k and was willing to walk away . . . just take over payments.

I figured I could easily sell it for $160k on soft, “lease option” terms, pocket maybe $5k or $7k up front and let the tenant make the payments from there on out.

Good deal? Nope.

Here’s why. If I’d been paying the least bit of attention, I’d have noticed lots and lots of “For Sale” signs in the neighborhood. I was so focused on doing a deal that I overlooked it.

So, even on soft terms, no one was interested in it because other sellers in that area were also willing to just walk away.

Why rent my place and pay $7k up front when you could practically buy the house next door for no money out of pocket and OWN it?

Eventually, someone did step up and rent it, only my $7k up front turned into “first and last” and they agreed to an additional $3k on a note at $250 per month.

Now, that would all be great, had I not made $1,300 payments on it for seven months.

That’s nine thousand dollars, by the way, real money, right down the drain.

About the same time I bought a rough property in one of the truly undesirable areas, paying $3k up front to the seller and agreeing to take over payments on his loan, a total purchase price of $45k.

He had a tidy, 7% loan and payments are less than $350, including property taxes and insurance.

Stuck a flyer on the door and lease optioned it to a lady for $77k with $3k down and payments of $595 and she’s now meeting with my mortgage broker to pay me off, just over a year later (option price kicked up to $82k after twelve months).

In the first example, it’s a big, beautiful four bedroom, three bath, three year old home in a nice family development.

The second is a clunker house in an undesirable area. You tell me which was the “quality” deal.

I’d love to go back to the day I told the gal “okay” and spend that day curled up under my covers and letting the phone just ring and ring and ring. I’d have made probably ten grand by avoiding the deal.

So what made one a good deal and the other one I should have passed on?

The first deal was a “wishful thinking” deal where I was hoping to snag a buyer, the downside . . . $1,300 a month payments if I didn’t.

The upside?

Virtually nonexistent. The second deal, with $350 payments. Heck, if I couldn’t find a buyer, I’d be able to afford that payment a lot longer than the first example with a payment of nearly a thousand dollars more.

The upside?

I was buying well below market value.

Final analysis . . . commit to paying $1,340 a month in hopes of making $7k, or pay $350 a month and hope to make $25k?

Pick the latter and run as fast as you can from the former.

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