My wife and I live on an island in the Caribbean. We came here from Massachusetts after being real estate investors for the past 20 years and building a business that we love, working with people and families that we love as well. In that time we have bought a lot of properties, sold a lot of properties, wrote a lot of offers, negotiated scores of deals, completed countless renovation projects, and have leagues of war stories to tell about the rental business. We also have gained a lot of knowledge and experience over the past two decades and still get to work with some really great people.
We still work remotely running our property management business. We have a phenomenal team with boots on the ground running the day today business and several remote workers keeping the wheels running smoothly from coast to coast. We have also branched out to have offices on the East Coast and the West Coast. We have enjoyed accelerated growth through a lot of hard work. We absolutely could not have done it without such great team in place and I truly want to thank every single one of our team members. They are all rock stars!
After a week of running the business and ensuring the team has what they need to be successful, we try to escape to the beach at least one day on the weekend. Our favorite pastime first thing in the morning is to walk the beach to our treasured spot to collect sea shells. It’s about a two hour round-trip stroll up and down the beach during while we often brainstorm about our plans for the future growth of our business. It is absolutely one of my most favorite meetings of the week. Walking with my bride, on the beach in paradise, planning our future dreams, together.
On several of these explorations I have commented to my wife how looking for real estate deals is similar to what we do on the beach to find seashells. The correlations run parallel looking for seashells just the same as it would looking for great real estate deals to invest in. If you have a plan and a goal in mind the journey is often fun and well worth your while.
Let’s explore comparing beachcombing to finding real estate deals together.
The Ocean (the market trend)
What part of the market cycle are you in right now?
In so many ways the ocean waves echo the real estate market. The ebb and flow, rising tides, receding tides, crashing waters, calm seas and the ever constant cycling waves in many ways resemble the real estate market.
No matter where you choose to invest understanding the market you are in is the first point to charting your course. You need to know where you are in your market and where you are going, just as you need to know what the ocean is doing all around you. You never want to turn your back on a raging sea and you absolutely don’t want to swim contrary to your market. Consider the high tide to be a hot real estate market. When the waters are high it stands to reason there is just less beach to walk on, and less opportunities to be found. The same holds true in real estate. When the market is hot the supply and demand is higher. It’s harder to find a deal. When the tide is high its harder to find a shell.
When the tide is low there’s a lot more space to roam around to look for deals and the market is not as congested. For real estate this is usually when prices are plummeting and people are losing their shirts from investing in deals that didn’t make sense. Warren Buffett is famous for stating “you can see who is swimming naked when the tide goes out.” You don’t wanna be caught with your trunks down when the market crashes. In a down market, if you are prepared as a buyer, you can load up your bucket with deals. Same falls true with the ocean. When there’s more space to walk around you can see more of the beach, see more shells, find more opportunities.
The Beach (your market area)
You should know the area you want to invest into.
If the wave represents the market conditions then the beach is where you’re standing in the real estate market looking for buried treasure. It doesn’t matter which beach you’re standing on or which coast you want to explore. You need to know the terrain. Be it Metro, suburbs, or rural areas, whatever suits your taste is totally up to you. All real estate investors have different life cycles as a real estate investor. Depending on your situation you may have more time and a higher risk tolerance. Or you may be looking for a safer strategy with not as much risk. It’s all up to you and what you enjoy investing in.
While looking for shells, you can go for the huge Nautilus as a centerpiece of your portfolio. Or you can load up an attractive glass jar with several smaller shells which collectively will give you a beautiful set of holdings. It’s all up to you. Know what your market is doing. They know where you want to hunt for deals, or sea shells for that matter. Everyone has their own preference. Some people like tiny shells that they can combine together. Some people are looking for a larger variety of shell which appeals to their current situation.
As a comparison there are so many beautiful seashells out there. Scallop, Nautilus, cones, conch, spindles, sundial, auger, limpet, spirals, oysters, clams, scallop, those long looking tubular ones, round ones, white ones, speckled ones, purple, orange, white, blue, green, so many different beautiful options out there to admire and behold. They also come tiny, small, medium, large, and so enormous that need more than one person to carry the load. It all depends on what you want in your portfolio. As long as they are aesthetically pleasing to the eye, and to your pocketbook through positive cash flow, then it makes sense to you.
The same is true in real estate investing. Different investors are attracted to different types of deals. Some like to collect single-family homes, duplex‘s, triplexes, quad-plexes, small commercial apartment buildings, midsize apartment buildings, large apartment complexes, retail spaces, industrial, warehouses, strip malls, commercial spaces, storage centers, high-rise buildings, condos, it all depends on your personal taste and risk tolerance.
Buried Treasure (choose your property type)
You should know what type of property you are digging for.
So you have made it to your charted beach destination, you understand the conditions of the market tide, and it’s time to look for opportunities.
From our several trips on the sand we have seen patterns develop while looking for shells. There are a few indicators that tell us where we could find them. For shells it is usually at the outlier of the crest where the wave goes furthest away from the beach. It will carry the shells to that point and then drop them off there as the waters recede. We also find shells clustered among many rocks and corals as they get tied up and trapped between obstructions. Another common scenario is the prettiest shells with the most opportunity are usually upside down. As the waves course over the shell they flip so the convexed curved side is down. From this perspective you were looking at the inside of the shell belly up and you cannot see the beautiful surface until you flip it over. Sounds like a short sale doesn’t it?
In these three different scenarios there are different spots to look for the different types of opportunities. Higher up on the beach would probably be further out towards your rural areas of the market. These pretty deals would be more of a cash flow play as they are smaller shells and smaller opportunities for real estate appreciation. I would not turn my back on these. Collecting several of these smaller assets combined together can create a beautiful mantle piece that you will enjoy for years to come. Or, even get you a forwarding address to a tropical paradise.
The clusters of coral, rocks, and shells could be your densely populated areas. These are usually a mix of different real estate assets and on these shifting sands you need to dig a little deeper to find the pearls. In this cluster you will see shells right side up and upside down. The same is true for real estate. Some buyers of real estate and investors run their business for a profit while others with poor operations eventually run upside down and have negative equity. An upside down seashell can be very beautiful once you flip it over, polish it, and place it with your other assets. The same holds true for real estate. If you can get your hands on a property that is upside down and performing poorly there is an opportunity in your hands to create something worth keeping. Creating a value play for such a real estate deal can turn into a treasure.
“X” Marks the Spot (shooting fish in a barrel)
The strategy that has worked so well, for so many, for so long.
In the prelude I made mention to our favorite spot to search for seashell treasures. This is an area at the end of the cove where the waves break to the shore and against the stones in the sea wall. In this area there is a cluster of shells that gather in that one spot is where we find the best opportunities and the biggest selection to choose from.
There is a similar strategy we have used in real estate. It is knowing where to look for that cluster of properties and deals that would meet our criteria. Where we can find them all in one place and minimize our effort to locate opportunities. I have shared this strategy with many budding investors and even some seasoned in years and have always had good results when we have employed this method.
It is really quite simple. Instead of casting out a broad net to capture all kinds of fish that we may or may not want in our marketing funnel, wouldn’t it be great to cast out a net that would only sort out a specific type of fish that we wanted to catch?
In any funnel marketing campaign you need to generate qualified leads. Sometimes the leads you generate are not worth the stamp on the letter, the email, or the call you make. Sometimes you don’t find this out until after the fact that you have expended a lot of time and energy. Then you start from scratch all over again with a new list and a new set of criteria. What if you could start with the correct criteria and only apply effort where it mattered most?
Here is the pearl of wisdom we discovered from decades of experience. Know where to fish. It’s that simple. Instead of casting your net on every single family house, or every multi family apartment building in your assessors list, filter the list before it becomes too wide of a funnel to process.
Any tax assessor’s office can provide you with a list of a specific type of property. I don’t care if they are single-family homes, retail, strip malls, commercial, small apartment buildings, it really doesn’t matter. There is a list you can get from any City Hall assessor’s office for any specific property type. This is the list of where the city sends the tax bills. Acquire the entire list for whatever type of properties you are interested in and lets start there. Then you can start to sort and filter out your list from here.
Let’s walk through an example together filtering your list from a shotgun campaign down to shooting fish in a barrel. First identify the specific property. Here you must be very intentional. Don’t fool yourself thinking “well, I want single-family homes all the way up to 100 unit complexes.” That is too wide of a range and you’re setting yourself up for failure. Pick one specific property type. For example let’s go with a 3 to 4 unit small apartment building. These are easy to buy with conventional lending. You do not need a commercial loan. A four-unit would be ideal because that extra rent could help you get through a patch with a vacancy. If my list has 3,000 apartment buildings in it, we can filter out and sort that list to only the four unit complexes. That is our first filter.
Our second filter would be the mailing address where the tax bill is sent. If the tax bill is sent to the actual property then we could probably scratch that off the list. It would be safe to assume that the owner lives in the apartment building and is collecting the other rents to help subsidize his mortgage. This would be a harder sell. Let’s move on.
The real opportunity here would be that out of state Real Estate Investor. If the tax bill is being sent across the country even better. The further away the tax bill is from the property the better the chances of negotiating a good deal with that owner. They may not even know what the property looks like anymore not to mention where the property actually is. They would not be emotionally connected to this property and probably be open to negotiations for a sale.
The third filter will narrow down the list even further. Here we are looking for that owner who is near the end of their mortgage. If this property has been purchased 15, 20, 25 or even 30 years ago, then this may be a seller towards the end of their investment journey and willing to sell the property.
This type of investor also may not wish to pay a huge capital gains tax this late date in their lives. Here there may be some open negotiation for seller financing or other creative terms to get the property under agreement. I would not start the conversation by asking them to finance their property. Instead I would listen to their story and find out where they are, what is important to them, and what they need at this stage of their life.
The fourth filter takes a little more effort. Once you have narrowed down this list you can start digging through the ownership of that property and what they still owe on the property. Different states will have different forms of ownership. The most common we all understand is a deed of trust. It just a few minutes in front of your computer and you can locate the state website for land records and deeds. Take your filtered list and start looking up the mortgages on these properties. You may find another pearl by digging around in the dirt.
If that mortgage is mostly paid off then that owner has a lot of equity in this property. They may be more susceptible to bankrolling the entire purchase and becoming the bank as 100% seller financed. For a minimal consideration of a few thousand dollars you may be able to tie up the deal for that property. This would give the seller cash flow for life while avoiding a heavy tax burden. As a bonus you could always use the property as collateral on the loan, which costs you absolutely nothing. If we mess up on the payments they get the property back and keep the money. There is no loss or risk for them at all. Again I would not start the conversation with this, but keep it in the back of your mind. It’s like looking for seashells on the beach. You never know until you start flipping them over and see what you got.
Different Strokes (make a decision)
Choose to take action today
I have said before if you ask 10 different real estate investors what their investment strategy is, you will probably get 12 different answers. Different real estate investors have different perspectives and core values for operating their business. Some have limited resources and must be more resourceful and creative. Where others leverage resources by combining pools of money to pull down bigger deals. There is no one right solution or one size fits all approach. It all depends at which beach you want to swim in.
As you grow in your real estate investing journey you may start out as a tadpole. Then soon you’ll be a small fish in a big pond. With time and experience you will become a big fish in the pond, soon the biggest fish in the pond. Then you will be looking for larger bodies of water to be swimming with bigger fish to befriend on the next level.
It all depends on you whether you sink or swim. Whether you enjoy the deep waters or strolling along and calm seas. Either way the journey can be well worth surfing those waves. Whether you’re going to dip your toe or jump in to the deep end, just take a deep breath, hold it in, and make a splash. Today may be the day to take dive in head first and come out of your shell. Come on in, get your feet wet, the water is fine.
What’s on Your Mind?
Do you have any other ideas on this topic you could share to help our online community? Please chime in to share a comment or review. All feedback is welcomed. Thank you in advance for your continued support!
Warmest regards,
Brian Lucier
Belaire Property Management
Regional Property Manager
(978) 448-0669 office
info@belaire.co
www.belaire.co
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