Changing Platforms

Hey, this is just a short post to let you know that I am changing platforms for my blog.

If you are looking for my latest posts, go to https://theclintgalliano.wordpress.com/.

All future posts will be there and hopefully you will, too!

REI: Getting Out of a REI Deal

Contract Contingencies or "loopholes" can help you get out of a bad deal.

This week I am going to go over how you can be protected by contingency clauses in your purchase agreement contract, specifically from an investment perspective.

Purchase Agreement Loopholes

When you sign a standard real estate purchase agreement, you have the option to include contingencies, to protect you and allow you to get out of the agreement. You can include a financing contingency, (if you need to get approved for financing), a title contingency, (in the event the title is not “clear”, in merchantable condition, and the seller cannot remedy it), sale of another property, appraisal price being equal to or greater than the sale price, no issues found during an inspection period, or pretty much any other contingency you would like to include.

The key thing to remember is that the seller has to accept these contingencies. The specific ones listed above are standard contingencies and sellers are used to seeing them. As a real estate investor, you should know that the number of contingencies could possibly affect the seller’s decision to accept your offer if there is a similar offer for the property with less contingencies.

The main contingencies to include are the inspection period and clear title.

You should have your financing in place already, to make the deal go smoothly. This can be personal cash, private money, hard money, or being pre-qualified for a loan from a traditional lending institution.

In selecting your properties, you should have a pretty good idea of the market value of the property and in pursuing the target property, have negotiated a sale price that is discounted from market price, allowing you to cover expenses and cash flow.

Utilizing a Contingency

A couple of weeks ago, I posted about making an offer on an REO property. I was excited for the opportunity to acquire this property because it was in the same neighborhood as the last property we acquired and had a couple of more amenities.

We were at the point of waiting for the asset manager to respond with the final signed contract so we could start the inspection period. We waited and waited…but did not hear anything for a whole week.
We were told to expect up to a seven day wait for a response, but when we finally did get a response on the ninth day after we submitted contract signatures, the asset manager had signed the contract two days after we submitted it. This left us with approximately two and a half days for inspections, title search, etc., and late on a Friday morning. There was no way we would have been able to get the title search completed at that point.

We exercised the contingency and canceled the contract.

Because of issues like this, I am glad I had the option to exit the deal. Some investors may not worry about the title, but I do. I have run into title issues in the past that made it hard for me to sell a property, so I wanted to be sure that the title was clear. Especially with the property being an REO property.

With it having been through a Sheriff’s Sale, the title “should” be cleared of all liens, but if a lienholder was not notified that the property was going up for Sheriff’s Sale, then their lien is still in effect.

I could have run the title search before getting confirmation that we had a contract in place but did not want to spend $500 and not be able to get the property under contract.

So, on with the property search!

Oh, if you are in the Houma/Thibodaux area and have property you need to sell, get in touch with me.

And, as always, let me know what you think in the comments. Ask questions, tell your story.
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Personal Improvement – How Do You Spend Your Time?

This week I am going to talk about how you send you time and how it affects progress towards goals. This is a topic that keeps coming up (for me) from various sources and every time it does, I get more of an urge to discuss this topic here. So…here we go.

“How do you spend your time?”

Ask that question of a hundred different people and you are likely to get a hundred different answers. Some people may list every detail, others may just give a twenty-thousand-foot overview.

• Successful people have goals.
• Successful people have a plan to reach those goals.
• Successful people follow a process and their processes are habits.

Observations of Others

In a recent blog post, Dave Van Horn talks about a speaker at a recent investing summit who asked the question “What would you do if you were a billionaire?”

The answers were some form of the three below:

• “I would travel more.”
• “I would focus on my passion.”
• “I would give to charity.”

Dave then goes on to point out that “billionaire” status is not needed to achieve these goals, as evidenced by the speaker, (not a billionaire), only that you budget your time as you do your money to its best possible use. Don’t waste your time doing things that won’t move you forward. You can pay someone to take care of that for you if your time would be better spent being effective.

He then relates how Tony Robbins asks similar questions:

• What is an extraordinary life for you? – Hopefully this is something that you can achieve in the next six to twelve months.
• What is preventing this from happening already? – What story do you give as an excuse for not having achieved it already?
• What needs to change now? – This brings it back to taking action.

This may sound familiar. It is similar to what I outlined in how to resolve overspending.

Once you have set a goal, identified what is stopping you from achieving that goal, and put a plan in place to change things your goal, things may still not happen perfectly.

Life will always throw you curveballs. Our initial reaction is to get emotional and point to all the reasons why we are failures. We can come up with lots of feelings on the subject, but in reality, over the long term, they don’t make much of a difference in the long run. Life goes on.

The way we can get through this is to put it in perspective. Learn from failure. Defeat your emotions with logic. What important things are you missing because you choose to worry versus logically evaluating the facts? Just because you are in control of your emotions does not mean you don’t feel them, just that you are taking care of business so you can deal with your emotions at an appropriate time.

By thinking clearly rather than getting caught up in emotions, General Eisenhower, in WW2, was able to determine a way to defeat the German Blitzkrieg, a battlefield strategy that involved throwing everything they had at the allied forces in a single attack. It was scary and worked in lots of battles, with allied forces so surprised, shocked, and overwhelmed by the speed and ferocity of the attack, that they just gave up.

General Eisenhower realized that the Germans were putting everything they had into the attack, leaving their flanks and rear unprotected. His approach let the Germans attack, but held groups back to flank the German attack, thus surrounding & defeating them.

Here are some quotes that reflect this approach that I find helpful:

“What doesn’t kill you, only makes you stronger!” - Jean-Baptiste Emmanuel Zorg (Antagonist from The Fifth Element)

He wasn’t the originator but is as good an attribution as any. This means that you learn from your mistakes. Dealing with difficulty helps you to become more resilient, more anti-fragile.

“I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when it has gone past I will turn the inner eye to see its path. Where the fear has gone there will be nothing. Only I will remain.” – Frank Herbert, from the book Dune. 

It is OK to be scared, but don’t run from it. Face your fears. Once you face your fears, they have little power over you.

“Our actions may be impeded, but there can be no impeding our intentions or dispositions. Because we can accommodate and adapt. The mind adapts and converts to its own purposes the obstacle to our acting. The impediment to action advances action. What stands in the way becomes the way. – Marcus Aurelius - Holiday, Ryan. The Obstacle Is the Way: The Timeless Art of Turning Trials into Triumph (p. 1). Penguin Publishing Group. Kindle Edition.
This is similar to the “What doesn’t kill you” quote but goes a little deeper and touches on something that doesn’t seem common these days…the idea that by facing hardship, you grow. In fact, it is the reason for the title of Ryan’s book, “The Obstacle is the way”.

Do the uncomfortable things, if it will further your goals. Grow from those experiences, so that next time, you either know how to handle it already, or if it is a big issue, avoid it altogether. Learn from mistakes. Budget your time. Budget your money. Grow, as a person and as a leader.

And, as always, let me know what you think in the comments. Ask questions, tell your story.

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REI – Buying a Property While on Vacation

Yes, you can legally sign digital documents from your phone!

Today I am going to go over how we negotiated a purchase agreement for a new rental property while we were on vacation. I will summarize how it can be done and why you shouldn’t sit around waiting for something.

REO? (Not Speedwagon)

Part of my process for finding properties is to have searches set up on the various real estate websites such as Trulia, Zillow, and Realtor. They send me emails on a daily basis with local properties in my areas of interest that meet my investing criteria. I noticed that there was an REO property up the street from the last property we purchased. REO is Real Estate Owned and means that it is a property that the bank has foreclosed on and wants to get off of it’s books, hopefully recouping the money they have into it.

This property had been foreclosed on by the bank and sold at a Sheriff’s Sale back to the bank at some point prior to February of this year.  They then listed it for $98,800. About six weeks later, they dropped the price to $89,900. A month later, it was $79,900. Then they ramped it back up to $98,800 after 6 weeks, but dropped it to $79,900 about 5 days later, so it must have been a typo. And roughly two weeks after that, they dropped the price, again, to $69,900.

It was at this point that we decided to go look at it. There was no power or water service connected, so we couldn’t inspect the plumbing or electrical functionality, but we were able to look at everything.

The property apparently had doors and paint updated in recent years. The floors were mostly tile throughout, with real parquet wood floors in two of the bedrooms and damaged/improperly installed laminate flooring in the master suite. The back exterior will need a little attention along with the roof, but all in all, the property appears to be in good shape and not needing as much in rehab as our last acquisition.

The Rub

The day we looked at the property was the day before we were leaving for the week to go on vacation out of state. We did not have time in our schedule to travel to the realtor’s office and sign paperwork. Luckily, we did not have to. The offer was submitted online via a secured signing portal.

All further counter-offers were done in a similar manner either from my phone or laptop, allowing us to enjoy our vacation and still take care of business on our schedule.

We are currently waiting on the “paperwork”, but we have come to an agreement on price and are waiting for the start of the due diligence process, where we get the property inspected and look for any deal-breakers.

I will detail the whole deal in a future post, once the deal is complete and the  property is rehabbed and rented.

And, as always, let me know what you think in the comments. Ask questions, tell your story.

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Business Finance - Understanding Cash Flow

An infographic representation of Cash Flow.

Today I want to go over Cash Flow and why it is critical to business finance.

There are four basic reporting metrics for business finance:

• Balance Sheet – Statement of financial position, reporting a company’s assets, liabilities, and owners’ equity at a given point in time.
• Income Statement – Statement of revenue and expense or profit & loss.
• Equity Statement – Statement of changes in equity or retained earnings.
• Cash Flow Statement – Statement of a company’s cash inflows and outflows during a given period of time.

I will cover the first three in more detail with later posts because I want to talk about Cash Flow and the Cash Flow statement.

Cash Flow

Cash Flow is the total amount of money coming into a business (revenue, income, investments, loans, etc.) and the total amount of money going out of a business (bills, expenses, wages, capital purchases, etc.) over a given period of time. It can be a year, a quarter, a month, or any time period you want to look at. For my purposes, monthly reporting is preferred, as it coincides with other regular monthly financial reports.

Doesn’t the profit & loss report show you the same information?

While reporting similar information, Cash Flow & Profit & Loss Reports serve different purposes. The Cash Flow report gives you an understanding of how you are bringing money into your business and how you are spending it while the P & L report shows you revenue earned and expenses paid.

OK, that still sounds similar, you say.

It may be easier to understand if you look at it from the perspective of different accounting methods. Businesses use either the Cash Basis or the Accrual Basis methods. 

"Cash basis - Revenue is recorded when cash is received from customers, and expenses are recorded when cash is paid to suppliers and employees.

Accrual basis - Revenue is recorded when earned and expenses are recorded when consumed."

If you are operating on the Cash Basis method, your revenue and expenses are recorded into your accounting system when they occur. In this case, your P & L and Cash Flow Reports should show almost the same information for a given period, with minor differences like loan principle repayments not showing up on a P & L.

In the case of the Accrual Method, you might earn revenue in a given month, but you won’t see the money from it until the invoice gets paid, which may be a month down the line. As for expenses, you may be paying for supplies immediately, but can’t show them on the P & L until the revenue is earned. So, you are potentially paying for supplies in one month, showing revenue in the next month, and not actually getting paid until the third month.  In this scenario, the P & L would show the expense & revenue in the second month, but the Cash Flow would show the outflow of the expense in the first month, no activity (with respect to the subject order) in the second month, and would show the revenue inflow (invoice being paid) in the third month.

Because of this, you should be looking at both reports to better understand what is going on in the business.

Why is Cash Flow important?

To be a successful business, you want to have positive cash flow…that means that you have more money coming in every month than you are paying out in expenses, wages, and bills. This seems like a “DUH!!!” statement, but without looking at both your P & L AND Cash Flow reports, it would be hard to make sure you are able to bring in more cash than pay out in expenses.

Without regularly reviewing the Cash Flow statement, you might think you are breaking even or close to it, until you realize that your bank account has steadily been dropping and you really were not even close to breaking even.

And, as always, let me know what you think in the comments. Ask questions, tell your story.

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Personal Improvement – Accountability to Yourself

This week I am going to discuss Accountability. I feel that understanding accountability is very important for succeeding in life. My grandfather told me that I have to be accountable for my actions and words when I was about 10 years old. I have tried to be true to that principle throughout my life.

After he passed away, a few years later, I figured out another lesson…that you should not rely on anyone else to guarantee your success.

The expectation was that we would all, (the grandchildren), continue in the family seafood business. I soon realized that I couldn’t depend on people’s promises to get ahead. That if I wanted something, I had to make it happen myself.

Because of my decision to take control of our future in the last few years, I started a journey of self-improvement. I have learned a good bit and implemented many of the things I have learned. Some things I was already doing, others were revelations. Below is a brief, non-exhaustive summary of what I have learned.

Be Accountable to Yourself!

Decide to Change

Nothing you want to change will change until you decide to change it. Griping and complaining about how bad a situation is will do nothing about it. Saying you will change or want to change will do nothing about it. Until. You. DECIDE. To. CHANGE.

Set Goals

Set goals you want to achieve. Things you want to accomplish. Places to visit. There are a couple of different ways to approach this. One is to take the bucket list approach. Detail everything you want to do. Tim Ferris suggests writing daily goals on a quarter-folded sheet of paper. This way, the list stays small and achievable. Whatever approach you take, remember this:

“Alice: Would you tell me, please, which way I ought to go from here?
The Cheshire Cat: That depends a good deal on where you want to get to.
Alice: I don't much care where.
The Cheshire Cat: Then it doesn't much matter which way you go.
Alice: ...So long as I get somewhere.
The Cheshire Cat: Oh, you're sure to do that, if only you walk long enough.”

Based on the above, unless you have a goal, you can’t really direct what you are doing. Which leads us to the next step…

Make a Plan

Once you have your goals in place, put together a plan on how to achieve them. Figure out what you will need to do, in the most efficient order you can think of. Try to mitigate risk by thinking of all the bad things that could happen along the way and have a plan for dealing with them.

Find an Accountability Partner

A lot of advice I have run across recommend having an accountability partner. Someone to express your goals to, review them on a regular basis, and help to keep you on track to succeed.

Grow! Achieve! Succeed!

All that is left to do now is to proceed…OK, it’s not that easy, but, the thing to remember is that you will run into setbacks. Things will go sideways every once in a while. Do not let that discourage you. Keep pushing forward and be the YOU you want to be. Like Mike Tyson said, “Everybody has a plan until they get punched in the face.” Learn to be resilient. Take responsibility and move forward, ever forward.

http://www.thatonerule.com/

And, as always, let me know what you think in the comments. Ask questions, tell your story.



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Personal Finance: Saving Money Versus Saving Money Versus Saving Money

Saving Money...Maybe you should think of it as Rescuing Your Money!

This week I am going to cover saving money. There are many differing thoughts about this topic these days, some of which have valid points. I will also lay out my thoughts on the idea.

Saving Money – Why Should You?

Why should you save money? You can save money for an emergency. You can save money for to buy something special. You can save money for a dream vacation. You can save money for retirement. Your reasons are valid for you.

Tim Ferriss advises that you set dreamlines…goals you want to achieve and figure out how much it will cost, both per month and one-time charges, so you can figure out how to get your retirement now rather than delaying and saving for “one day”. There is also this whole part about coming up with a muse, or business idea that will provide the extra income to cover the costs of achieving that mini-retirement. The other thing is that they should be frequent.

Robert Kiyosaki says “Savers are Losers!”. His reasoning is that no matter how you are saving money, be it in a bank, in a Certificate of Deposit (CD), or in a pickle jar buried in the back yard, you are losing money, at least at this point in time, because of monetary inflation.

“MonetaryInflation is an increase in the money supply which generally results in priceinflation.  This acts as a “hidden tax”on the consumers in that country and is the primary cause of price inflation.Monetary inflation is commonly referred to as the government “printingmoney” although the actual process is a bit more complex than just cranking upthe printing presses but the effects are essentially the same.As the money supply increases the currency loses its purchasing powerand the price of goods and services increases.”

Why under the mattress, In a savings account, or In a Certificate of Deposit Costs You Money

Currently the rate of inflation is approximately 2%. Based on the definition above, that means that your money loses 2% of its purchasing power. If your savings account is paying 0.25% interest rate, your money in that account is losing 1.75% with this rate of inflation. If your CD is paying 0.3%, you are losing 1.7%. And if you have it in a pickle jar, you are losing the full 2.0% of purchasing power by not doing anything with it.

Ultimately, as far as I am concerned, instead of just saving money, put your money to work in an investment that will earn you more than the rate of inflation. Historically, the S&P 500 has provided positive returns over the long term, but in some years, like 2008, it had a negative 37% yield.

Overall, accounting for inflation, the market seems to average about a 7% return, but you will be advised to leave your money in the market and let things work themselves out. We have money in the market in the form of traditional & Roth IRAs, regular managed investments, my 401k, and various individual stocks that I play with (not very much).

I, personally, don’t want to devote my time to attempt to master the market.

Why you should make your money work for you

We also are investing in real estate. So far, those investments are working out to about a 9% return. Real estate has many options from flipping, to buy and hold (rentals), to lending, to investing in notes (becoming the mortgage holder for other borrowers). As stated before, BiggerPockets is the best free education on real estate investing you can find.

Additionally, we invested in a high-end door manufacturing business. It is not currently providing a return on investment, but it is improving and still self-sustaining, in addition to providing me and my fellow investors with some of the best business management lessons we have ever run across.

The bottom line, make your money work. To paraphrase the old adage, if your money is not moving forward, it’s falling behind.

And, as always, let me know what you think in the comments. Ask questions, tell your story.

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