Luck is what happens when Preparation meets Opportunity” yields 95% ROI in less than 3 months!
This quote by Seneca, a Roman philosopher from the mid-1st century AD, has been one of my favorites for years. It’s a great saying because it reminds us that we create our own ‘luck’ based on the things we do, or do not do. But never did this phrase resonate so strongly with me than it did in my early days as a full-time real estate investor. That’s when I first seized the meaning of this saying and put it to quick and successful work. It happened in January 2004, when I was still a “rookie” investor.
It had been only 8 months since I had left the corporate world, after 18 years of “working for the man”. I had been fortunate to gain a wide variety of experience, with 5 years in public accounting for a huge CPA firm; 6 years as the Corporate Controller and Director/VP of Finance for a $100 million consumer products company; 3 years gaining Sales/Marketing/Operations experience with a Fortune 500 technology company; and then 4 years as COO/VP for an international software company. My jobs took me to many places, here in America as well as overseas, including Europe, Asia, and Africa. I made a good living, averaging 6-figures compensation plus expense accounts, medical benefits, 401k contributions, and the like.
But I was still “working for the man”. No matter how well I performed, the company would receive the vast majority of the dividends for years to come. I made a decent living, but didn’t have the luxury of significantly improving my lifestyle or controlling my own schedule. So when the opportunity presented itself, I began earnestly building my new future, and that started with a White label crowdfunding software Singapore real estate shopping spree in mid-2003. At the time, I had been a full-time investor for less than a year, and a part-time investor since 1992, and while I had already done 25+ deals, they were all traditional buy-and-hold transactions.
I would buy the houses below market, get them into rent-able condition, and then find lease or lease-option clients to cover my mortgage (and provide some cash flow) while I built up equity. I had yet to step outside of that comfort zone, even though I had read about the many other ways one can make money in real estate. It’s one thing to read about it, but quite different to take the plunge and dive in. What if I missed something in my analysis? What if I don’t have the correct documents to protect me properly? What if….??? Maybe that was my collegiate and corporate brainwashing coming out– get education, then analyze. Make a list of all the downsides, and then analyze some more. Paralysis by analysis can be the result.
But my corporate and fiscal background did provide me with many tools which, when drawn upon successfully, would lead me to success within real estate. One such tool was the foresight to plan and prepare for the future. I had been diligent about building a strong FICO (credit) score of ~ 800, which served me well as I purchased and financed many houses the year before, quickly amassing a $3 million portfolio. I had also prepared by selecting a strong bank (Wells Fargo) and developing a good relationship with them. I had become a preferred customer of the bank, which I leveraged by asking them for an unsecured line of credit (LOC), and they gave me a $35,000 line! That meant instant access to cash if/when I needed it.
An unsecured LOC is not backed by any collateral, such as cash in the bank, or property, and thus it is harder to obtain from a lending institution, and the interest rates are higher. My unsecured LOC carried an interest rate of about 12%, which wasn’t the cheapest money, but was still a lower rate than nearly all credit cards offered, so it made good sense to have it in place, just in case an emergency or opportunity presented itself.
In January 2004, such an opportunity did present itself, and I was prepared. A business acquaintance, who later became my business partner (Sean Terry), came to me with a deal that he was involved in. Sean had a very different background than I did. Rather than going to college and climbing the corporate ladder, Sean was busy climbing real rope ladders and trudging through muck as part of his Marine Corps training, before moving on to start several businesses in true entrepreneurial fashion. The Marines taught him to essentially disregard fear, which served him well in these entrepreneurial endeavors. In this case, Sean was working with another investor and they had found a below-market house in a nice neighborhood, where remodeled homes were selling at good prices. This house needed to be fully renovated — including a new roof, new kitchen and baths, more livable square footage, a more open/efficient floor plan, new flooring and paint, and new landscaping — in order to fetch their targeted market pricing and profit goals. They were planning on doing a classic real estate flip.