Creativity is your best weapon

[Charlotte Dunford]

In real estate, or business in general, you win by solving problems that others can not solve. How do you do that? You must be extremely creative and think outside of the box, and do things others cannot think of doing. I’d like to share four problems many investors have found tough to solve , and how I’ve used creativity to solve each. I hope this could help those who are looking for solutions to the same tough problems. Please share your most creative problem solving case. 

Problem - Can’t obtain loans

Financing is half the battle, and many investors are stuck here. I was very stuck at first in this regard, I just came out of college at the time and my salary only could get me a SFH and a duplex using conventional mortgages. Obtaining a loan that's larger in size was very difficult and my investing seemed to have hit a bottleneck. When faced with a problem, instead of thinking IF I can solve it, I think HOW can I solve it?

Solution - Seller financing

When I try to solve a problem, I always start with something I call “The Collapse Block”. You see, problem solving is like playing Jenga, there is that one block that will make the whole thing collapse. That’s the block you need to find in each problem, and pull it out. Once that happens, the entire problem will go away. In the case of obtaining financing, the collapse block is your income statements, W-2, tax returns, credit scores, experiences that you must present to the bank to get a loan. In short, it’s called “your eligibility” from the bank’s perspective. So I started with the question “Is there an option to avoid the eligibility screening?” The answer I found was through seller-financing. None of the things needed by the bank is needed for seller financing. I bought 44 pads in mobile home park deals through seller financing. Here are the terms.

Deal A: 30% down, 5% interest rate, 30-year amortization, 10-year balloon.

Deal B: 10% down, 6% interest rate, 30-year amortization, 5-year balloon.

I am purchasing two more deals by the end of the year using the same strategy and the terms are even better than these two I mentioned above.

Problem - Good deals are all taken

Good deals are always taken. Why? Because sellers are smart and usually not that desperate. If you keep waiting for someone to be “motivated” and try to talk down the price, it will take months or years to get a great deal. Here’s my thing - I believe that good deals are not found, they are made.

Solution - Good deals are made, not found

You do this by giving the deal a solid business strategy that will turn this bad deal perceived by others into a great one. You take this deal that’s full of hair and abandoned by others, and you turn it into gold. In other words, You make the deal work through your strategies that others cannot come up with. The mobile home parks I bought didn’t pass certain “rules” many investors live by. But I saw very easy fixes to raise the income and lower the expenses to make this park return 20% cash-on-cash for my LP’s year one. I bought the parks averaging $8000/pad which is extremely cheap as it wasn’t “visibly” a good deal and many investors turned away from it. I made it into a good deal through a solid business plan that successfully raised rents, operating income, and lowered expenses. I created $53,000 in property value on the day of closing through raising rents, and firing the property manager, and other creative strategies. Created another additional $30,000 in value through fixing up vacant unit and leasing it out, and it’s only been 2 months since acquisition! (Let me know if you want to see the detailed math) Now the property is golden because I saw the opportunity to make it into a good deal. It wasn’t handed over to me a good deal, it was made to be good.

Problem - Limited funds in reserves

“I understand it takes money to make money. If you need more, just let me know” said my investor while we have our monthly investment review call discussing the newest unit fix up project in one of my mobile home parks. Isn’t that just the best thing to hear from your investor who proactively wants to invest more to support the project? Here’s what I said to him:”Don’t worry. I will make your money stretch as far as it can and I’m fully confident I will not need another penny.” I pride myself in the ability to maximize the efficiency of every single dollar of investors’ money. I do this because 1) A good GP should not bank on additional investments to firefight. I work with what I have and use creative solutions to make it work out successfully. 2) The more cash you put in, the lower the cash on cash is. It’s simple math. Since my company’s mission is to make investors wealthy, it is my job to give them the highest return. That being said, how do I complete the fix-up project without depleting the limited reserves which I treasure as gold?

Solution - Business credit cards

I ended up funding the entire project using business credit cards that I personally applied for and guaranteed, removing my investors of any risks. The out of pocket expense for this project is $0, which leads to a 120%+ cash on cash return on this small project alone.

Problem - High operating expenses

One of the biggest expenses when operating a real estate asset is the repairs and maintenance costs. This is the Jenga Collapse Block on the expenses side. If you could lower these expenses, your total operating expenses will be drastically lowered.

Solution - Combine lawn care, maintenance, and property management into one.

Many times in the mobile home park business, investors find a good tenant at the park and give them free rent to be the “eyes and ears” for the park, and cut the grass, and minor repairs. In fact, that’s how one of my parks used to operate as well under the previous owner. However, the first thing I did when I closed on this was to reach to the lawn care company I established a relationship with during due diligence. I asked them to check on the park and be my “eyes and ears” while performing lawn care services at the same time. How much money did the previous seller spend per year by hiring a tenant to do all that? $3060. How much did I spend? $1000. Only one third of what the previous owner spend. The lawncare company’s “eyes and ears” service was on an hourly basis $25/hour, unlike the 5%-8% of revenue like most property management companies charge, or the free rent model which would be 6%.

I started. I want to hear how you creatively solved the "unsolvable" problem.