I’m always looking out for ways to improve my personal as well as business state of mind when it comes to real estate. As I’ve aged in the business, I’m learning that real estate is in NO way different from any other business. The owner of the business wants to spend as least as possible for and on the product (the house) then turn around and sell it for as much value possible. Contrarily the customer (the buyer) wants to get as much value(square footage & repairs) as possible while attempting to spend the least possible. So there’s always a war going on between buyer and seller but ultimately, as Earl Nightengale says “the customer will vote or determine what has the most value by sacrificing their hard earned dollars on the end product.” The customer has the final say-so on whether our product is worth the price we place on the house. We must give maximum value when we’re selling to our customers whether it be to an owner-occupied buyer in a retail deal, or to an investor buyer on a wholesale deal. I never found it fulfilling to subscribe to the “bigger fool” theory when attempting to sell a house. That’s where we’ve bought a bad deal and tried to dump that bad deal onto another unsuspecting person that didn’t have enough sense to check out the deal no better than we did. Sure you can do that, but it’s not a business model that’s duplicatable. In this business, if you don’t have a system that can be duplicated, you’re in trouble. I have a coaching client now that was very successful on his first flip, but is going to lose money on his current two houses simply because he can’t duplicate the relationship with the contractor he hired on the first house. Your contractor strongly determines the success or failure of your project, depending on your relationship with him. I’ve found it not always best to hire the cheapest or most inexpensive guy for the job. I’m running into an issue now where I’ve got a coaching client that’s having some issues with communicating with the contractor. At first, he thought he’d be able to pay via credit card for his payments, but when it was time to start, the contractor said he didn’t take credit card. So ultimately, it’s up to US be flexible and extremely adjustable when it comes to our house project because nobody cares about our house more than we do.

I want to keep in my lane as you’ve seen in past training articles that my mentor, Greg Pineo says there are 3 pillars of real estate:

  1. Financing/Terms- How are we going to pay for this house?
  2. Location-What’s surrounding the house, Is there shopping close by? How are the houses being kept on that street?
  3. Expandability- How can I take this house/land to it’s highest and best use for today’s buyers?

If I had the space and time, we could write 3 full books about each of these topics. But keeping within our limits, let’s get back into #3 and show you how we expanded my last house from a 3/1 to a 4/3 adding 1000sf extra square feet. If you remember from past articles, when I 1st bought this house, I wanted to expand outward to add approx. 300sf by enlarging the bdrm and adding a master bathrm. Well, that plan didn’t work out because the property boundary lines were too close to the house. We thought the house had 20 feet in the back yard to the end of the lot, but the city frankly told us they had a 5 foot easement for storm water drainage. That means we couldn’t build anything within 10 feet of the city easement because they needed to be able to access that portion of the land. So plan #1 was dead. My partner then suggested we take a different approach to expansion by building up, instead of out. I was open to exploring the option(another one of Greg Pineo’s success lines). So we hired a contractor that had already completed a few of these 2nd floor additions where he ripped off the roof, and created a full 2nd story to add 3 bdrms and 2 more bathrms. The idea was great plus it put us in a different price bracket, a bracket that I’m beginning to like more as I play in, that’s the $200k and up space.  The project is just about complete and I’d like to share with you some of the issues we ran into during the project.  Nothing too major and we overcame them all, but I want to be transparent when I bring you this training in that we must be flexible and adjustable when it comes to real estate.  People will tell us things, then the next day say something different.  The bottom line is real estate is a “people business’ and you can’t hold people too high in regards for their words because communication gets mixed up all the time.  The way we receive or perceive a words from a person may be completely different from the way they meant you to receive it.  If somebody says “I’ll be there in the morning”, to me that could be anywhere from 8am-noon.  Where as another person could perceive morning as being 7:30am.  The biggest challenge I’ve found in business is being a effective communicator.  Reading really helps me learn more words so I can be more precise with where I want my words to take me.  I’ve read that most Americans speak at an 8th grade level.  Well, I personally want to be a great communicator because I feel the better I speak, the better I can convey my thoughts, the easier it’ll be for people around me to grasp the picture of where we want to go, together.  Let’s get into this house.   

We bought this one for $40k, then decided to go ahead and add the 2nd floor, which I feel was a great idea.  Remember we went through a slow time ordering soil samples and verifying the footer could hold the weight, but after all that cleared, things went smooth.  Next, we started the framing and slowly got the house all framed in.  After it was framed in, we had to completely change the initial floor plan downstairs because of the window locations.  When working with houses that have siding, it’s simple to move windows.  However, when working with brick houses, it’s not so simple because you then have to rebrick the opening, and worry about bricks cracking or the space supporting the above weight.  There’s a thick piece of metal called an “angle iron” that goes above brick windows to hold up the weight of the brick over the window.  You never know how moving the window will affect the rest of the brick.  So, we had to move 2 walls inside because of existing windows.  With this house, it was just easier to close in a side window and faster so the lvrm would have a closet.  At first, the kitchen was going to be in the rear of the house.  But after dealing with the current window locations, we couldn’t make it work so we moved the kitchen to the front of the house.  It’s wasn’t too bad, just cost me a few hundred dollars on the wood and framing.

I think I finally found a contractor that subscribes to one of Napleon Hill’s principals in think and grow Rich, “give people more than they expect to receive”.  There were several other changes that we absorbed but none that cost enough mention. 

Below are a few snap shots of how the project came together.  This has been my largest reno to date. 

1st week of the renovation
Half way through!
Finished job!

It’s interesting how I’m still learning after being in the business since 2004. Sometimes I must remind myself that I’m still a student of this game even though I teach a lot. When thinking of expandability, not only do we want to expand the houses we touch, but we must also keep in mind of expanding ourselves as well. Jim Rohn has a question to ask that I feel will help with your personal expansion; “What are the people around you doing to you?” The contractor we used on this house has done several houses where he’s added a 2nd floor. This renovation was a normal job for him. He’s building houses all the time and when I met him, I thought he’d be a good person to add to my circle of influence. I’m constantly meeting people that want to be successful in real estate and master their finances. When we further talk about the company they keep, sure they may have some positive friends, but most if not all their friends can’t offer solid advice. Let’s make it a goal to keep looking for positive financial role models to surround ourselves around. It’s funny how when I started hanging around this new contractor, which he’s actually an investor as well, my conversation changes and I valuate deals a little differently now. Later, I’ll show you a deal that I would’ve never done had it not been for my experiences with him. Since interacting and looking at deals with him not only am I looking to see how I can expand the current house, but I’m also looking to see how I can tear down the current house to build a new house. Now when I view a house, there are 2 options to consider instead of trying to expand the existing structure. I’m not sure how this works but the past 2 deals just happened to be tear downs. It raises a question in my mind why since 2004, have I not torn down a house to build new until meeting this new contractor? Was it because of the new relationship and changing the way I’m thinking? Surely over the past 14 years I’ve come across a house that I could’ve torn down. My only conclusion is the fact that I’ve been hanging around new people that are doing bigger and better things.

In my deliberate goal to make sure I’m hanging around people that will help me grow, I’ve also been able to introduce you to our editor Jessica Segal. She ‘s a wonderful influence on our newsletter and a great mother too. I feel being a mother gives her a different point of view when it comes to investing. Since her article last month was so devastating to the investor she won the lawsuit against, I’ve taken some precautions in my life as well. I’ve always heard about umbrella insurance but I simply didn’t take the time to open a policy especially when I stop to think about all the exposure and liability I carry with my rental portfolio. It can be overwhelming to think of how many little problems can happen to open the window to a loss. There can be countless ways loss can creep in from tenant negligence to unforeseen random crime to mother nature causing damage. It can put a real mental burden on us landlords if we let it. To be responsible for the comfort and quiet enjoyment for another family other than your own is a large responsibility. Further, us investors are responsible for multiple families, so it’s important to be present and mindful of our obligation. Listening to Jessica helped me understand how important it is to have the proper insurance, plus it only cost a few dollars per year. Since she won that large case last month, I thought it would be smart for me to investigate some added insurance just in case one of my tenants too got hurt on my property. A few weeks ago I’m happy to say I’m a proud owner of a $1M umbrella policy that will protect me from loss whether it’s at one of my rentals or in my personal life. My point is to be mindful of the people you hang around. I feel the subconscious mind is very powerful and it can work in subtle ways when guiding your life’s path. It likes to grab ideas, principals and habits from the least suspecting place, perhaps from a friend or colleague or even from a TV program. The problem is the mind works in one direction. It can’t tell whether the idea will help or hurt us. It’s programed to adapt and survive, just like back in the stone ages. It’s our job to make sure we feed it productive and progressive thoughts that will increase our lives in the future.

I have several tenants that have been on government assistance for years. They’ve lived with me so long that now their children are renting from me using the same government program. Over time, the parents would call me to inquire about other houses I may have available they can show their child. They’d inform me how their child had an upcoming acceptance letter from the housing department and they need to start looking for a unit for them to live in. Could it be remotely possible the children learned how to get government assistance from their parents? In most instances, kids don’t have a choice whom they’re around, so habits are forced upon them from the parents. What if that same child was surrounded by business owners and investors; people that owned houses instead of renting them? This is one example where I can say I’ve seen firsthand how the people around you determine your outcome, even your parents! I must constantly remind myself of this fact when I interact with my children. I want them to have discipline, focus, empathy, and good character. These are traits, without me knowing, I learned early in life. Now I’ve also recognized that my kids weren’t born with these same traits. It’s up to me to ingrain these habits and beliefs into them. Growing up, I never had one conversation about government assistance or even having the government pay a portion of my parent’s rent. I’m not saying it’s good or bad, it simply wasn’t a part of my family’s vocabulary. We never spoke of needing the government for our wellbeing. I didn’t learn about government subsidized rent until I actually got into the real estate business. After I bought my 1st house, a few years after owning it, my uncle told me I could rent it out and have the government pay the rents. It’s worked out for me and it can for you as well but I want you to be on the owner’s side of the deal, not the tenant.

May I suggest that we all keep away from people with destructive thinking. By that I mean any person that you feel like you need to shrink when you’re around them. No, you don’t have to stay away from them altogether, but you can make a consertive effort to minimize the time you’re in their presence. I”ve read we can have 30min, 3hour and 3 day friends. These are the time frames we should constrict certain people to in our lives. Some friends I personally know I don’t want to be around for more than 30 mins. Their attitudes & philosophies aren’t coherent with mine. Other friends I could spend days with because they bring me up and challenge me to think bigger. It’s your duty to differentiate the characters in your life so you can be a better person. Take a few moments to decide which friends you’re going to reduce time with, and the ones that you can spend more time with. Perhaps Me or Jessica could be a person you want to talk to more, we’re only a phone call away!!!

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