OPENING REMARKS
What have you done to prepare for this position?
The young man was dressed in the ubiquitous blue suit, blue tie, and white shirt that all interviewees wore. The room was a standard government-issued room: bare walls, painted white, no colors, no designs, boring. It had been a long day. This was the 9th interview and I knew that my partner and I probably had at least two more to go. I just wanted the day to be over. All of the interviewees, unfortunately, blended into one long blur. Nothing unique, nothing special, nothing to remember them by.
The young man looked back at us. He seemed confident and poised. According to his file, he was twenty-two years old, had graduated from college, and had worked at McDonald’s for the past year. That was the sum total of his experience, and now he was interviewing for a position as a Los Angeles Police Department police officer.
It was after lunch, and I knew I should have had the salad instead of the double cheeseburger. It was going to be a long afternoon. As he started to answer the question, I fought to stay awake. He started by telling us that he had a college degree and had worked at Mcdonald’s for the past year. I remember thinking, this burger flipper has no business applying for a job where you have to deal with hostile people; where you have to confront them, deescalate a situation, and if the person does not want to go along with the program, take the appropriate action, in other words, use the minimum amount of force necessary to gain compliance.
Tell us about a time when you had to deal with someone who was angry and how you handled it. It can be anyone: family, friend, work situation.
As I mentioned before, I work at McDonald’s. I work the counter taking orders and giving people their food. Because of this, I am constantly dealing with the public, and sometimes, they are not happy with their order or that it took too long to get their food.
Recently, I had just finished serving a customer, when a customer in the line next to mine started yelling at the employee who had taken his order. I stepped in and asked the customer if there was anything I could do. He stated that he had ordered his food more than 10 minutes ago and had not received it.
I told him I would personally find out why it was taking so long for the food to come out. I went back to the kitchen, pulled the food, packaged it, returned to the customer, and gave it to. This took me about two minutes. The customer was grateful. He then apologized for losing his temper and walked away. This is the type of thing I do regularly. I identify a problem, take the needed action, and solve the issue.
I remember thinking, wow, this is the type of person we need at the police department. Someone who cares enough to do what is needed to meet the needs of the people we serve. The young man did a great job answering the rest of the questions we asked and got a high score on his interview. I remember feeling embarrassed that I had judged this young man before he had a chance to tell me who he was and what he was all about. I promised myself I would never do that again.
Prejudging a person is like prejudging an investment property. Sometimes you have to give a property a chance to let you know what type of property it is. I can’t tell you how often Sam and I have come across an investment property that people have bypassed because they prejudged it. The numbers did not look good enough, or the property looked like its best days had come and gone. But by looking a little deeper, we often find that the numbers did not look good because the property had been mismanaged. That by fixing deferred maintenance or by getting rid of tenants that refused to pay their rent, the property can be profitable and can be made into a better place for people to live.
Next time you come across a property where the numbers do not look that good, look behind the numbers to see why this is. You may find a property that may be a great fit for your real estate portfolio.
THIS WEEK IN REAL ESTATE
On Friday, January 7, 2022, the Wall Street Journal had an article stating that U. S., mortgage rates rose to their highest level since May 2020. Click on this link to read the article (Mortgage Rates Hit Highs). This is predicated on statements made by the Federal Reserve Bank indicating they will raise the Fed rate several times this year starting in March. In doing so, they will cause mortgage rates to rise.
Real estate investors need to keep an eye on this, because it can impact decisions on whether to buy an investment property or to put their money in some other investment. For most of us, the other investment means investing in the stock market. The market is at all time highs, this is a scary time to start putting money into the stock market. In last week’s newsletter, I mentioned that I am afraid of heights. This also applies to the stock market.
Although, I do believe that mortgage interest rates will be going up this year, I am of the opinion that they will not go above 5%. The federal government has borrowed record amounts of money, and every tick up on the cost of money, will cost the government billions of dollars in interest payments. I do not believe that elected officials will allow the Fed rate to go up too high.
Additionally, remember that the interest rate is just another variable to include in your calculations. There are several other numbers to include in your calculations that will mitigate the impact of higher interest rates.
As my sister once famously said, “Just because you are not hungry is no reason not to eat.” To paraphrase her: “Just because interest rates are going up, is no reason not to invest in real estate.”
REAL ESTATE TIPS
Bottom line, if you want to invest in real estate you need money. Yes, I know there are people who say you can buy real estate with no money down. That means you need to use other people’s money. However most people will not let them use their money if you do not have some money also invested in the deal. They will think: If the deal is so good, why aren’t you putting money into it.
If you’re not sure where your money is going, it’s time for a budget. A defined plan can help give you control over how much and when to spend and how much you are putting aside for a rainy day and for investments. With a budget, not only are you able to keep track of where your money is going but you also have more control over the process.
Without a plan set in place to monitor cash flow and spending habits, it becomes much easier for people to spend against their own best interests without even knowing it. Below you’ll find 5 simple steps that will help you get started budgeting on the right path!
1. Have a Plan for Your Money
Money management is important and can be tough if you don’t have a plan for it! Apps like EveryDollar, Mint, or Quicken are great tools to track where your money goes no matter what category of expenses. They also help with establishing budgets in every area so that the whole process becomes easier on yourself when things get tight– which they inevitably will at some point due to life’s surprises!
2. Write Down Your Set Bills.
Write down your set bills on a monthly basis, and plan accordingly! Some bills that are set and don’t change monthly include: rent, car payment, health insurance.
3. Write Down Bills that Do Fluctuate, but are a Necessity
Recording your monthly bills that change is a necessity, but are not always the same. You need to know how much you will spend on necessities like groceries and gas so it’s best to take note of them each month. Include bills that changes month to month, and allocate the maximum amount of money you will spend on each.
4. Give Yourself a Budget for Fun Money and Random Expenses
Planning for fun is just as important, if not more so than budgeting your money. Give yourself some ‘fun’ money to spend on whatever you want and don’t worry about it too much – we all know that’s the only way to live life! Just make sure you’re setting limits between going out to eat & other spending categories like getting a massage or catching a movie with friends because they can add up quickly!
Income minus expenses = Savings/Investing
The more you can grow the savings/investing part of the above equation, the sooner you will have money to invest in real estate.
MY JOURNEY (Sergio Sais)
The year just started and I feel that I am already falling behind. So much to do, so little time. But the reality is that it is more about getting organized than about time going by too fast. One of the things that Sam and I are in the process of doing, is starting a real estate investment group that will meet every month. This group will consist of people who are ready to invest in multifamily apartments (a minimum of $20,000 per investment will be required). Sam and I are doing the work of looking for investment properties, structuring the deals, setting up the legal structures, and getting the financing in place. The group participants will decide if the property and the structure of the deal fits their investment criteria.
During the group meetings, we will be discussing the different markets we are looking at, the properties that we are evaluating, the risks involved, the upside and downside to each investment, and how much money each person wants to invest. We will be answering questions as to the who, what, where, when, and why of a property. If you are serious about getting your investment portfolio started this year, or of expanding your investment portfolio into the multifamily apartment market, email me at sergio14508@gmail.com. The first meeting will take place in February. We will meet via Zoom. The meetings will start at 7 pm and last approximately one hour.
MY JOURNEY (Sam Smith)
Sergio and I chronicle our weekly journey to educate and motivation those that are looking to start their own. However, I find that many people hesitate to take action because of fear. They have questions that they cannot seem to find answers.
A few of the most frequently asked questions are:
Why do lenders amortize their loans and what does that mean?
Will the hot real estate market cool off or burst when banks raise their rates to meet inflation?
How do you manage non-paying tenants?
In this article, I will shed some light into the first question and touch on the others in future articles. As I advance forward, grow my network, and continually educate myself in the various facets of REI, I realize that there are fundamentals that every investor should understand. One of those fundamentals is the concept of “amortized loans.” To sum it up, an amortized loan is a type of loan requiring the borrower to make scheduled periodic payments, applied to the agreed upon principal and interest.
Here is what it looks like if you were to take out a $100,000 loan, amortized for 30 years.
As you can see, even with an interest rate lower than the inflation rate, the lender makes their money on the front end, to the tune of over 50% during the first several years. By knowing that many borrowers sell or refi within the first 10 years of their purchase, the lender will always win BIG TIME!
The reality is, even if inflation was 10%, 12%, or 15%, the lender is beyond hedging their bets even if they decide to keep rates at current trends. I hope this helps to clear up why banks can offer low interest rates, regardless of inflationary factors.
I spent this past week recording rents, verifying profit and loss charts, and finishing holiday treats. I analyzed several deals, conducted due diligence on a few that I am interested in, and discussed my findings with Sergio to see what would fit our standards for investment.
During the week, I also connected with an old friend who is now working in the REI lending space. We traded ideas and I sent him a few properties for funding proposals.
On a more personal note, I also connected with some friends that have started on their REI journey but seem to hit a wall. I provided them with some tips and tricks of the trade to help them back on their journey.
I completed my New Year resolution “walks” to clear my mind and burn extra calories, spent individual time with each family member, and booked future family trips. The week ended with a motorcycle ride on Saturday morning, followed by my cousin-in-law’s wedding in the afternoon.
As an added bonus, a few more investors jumped on board and requested they be on the Hedgehog Capital Investors List. The year is moving forward, fast. Get moving on your goals.
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If you want additional information on what I am doing or would like to partner with Sam and me an a deal, email me at sergiosais14508@gmail.com. Have a great week.