Archives for May 2007
There’s still a good buck to be made.
Despite the fact that we’re in the largest housing price bubble in history. And despite the fact that subprime lenders are losing their shirts thanks to a massive spike in foreclosures … you can still get into investing in rental properties with the right opportunity.
And that’s the key. The right opportunity.
We might be standing on a cliff face where housing prices are set to plummet anywhere from 10% to 40%. You can still get in now and do well. Again, you just need the right opportunity.
8 Rules For Creating The Opportunity
I know some solid and savvy property investors. This is not real-estate seminar BS. You can create the opportunity by sticking to some very smart rules that they use:
1. Get The Rent. You need a property where you can get 1% of the cost of the property in monthly rent. In other words, you need $2000 a month in rent from a $200,000 property. This is not easy to do, but the opportunities are out there. This percentage ensures you can pay the mortgage, the taxes, repairs, go through some vacant months, and even hire a property manager.
Don’t try and buy a property that’s renting for $1200 a month for $300k and think you can get a higher rent out of it. The rent is the rent. Renters can only afford so much. You need to get that property for $120k to get your 1%. And getting your 1% is non-negotiable. Stick to your guns and find the right property.
2. Test Drive It. When you find a property you like, advertise it for rent in the local paper. If you get a few calls from people wanting to rent it, scoop in and buy it up. Now it’s already pre-rented and you know the property is in a good area and the price is right.
3. Go Duplex. Ever wonder why there are so many condos these days? They have a small footprint and it’s a lot easier to find your 1% when you don’t have to add a back yard to the overall square footage and the cost. Other great opportunities exist in duplexes, four-plexes and houses zoned as “multiple dwellings” with upstairs and downstairs suites.
4. Get Ugly. Upscale neighborhoods are not filled with renters. Scratch that … actually there are some very nice neighborhoods where the owners rent out their basement suites. But if you’re going to buy an entire property in a really nice area, get the oldest, ugliest piece of shack you can find. Some cash and elbow grease will bump up the value, and so will the surrounding neighborhood.
5. Wall It Up. If you find a 2 or 3 or 4 bedroom property and the layout gives you ample room to divide up a family room or rec area, add another bedroom. This is one of the easiest ways to really add value to a property that allows you to get more rent for it. A nice new kitchen or bathroom isn’t going to do that like adding an extra bedroom will.
6. Inspect It. The last thing you want to do is buy a new roof on your new rental property. You’re looking for a great deal and you need to make sure it’s a great deal. In most places, people don’t need any qualifications to become a home inspector so find a good firm or an inspector with a solid background and credentials. Check the roof, the foundation, the plumbing, wiring. Check for pests like termites.
7. Outsource It. Being a landlord is not easy sometimes. You’re an investor, and that’s why hiring a property manager to find tenants, collect the rent, and deal with all the little problems can be a very smart expense. They charge anywhere from 5% to 10% of the gross monthly rent and take most of the hassle out of investing in property. This is also a great option if the best opportunity you can find is in the next town or in the next several towns over.
8. Go Long. Rather than getting a 30 year mortgage, look into getting a 40 year mortgage to reduce your monthly payments. Going long is not usually recommended for home owners. It adds considerable interest cost to the overall purchase price and your equity builds more slowly. But, you’re renting this property out. You’re not paying for it. If a 40 yr mortgage can put an extra hundred bucks cash into your jeans every month, it’s worth looking at, especially in an expensive market.
Summing It Up
The most important thing to remember is that a business has to be able to pay for itself. The property you invest in has to pay all the bills and then give you a profit every month. And at the same time you’re building up equity.
If you do it right, the hardest work you have to do is to find the right property. And to not settle for less than one that gives you your 1%. As long as the property can pay for itself, if market prices crash, you’re still getting paid, and in fact you’ll do better because as the worth of the property goes down, so do the property taxes.
The three things that can really hurt your investment are:
- Rental prices drop
- Interest rates rise
- A one horse town loses its one horse
What if rental prices dropped 25% or you go to renew your mortgage in 5 years and interest rates are up to 15%? Or the economy in the area takes a dive and people move away? These things have happened before. Take them into account. And if you can weather the storm you’ll be alright.
Bubble or no bubble, smart investing strategies work.
There’s a lot of chatter lately about how difficult it is to write a blog. After a while, a lot of people just run out of ideas and throw in the towel. Maybe this will help …
Blogging is about writing, more than anything else. And you have to exercise that.
This is a creative writing exercise. It’s called free association, and it’s a good way to exercise your noodle. It’ll help your writing no matter what you’re writing. Basically, you choose a number of seemingly random things, and put them all together into a little story that makes sense. Or sort of makes sense.
Ready, Set … Go
So I’m Leviathan Ran. Course I’m also Nasal Hair Vent, which has got me looking at my nose with a puzzled look on my face. What did it all mean?
In a search for answers I stopped by Zen Habits to see what the Handbook for Life could tell me. I didn’t find the answer to the anagram riddle there, but if you decide to have a weekend without television, there’s a lot of great advice to be had and things to do to keep you busy. And not so busy.
Steve Roesler has some great advice on subtraction. Success, Authenticity, And All The Things You Aren’t seemed like it might be the angle I needed. Was I not Leviathan Ran.
Or not Nasal Hair Vent.
I needed another angle. So I wandered over to Antbag since Anthony recently won the Millionaire Mind book contest. Maybe he had some million dollar advice. Since winning the book he’s put out a WordPress theme and probably the most innovative productivity wallpaper you’ll see on any desktop.
He was obviously too busy becoming a millionaire so I didn’t bother him.
Nate Whitehill always has great advice. Like 5 Ways to Make your Post more Readable. Hmm … we’re way past the point of no return on that one here. But maybe I can salvage some readability with a couple bullet points:
- Shoemoney threw out a link to a cool little online flash game
- The game is called Desktop Tower Defence
And … Stop!
So that’s free association.
It’s a great way to break through writer’s block or just stimulate your writing process. What you come up with doesn’t matter so much. It’s gonna be off the wall. And it should be.
What’s important is the exercise.
A few weeks ago, I conducted a little survey here to get some feedback on a topic for an eBook.
Branding stood out as a favorite. So branding it was. And branding it is.
And incidentally, part of building a great brand is testing it. And surveys are a good way to get the opinions you need to make good branding decisions and to make sure you’re on the right track.
Enough Talk … I Need The eBook!
Just subscribe to Zoomstart to get free updates and a link to download the book. You can subscribe to the RSS feed or to Email Updates and at the end of each blog post you recieve via RSS or Email is a link to download your copy of Zoomstart Branding!
Tell Me More. What’s In The Branding eBook?
First of all, what’s the catch? There is none. Cool, huh? Enjoy it, read it, print it out and wallpaper your wall with it. Email it along to someone you know. And check out the links in it; there are quite a few great blogs and sites in the resources section on the last page to help you think about and build your brand.
The Zoomstart Branding eBook is a step by step guide to building a brand. Here’s what I cover:
- How Branding Works. A brand has a job to do. Understanding what that job is really helps you focus on the elements of how great brands do what they do.
- Defining Your Brand. Before you build it, or rather as part of building it, you want to define what it’s all about. Step by step I walk through how it is that people will experience your brand.
- Designing Your Brand. Aha! Down to the nitty-gritty. The basic alements of a name and a logo, and just as important, a population. Yes, you need to populate it with people.
- Promoting Your Brand. If a tree falls in the woods, right? Again, the basics for you to explore along with some tools and ideas on how to do it.
- Resources. As I mentioned, there’s a page of categorized links to click on. This eBook is just the start of your brand building journey. I’m a firm believer in gathering ideas and information from many sources. Check ‘em out.
So that’s what it’s all about. Enjoy.
A good buddy of mine is quitting his 9 to 5er to start his own business. The first step is to start small. The second step is to apply the concept of leverage to really build it into something.
The idea of OPM (using other people’s money) to magnify your position is well understood. Especially in the property and investment markets. What it’s really about is leverage.
In fact, big money always comes about by capitalizing on leverage.
Leverage In A Nutshell
The easiest way to apply leverage is to duplicate successful results again and again. How much you can do this is dependent on market size, compettion, and of course, the success rate of your duplicating process.
If you’ve got a high success rate, the sky’s the limit.
Here’s How You Do It
If you have your own blog, you’re already doing it. There’s a lot of money in media because you produce the product once and then duplicate it thousands of times relatively inexpensively.
I only have to write this post once and thousands of people can read it. Think about all these media categories:
- TV and radio shows
- Newspapers and magazines
- Video games
- Web content
Build it once and the hits keep coming.
Now, obviously there are a lot of brick-and-mortar and service types of businesses that can’t leverage themselves the way media companies can. But as a small business owner or entrepreneur, your goal is to build up your business to the point where you have to expand.
My buddy is starting a pressure-washing business. Pretty simple and basic. Maybe it doesn’t sound real sexy or glamorous, but it’s a solid little business to start. There’s some decent money to be made for an owner-operator in this market and that’s phase one.
Phase two is applying leverage. And this is what every entrepreneur should be setting goals towards. It’s the basis of every trade business …
- Start the business and build it up into a solid earner. Making anywhere from $50 to $100 an hour.
- Find a good, dependable person. Start giving them your work part-time and spend that time yourself going out and bringing in more work. You’re still charging $50 to $100 an hour, but you’re only paying $10 to $30 an hour for the labour. That’s the leverage.
- Steadily grow their position into full-time employment and duplicate the process with your next employee.
It’s that simple. The hardest thing to do is manage people. But that’s something that’s infinitely easier to do when you take the time to bring great people into your organization. So build steadily but carefully. And hone your duplication (growth) process every step of the way.
The next thing you know, all you’re doing is working on bringing in the business. And the next thing after that, your sales team is doing it and you’re just directing the vision of the company.
That’s leverage. And that’s how you do it.
The best ideas are simple ideas.
There are two great disciplines in art that stand opposite one another.
And you can throw the concept at business or any other endeavor you choose. It sticks. And rather than being a master of one or the other, having a balance between them is what’s truly awe inspiring.
Walking past a gallery, I saw a print in the window. It was a painting by Italian artist Pino called First Glance. It stopped me cold. I always like it when that happens.
The Two Great Disciplines
Maybe we should call them gifts. But regardless, they stand opposite each other and most works of art lean towards one or the other. Most artists do one better than the other …
Detail, exactness, realism. Precision is all about space. And capturing that space in perfect detail with line and color. If you’ve ever drawn something and had someone look at it dog-eared and ask “What is it?”, you missed the precision of capturing the space.
At it’s best and most extreme, a precise representation is easily recognized. It’s also dead and dormant.
This is harder to pin down. But the easiest way to understand it is as motion. Time. While a very detailed painting captures a single moment in time with no measureable value, a painting full of life captures a moment and a bit. It takes you there.
Hold your hand out rock-steady. Watch it for a few seconds. It barely moves, but move it does. That’s life.
Just like with precision, life has it’s flaws. By itself it’s a blur. There’s nothing recognizeable in it.
Balancing Space And Time
The balance of these two elements is what makes some of the greatest pieces of art in history what they are. It’s something that artists, maybe unknowingly, strive to achieve. Some do.
You might have heard the phrase “It ain’t no David“. It means something is less than perfect. Which means it’s out of balance.
In everything we do, there are compromises. There’s a balance in business between quality and efficiency. There’s a balance for athletes between strength and stamina. There’s a balance between work and play. Between free abandon and a common good.
These compromises are not compromises at all. They’re balance.
And to really get things done, to be the best at what you do, there has to be balance.
A couple years ago I did a basic study of some well branded companies just to see what they spend on sales and marketing. The results … just might be the perfect plan.
At the very least, you can get a real idea of what an optimum mix of expenses and profit might be when you sit down to write your own business plan.
How I Chose The Companies
My first criteria for this little weekend study was access to financial statements, so they’re all public companies. The figures are all from 2002. The kind of companies I wanted to get figures for were ones with well known brands. Premium brands.
Only a premium branded product can command a high enough price to contribute to a significant sales and marketing budget. The other key business model that successful companies employ is to take that budget and reduce their market price and play the undercutting game.
Selling on price alone without giving your distributors or retailers any market support is a tough game to play. It’s a lot easier to get your foot in the door with a premium brand. The reason is, a lot of the sales and marketing budget is going to go to the retailers in the form of advertising dollars. They love it when you pay for an ad in their weekly flyer and do in store promotions.
The Companies And What They Spend On Sales And Marketing
Nautilus makes fitness equipment. If you go to the gym, you’ve probably used it. They also make Bowflex and after buying the well known bicycle maker Shwinn, they extended their brand offerings extensively into a number of different price categories.
They spent 24.8% of their net sales on sales and marketing.
Moet Hennessy Luis Vuitton makes wines and spirits, fashion, perfume, cosmetics, watches, jewelry, and they own a large number of retail outlets.
They spent 37.1% of net sales on sales and marketing
If Andy Warhol, Dali and Picasso got together to form a watch company, it’d be Swatch. Their wild and endless assortment of pop designs have created a solid brand by bringing uniqueness to their brand again and again.
They spent 50.9% on sales and marketing
4. The Other Companies
I also threw Amer Sports, Shimano, Sony and IBM into the mix. They all lump their sales and marketing costs into operating costs or cost of sales, which makes it a little harder to extract specific numbers. But by looking at their other expenses, I got a pretty good idea of what they were.
Summing It All Up
It’s good to throw a bunch of numbers into the blender once in a while and see what comes out. When you compare them with sound analysis, they should be in the same ballpark.
The pie chart at the beginning of the post is an average of all these top-tier companies. The study showed that on average, they spend about 33% on sales and marketing and pull in a profit of around 14%. Together, this is in the same ballpark as the 50% margin that’s a standard target when you cost out a new product during development.
The really important thing I want to illustrate here is the cost of sales and marketing. You have to spend some money to make some money. And you only make money by selling.
So it makes sense to spend a good portion of your budget on selling.
A lot of new entrepreneurs start out with one goal … to make that big “lottery ticket” sale that will instantly rocket them onto easy street.
It’s about as easy to do as winning the lottery.
We all hear about the successful business-lottery winners. No one hears about the thousands of businesses that fail to grab the big brass ring and fall flat.
The smart play is to do the hard work and get every good, solid sale you can in the beginning. And the swing between no sales and a handful of small ones is bigger than most people realize.
Getting told “No” a hundred times just to get 10 sales is a little discouraging. Especially when you’re first starting out. That’s probably one of the reasons people like to go after the big, big sale. So they don’t have to go through that as much.
There’s nothing wrong with going after a huge contract as long as you have the resources to handle it. But most of the time, a customer that can give you huge business has enough experience to know that they want to work with someone who also has a proven track record and can deliver the goods.
That’s why it’s so tough for new companies to win that big lottery sale.
So the advantage of getting those first small sales is to prove yourself and your business to those bigger clients. To create a successful track record. You’re creating a little bit of success, that you can then leverage into a lot of success.
Nothing creates huge success like the seed from a little bit of success.
The Advantage Of Some Over None
There are some other big advantages of going out and getting those small sales too:
- You create momentum and motivation within your company
- You’re creating a group of satisfied customers, and word-of-mouth advertising is second to none
- You’re bringing in a little bit of cash to pay the bills
- Every single sale you make is one your competition doesn’t. This is the big swing because dollar-for-dollar, you grow a little stronger and they get a little weaker
- If you’re looking for investors and you have a proven sales record, they’ll line up and throw money at you based on your numbers alone
Start small and steadily grow larger. One morning you’ll wake up and realize that just a few months ago … you won the lottery.
I spent most of this last weekend out enjoying myself. I was getting some of my most important tasks done you might say.
People connect with each other in all sorts of situations. But none greater than when everybody is having a good time. That’s why golf and doing lunch are so heavily prioritized in many successful business schedules.
The idea of six degrees of separation was popularized by the movie of the same name. The idea is that everyone on the planet is connected to every other person through, at most, a chain of 6 different people. Jack knows Marie, who knows Fred, who knows Bill, who knows Stacy, who knows Jill. And that’s how Jack is connected to Jill.
There’s also the party game Six Degrees of Kevin Bacon. The object is to connect someone to actor Kevin Bacon through a series of people who have worked together on different movies.
There are quite a few places and situations that are good for connecting people with people. Here are a few:
- At work or school
- At home
- During events, and gatherings
- Through travel and wanderings
- During tense situations
- Through reaching out
When people are having a great time, positive connections happen because everybody is upbeat and having a great time. So the main conduit for connecting with people that’s used the most and is the most effective is recreation.
And the more fun you have, the more connections you make.
These connections introduce new perspectives and new perceptions outside of your own. They open up the world, and the knowledge gained through diverse experiences, situations, and people is that of the whole world.
I connected with some people I hadn’t seen for a little while and made some new friends as well. I learned a few things and learned more about a few others. I ate a lot of great food, discovered a few new places, and at the end of it all, I used the recharge to get quite a few other things on my to-do list done as well. It was all time well spent.
Our lives are about the connections between us. Some are strong, lifelong, while others are fleeting or acquainted. Investing in our connections with others is important. They’re the most valuable things we have. A price can’t be put on them; they’re an investment of our time, of our lives.
So have the time of your life. And spend it connecting with others.
Here’s something cool for the “Whatsis” category.
The old Volkswagon Westfalia vans have always been popular and they still are. But they’re all 30 years old and it’s harder and harder to find one in decent condition.
Well there’s a new successor to the throne. And even VW diehards are saying “that’s pretty cool”. My buddy’s been looking for a Westy for a couple months. But now it looks like he’s gonna buy a Delica.
Japan Comes To The Rescue
Mitsubishi Delicas are popping up all over the place. They’re being imported from Japan and they’re all around 1990-1992 models.
The Delica is right hand drive so it takes a little getting used to unless you’re used to driving in London. They’re 4WD, diesel, and you can get about 500-600 km out of a 60 liter fill-up (about 24 mpg). And keep in mind that because it’s diesel, you can also convert these bad boys over to run on vegetable oil.
Because they’re from Japan where people don’t do a lot of driving, they all have relatively low mileage for their age. We looked at a few this weekend and they were all in excellent condition with no rust.
It supposedly takes about 2 to 3 weeks to get parts from Japan, but they’re very popular in Australia, and you can get parts in 1 to 2 days from down under. Parts availability should increase in North America as they become more popular here.
Right now they’re selling for between $8000 and $12000. They’re easily worth more, but I think the fact that they’re right hand drive is what’s keeping the price down.
You’re gonna see a lot more of these little go-anywhere surfing cruisers around in the next couple years.
You need a team effort to win, and mathematicians are proving that the team effort is your best chance of winning.
Quadzilla puts a little black hat / white hat terminology on a unique problem reported by Sara Robinson that mathematicians and coders are trying to figure out. It’s called the hat problem and was created by Dr. Todd Ebert of California State University.
And it works like this …
The Hat Problem
You put three players in a room and you put a red or a blue hat on each person’s head. The color of each hat is determined by a coin toss, and the outcome of one coin toss has no effect on the others. Each person can see the other players’ hats but not their own.
Other than a initial strategy session before the game begins, no communication of any sort is allowed. Once everyone has had a chance to look at the other hats, the players must simultaneously guess the color of their own hats or pass. And the group shares a million dollar prize if at least one player guesses correctly and no one guesses incorrectly.
Can They Win?
Mathematically, they have a 75% chance of winning if every player passes unless they see two hat of the same color and guess the opposite color for their own. If you play the same game with 15 people, a strategy can be devised where the team wins 15 out of 16 times. Which is almost 94% of the time. Not perfect, but pretty good odds.
Lets Segueway This Into Sports
From ’76 to ’79, the Montreal Canadiens won the the Stanley Cup four times in a row. From ’80 to ’83, the New York Islanders won it all four times and then the Edmonton Oilers had their famous run where they won it five out of the next seven years. Since then there’s the odd team that has won the cup two years in a row, but for the most part it’s been in the hands of a lot of different teams.
The reasons for who wins and who doesn’t are always highly debated, but lets look at a couple facts:
- Salaries and endorsement deals have risen significantly since that golden era. Both these things reward individuals, not teams.
- Great players don’t stay with a team as long as they used to … see fact one.
So, today in sports, what you see is that you can build an amazing team, but next year you might lose some of the members of that team. Or someone else might come along and build a better team. Or both. Mathematically and statistically, a strong team always has a better chance of winning.
And the biggest hurdle every team faces, is sticking together.