All Forum Posts by: Henry Clark

Quote from @James Kerson:

@Henry Clark That’s the million-dollar question. Here goes:

Step 1: Obtain broker license in Michigan. I’ve got one in Ohio and meet Michigan’s experience requirements. The Michigan Bureau of Professional Licensing confirms that the some but perhaps not all of the Ohio coursework meets Michigan’s educational requirement, but if not, no big deal, I’ll take the additional hours. Then I’d sit for the Michigan exam.

Step 2: Form a Michigan Real Estate Broker Company (aka, a brokerage) per the MI Bureau of Professional Licensing’s requirements.

Step 3: Draft written listing and transaction management procedures and source and integrate necessary software programs.

Step 4: Form exclusive relationships with a local title agency and mortgage broker. The key is to bundle buyer agency services with title/mortgage services. To minimize friction, we want as many buyers of our listings as possible to use our buyer agents. One stumbling block of another full(ish)-service discount broker, Homie, was that it paid market-standard (2.5-3%) buyer agent commissions. It only took $3,000-$5,000 in commission from sellers. This reduced the net commission expense to seller from 5-6% to 3.5-4% - a good start, but not so much that it differentiated Homie from competitors. A gross commission of 0.6% has sex appeal, but it can’t include the direct and indirect costs of listing, plus buyer commission, plus bundling title/mortgage services, plus a reasonable profit margin. Probably the listing commission exclusive of buyer-agent commissions and bundled title/mortgage fees is more like 0.75% to 1%.

Step 5: Settle on how to address the problems/opportunities of working with buyer agents. We cannot pay buyer agents anything close to market-standard commissions, lest we go the way of Homie. Preferably, buyers would directly bear the cost of their representation. Buyers would fall into three categories:

1. Unrepresented buyers: a tiny minority, and they pose no challenge.

2. Buyers represented by our company: A value proposition to buyer clients is that we would bundle the highly-commoditized title, closing and mortgage origination services with buyer-agency service if buyers use and directly compensate our agents. Most mortgages permit rolling closing costs other than buyer RE commissions into the mortgage principal. Buyers could pay for the direct costs of buyer agent time with fees charged per property visit, plus a la carte for assistance drafting offers, transaction management, etc. This is risky, but shifts the burden of paying the buyer agent from seller to buyer, and encourages buyers to avoid tire-kicking.

3. Buyers represented by agents of other brokerages: another challenge. We can’t differentiate ourselves on price if we pay full buyer commissions, but a substantial proportion of the buyer pool will be represented by agents from other brokerages. I’m thinking of a flat referral fee, maybe $1,000 or $2,000 to a buyer agent to reduce the risk of them steering their clients away from our listings.

Step 5: hire listing agents and buyer agents. 

Listing agents would not drive their own pipelines; they would be advisors, high-quality customer service reps assigned to clients. Instead of valuing sales skills among listing agents, we would seek agents who might be sales-allergic but knowledgeable about real estate transactions and empathic. The personality type I have in mind is that of an excellent Progressive Insurance CSR. They would not spend time or their own money developing individual brands.

After a lot of back-and-forth on and off BP, I acknowledge the need for buyer agents, certainly to help buyers understand the closing process and the PSA, but also for the mechanical act of conducting tours. Unlicensed door-openers are basically unworkable, and unsupervised buyer tours would be unpalatable to most sellers. 

Step 6: Launch brand, website, SEO, blogs, any marketing I can do to drive in-bound listing client traffic. 

This is not an exhaustive business plan, obviously.

 OP I’m not saying I agree with your product but keep taking the steps forward and to a lower level.  Also put together a Scaling model.  Examples:

A.  At some point you will need your own Title company for faster turn around.  And as a differentiator and cost reduction.

B.  Going to multiple states to scale you may need to franchise.  Or you have to add a development team along with an operations team by state.  

Take each of your line items and develop both the next lower level of detail and scaling. 

Both of your invest strategies above I don’t consider as RE investment.  An investment forum would be better for this post.

With that said let’s look at these two but also let’s look at Risk adjusted.  Find your own figures.

A.  S&P 500 is at a PE ratio of 30.  Price to earnings.  An example. A $300 investment would make $10 earnings per year.  Before personal taxes.  That’s roughly a 3% return.  
No investor would make that investment even before adjusting for risk.  Most commercial investors are looking for a 6 to 10% cap rate return.  

Take the top 5 stocks in the S&P out of the equation and see what the P/E ratio is.  A lot worse.  

But hey, money is pouring into the US stock market from all over the world. Smart people they have to be right.   .    
    
B.  RE syndications.  You said you have been reading several hundred hours of BP posts.  By now you have read all of the Syndication failure issues.  You should have boiled them down to the following lack of proper due diligence.

 1.  Short term debt used in longer term investment time frame.  They got caught short with the recent rate increases.  Investors already learned this lesson about 15 years ago with housing.
 There is a rule.  Intelligent people learn from other people’s mistakes. Smart people learn from their own mistakes.   Dumb people keep making the same mistake.  This was a very simple due diligence item that was missed by many people. 

2.  Bankrupt brand names, Broadway shows, crypto investments.  These investors didn’t risk adjust these syndication investments.  

These investors were looking for Passive income, but they didn’t realize they had to fill the role as an Investment banker and they didn’t have the skill set or systems to do that.   Are you an Investment banker? 

If you're looking for an REI strategy state your financial objectives, resources and time frame and ask for suggestions.

OP.  Go for it. You should have a lot of real world experience in this model within 2 months.  Then tweak.

Couple of notes.   
1.  Our county has 15,000 people in it.  Our realtor spends $30,000 per month on advertising.  His office has 90% of all the listings in our county.       
2.  His office has about 20 agents.  The majority of his listings are thru 5 agents.  
3.  Our specific agent may show a house 10 or 15 times.  Each showing he is also showing that same customer 2 or 3 more houses.
4.  Had our agent break the commission split down.  Him as listing agent.  7% commission.  Say 3% to buyers agent,2.5% to sellers office, 1.5% to him.  

5.   Belize commission is 10%.   Small market.   Properties stay listed for 2 to 4 years.  Our first property we bought was listed for 15 years.  A great property.  Agents don’t show or seek out other agents properties.  If you’re buying you have to go through several listing agents.

6.  Italy 2%.   But you have to add immobilairie (lawyer) and Geometra (engineer but more).  Unless you’re doing cash.  More costs than just the realtor.

A.  There are several models out there but for different reasons.  Try yours.

B.  Commission versus hourly wage.  To me a non starter.  You want the driven people and they won’t work for hourly.

You have gotten a lot of input.    
What are your next steps to implement?  Your past the discussion phase.

OP if I am presumptive apologize in advance.  

We are doing a Teak plantation in Belize in subtropical zone.  Minimum wage is $2.50 USD per hour similar to Zimbabwe.  Looks like Zimbabwe is 40% under 15 years old.  Belize is also young.  Belize has ocean front.  Close to the U.S.  And lot of expats.  Doesn’t look like Zimbabwe has oceanfront. Don’t know about expats moving in.

There are many real estate investment strategies.  Also your resources, expected return and time frame.

I would identify the path you want to take given the above.  

Decide on cashflow or appreciation.  Could be both.  As you’re starting out you might want to go after forced appreciation versus cash flow so you can scale.

A.  Housing.  We are building a 30 x 40 footprint home for one of our workers.  30x30 will be the house with 10x 30 being a porch.  This is actually a nice size house in Belize.  Would rent for around $200 USD while they make $2.50 per hour or roughly $400 per month.  This isn’t worth the effort from a financial standpoint.  Will end up costing about $30,000 not including the land.  This will be a concrete block house with metal frame and roof.  
B.  Could do a multi unit for less cost since we could leverage the land, water/ sewer/electric hookup.  But still not a good investment for us.  But that is gauged versus our expectations.

C.  Commercial - we raise Tilapia, started ducks and feeding some hogs.  I would not do these if your going to do them in an industrial approach with commercial grain and feed.  With your Agricultural engineering background if you could develop a repeatable business plan then keep building locations and selling them.  You can utilize aquaculture and permaculture models.  Dont follow the oil based industrial approach.

D.  Commercial- go vertical.  Take the food from the above and move to restaurant locations.  Make money on building the restaurant, starting the business then selling   The value of commercial buildings is having a tenant.  

Key is to identified trends in your market.  Develop a plan that takes advantage of those plus your resources.  

Start small and Make Your Big Mistakes Early.  

OP.  Are you in Zimbabwe or the US?  I would also try to use your Agriculture Engineering background as part of your strengths in Real Estate investing.

As noted above, your housing is the very first place to start.  You will get the greatest returns and have more control.  Find someone your comfortable discussing your personal situation, possibly at a Real Estate meetup in your town.  There are many angles to make far more money thru your housing, versus investing somewhere else.

OP.  The obvious answer is yes.  But you said to the first responder, not working in that field.  If you could be more precise, you will get better responses.  Make 80% of all your failures on paper first.

OP:

1.  Paying tax is great, means you are making income.  You can defer to some degree.

2.  Your deals will always have both Cash Flow and Equity components.

3.  As Poster above noted, Cash Flow and Income tax/Income are two different outcomes.

4.  Your major issue in the discussion.  How to go for an Appreciation deal.

You force it.  And you do control the outcome based on your deal and Market analysis.

A.  Buy the oldest ugliest home in a really nice neighborhood.

B. Buy a home that you can split, ADU, or split the land into an extra lot. Move it to STR or MTR.

C.  Buy an empty lot in a development, in a nice area, at the "Correct" time early in the development.

D.  If you're talking Commercial property then the higher your Net Operating Income goes and the leases or quality or renters you have, the higher your value goes.  You do both, you increase your income, and in Commercial that forces the value of the property up.

E.  Let's say you are a dentist or lawyer.  If you take a nice empty property buy it and lease it yourself, you have increased the value.  If you go to sale, they will want you to have a long-term lease on it, so you don't move out.  Or you develop or bring a business into that building.  Could be as simple as an empty building.  You then turn into a Fireworks warehouse and sales location.  You have to be creative, then you create equity.

Quote from @Wesley Peixoto:

Quote from @Henry Clark:

What type of businesses did you do before. I would try to tie those experiences and skill sets to your REI path.

Work backwards from your $300,000 annual target to monthly say $25,000 per month. Then look at different REI to scale to that number.

Keep in mind most REI is a combination of monthly cashflow and appreciation. Recommend you go after both. You can always sale on your date and convert appreciation to monthly cashflow.

Hey Henry! I was involved in a bunch of industries—from wellness and gyms to digital marketing and consumer products. At the end of the day, the backbone of every business is pretty much the same: you need a strong, committed team. And at the top, you need three key people: an artist (to deliver a great product), a manager (to keep things running smoothly), and an entrepreneur (to drive it forward). Plus, keeping things as simple as possible is always a win!

You might look at commercial.  The value generator in commercial is the lease or use of the building.   With your background get the building going.  Lock in a renter then sale.  You will need to scale up versus doing houses to hit your numbers.   

Quote from @Jed Butikofer:

 I have researched as you suggested and found a pretty good understanding of what these property tax sales are and it looks like a great opportunity. However, everything I have found in my preliminary search is via the auctions and it sounds like that's not the way to go. What is the best way to go about finding these property listings online before they go to the auctions?

I’m going to PM my brothers phone number in Italy. Join WhatsApp to call.  The calls are free.  Call after 5 pm Pisa Italy time. Don’t share number or call odd hours.  Tell him I sent you.  Look at properties but then contact me.  You want the best location for making money.