As humans, we tend to make things so complicated, when if we would only pay attention to the facts, we would be so much better off! My math teacher and I are still in contact via Facebook, which is ironic, as I spent more time in the hall than in her classroom! Yes, I was one of those kids who was a class clown and weighed out the value of a well timed joke, with the consequence of being in trouble. You can probably figure out which side won that debate in my head more often than not.
Ok, he has nothing to do with this paragraph bedsides the fact that he’s been an ecentric dude helping people lose weight for decades. The one thing I learned in math class is that numbers don’t lie. They simply can’t. They are the facts. I’m one who struggles with winter weight gain. I’m from the northeast, but in my heart I’m an ocean boy. I have no doubt that my retirement will involve daily ocean activities and a view of her from my home. Each summer I seem to have to lose 10-20lbs. I think I bulk up to stay warm like a hibernating bear or something in these cold winters! It’s very frustrating, and I’m sure some of you can relate.
Last year I had a revelation. I discovered a simple free app called My Fitness Pal. It’s a simple way to track what you eat and the calories you burn. Once I figured out that losing weight was really a mathematical certainty, life changed for me. I know this isn’t news to most of the population, but for me it was the light bulb moment I needed. To lose weight I need to burn 3500 calories more than I eat to lose one pound. Simple math. My Fitness Pal made it very easy to understand the math behind the weight loss and helped me reach my goal. Now if they would make an app that severely shocks me when I reach for ice cream, they would have something!! Again, the number don’t lie. They can’t. Follow the math (facts) and your success can be guaranteed in any endeavor.
To Boldly Go Where No Man Has Gone Before
Sorry for the Star Trek reference, I couldn’t help myself. This is how branching out to new areas can feel. Even though other investors have had success in those areas, we aren’t as familiar with them as we are with our home town. Here’s where the math comes in. Let’s propose the scenario of buying and selling at least 65 houses in the next 12 months. At least 26 will be full renovation projects, the rest, wholesales. To do this successfully, we will need to expand to new areas. They are very close by, however, they aren’t in our comfort zone.
So how do we make them our comfort zone? We do the math, because the numbers can’t lie. In this case, when we find a potential renovation deal, we run the comps. We study them like we would study for a final exam. We physically drive the comps to really understand the neighborhood. We don’t simply use the realtors math, as that could potentially be like cheating off the wrong kid and not getting a good grade! The realtor has a vested interest to sell the house to you, so it’s up to you to do YOUR job and your OWN homework. Get all the facts you can before pulling the trigger. If you see houses selling, yours will too. If you see the other houses selling are in decent condition, make yours amazing. If you see the other ones selling all have 2 bathrooms, then make sure yours does too. Do whatever you need to do to make sure all the numbers line up.
Is It an Exact Science?
Never! But we can get really close using the math to see what’s selling and what isn’t, and for how much. From there, after our due diligence and homework, we can really feel confident making the decision to move forward. Nothing in life is a guarantee, except as they say, death and taxes. To make sure we are very comfortable, we have developed a simple but mildly complex spreadsheet that calculates every possible cost. It covers repairs, taxes, insurance, interest, utilities, commissions, buying cost, selling costs, etc. No cost is overlooked.
Caution: Don’t get caught using eraser math. Don’t force a deal by skimping or removing something that could cost you the sale of the house! On the sale side we also have a page on the spreadsheet where we place all of the comps. We use very close comps, both in size and location. Like I said, we drive the streets in these new areas to be sure they are very similar neighborhoods. We even talk to neighbors as they always know the good and bad streets. Once we determine they are solid comps, we add them to our sheet. Our sheet then calculates the ARV, or the After Repair Value, and places it in the sheet to let us know what it will sell for based on square footage. This is about as exact as you will get. They call is Real Estate Investing, and not Real Estate Certainty for a reason! 🙂
Does It Really Work?
In a nutshell, YES! Look at it this way. All areas you work in now were once foreign to you. If you haven’t yet started investing, then all of this is foreign to you. Once you begin and start to learn, then your fears will start to go away. In time, each new area starts to become your “new” comfort zone. If you can’t find enough deals in your own back yard where you are ‘Comfortable”, then start to explore. Use math to ease your worried mind. Remember, you can always rely on the facts because numbers can’t lie! And if you are reading this and haven’t started investing yet because of fear, then the same applies to you! Go create your first comfort zone. Remember, as President Roosevelt said, “The only thing we have to fear is fear itself!”
How have some of you started in new areas outside your comfort zone? What techniques do you use when looking at a foreign area? I would love to hear from you.