OK, this week’s update is really a blog post of the 72 hours in Las Vegas last week!  I got together with 6 old friends.

The trip started with a detour from Toronto to Montreal.  For some reason the only Las Vegas flights we could find that met our schedule were on WestJet and traveled to Sin City via Montreal.

But it was worth it because look who sat next to us on the plane!

Georges St-Pierre, one of the current UFC Welterweight Champion, and one of my favourite sports personalities sat down right next to us.  This prompted some urgent text messages to Nick before the plane took off….he’s also a huge fan of St-Pierre.  We actually went to see one of his fights in NJ just a few weeks ago.

Georges was smiling the entire flight but I think he got scared while taking this picture when he saw me clench my fist

I can now confirm from first hand experience that he’s one of the nicest guys in the sport and represents Canada and all Canadians extremely well.

He made several comments about respecting the sport and leaving a legacy – he’s a class act and is the definition of hard work and dedication.  To us, he’s another reminder of what you can achieve when you dedicate yourself to results and avoid making excuses.

After snapping a quick picture we headed off to meet the Zappos.com rep that was at the airport to pick us up.  Zappos.com offers free tours of their HQ in Las Vegas.  They were recently purchased by Amazon.com for 1.2 Billion Dollars and are ranked as one of the best places to work in the USA – so naturally I wanted to check them out!

We heard Tony Hsieh, the CEO, speak at a conference a year ago and were completely impressed with his approach to business building.

As you walk in the front door you think you’re at an amusement park … there’s popcorn and free drinks, a pinball machine and some Zappos employees where having some sort of contest right in front of the main doors.

When we found the front desk we knew we were right at home … super friendly people (they even called my phone after our plane landed to check that we arrived OK – remember, this tour is 100% free, they pick you up at the airport and then drop you off at your Vegas hotel … I’m not even a customer – YET!).

Check out the Energy Drinks … Rock Star!

As the tour began the first thing that struck me was how open they were.  You were allowed to see EVERYTHING.  The messy desks, live meetings, customer phone calls … nothing was held back.  It was amazing and eye-opening in many ways.

And you immediately are struck by how much fun everyone is having.  There’s a definite party atmosphere.

What also struck me was how openly they share things, here’s a sign that clearly outlines their Direct Marketing strategies … this is a company that does over $1,000,000,000 in revenues showing you how they do their marketing.  Unbelievable.

We’re strong believers in Direct Marketing ourselves so it was nice to see how far someone else has been able to take it.

If you look closely you’ll see four categories: Email Marketing, Comparison Shopping Sites, Affiliate Marketing and Search Engine Marketing.

(Aside: We’re thinking of holding an all day class on each of these, if you’re interested drop us a line)

The next cool thingy was a flat screen TV on the wall that shows every single item being purchased in REAL TIME on a MAP so you can see where in the world the order is coming from!

Super cool…

See that bell on the wall?  They make one person on the tour ring it loud so the whole floor hears it and then force you to make some sort of embarrassing admission.  I volunteered and loudly admitted that I had never actually purchased anything from Zappos.com.  That brought out the boo-birds until I added “YET!” to the end of the comment!

Let’s pause for a second right here.

How interesting is this from a marketing stand point?

I have never purchased anything from Zappos.com, not a single thing.  But they were giving me free drinks, free food, free transportation and free books (at the end of the tour).  How many companies would dare offer this level of service to a “non-customer”?

In return, here I am writing about the amazing service and experience they provided … which is probably the best form of marketing they could ask for.

Smart, very smart.

What’s cool about this company is that the executives sit together with everyone else … in cubicles.

Tony, the CEO, wasn’t there but the CFO was….as I walked by I snapped this picture of him at his desk:

Oh, and by the way, the entire office is decorated in various “themes”.  Each service group has it’s own … we saw cow bells, heard theme music from the movie Rocky and even danced to a neon disco light.

Personally, I like the HR section the best, they had this sign handing in front of their area:

Here a couple other pictures to give you an idea of just how far they take the idea that their workplace should fit the lifestyle of the people who work there.  The first is a quick pic of a Tiki bar that was setup and seemed like it was actually used regularly and the second is a pic of one of their meeting rooms.  No board room tables in the rooms and each room had its own custom theme.

Check this out, they’re so open with everything that they let me take a picture of their real Month-to-Date Sales figures.   Look at the target for June, $110,000,000 (it’s written in the top right corner).  This company was on the verge of bankruptcy several times about eight or nine years ago … and now their target is over $100 Million in sales for one month.  Not bad.

One of their mottos is making everyone feel like a VIP, so before you finish the tour they sit you down in their throne, put on a crown and take your picture.  Seriously, they’re crazy, but everyone did it…even the Fortune 500 looking corporate types on the tour.

It turned out the our tour guide, Jon, is Canadian and he’s a Leaf fan.  How awesome is that.  John handed each of us a copy of Tony’s new book, Delivering Happiness: A Path to Profits, Passion and Purpose.  It’s a good read, especially the first few chapters and the last few, very instructive for anyone into business building.   I dragged Ruben along on this tour … and for the record, he didn’t want to go but loved it by the end!  Here’s a pic of Ruben and myself with John in the middle.

The Zappos bus then whipped us off to Mandalay Bay.  As we were pulling away I was completely impressed with how transparent the company is, they share everything openly with everyone.  I’ve never seen anything like it.  It seems like they’re all living their “Rock Star Lives”.

I was struck with something I learned from them.  The entire company operates with a set of “Core Values”.  And unlike a typical “mission statement” that is printed on a plaque somewhere, Zappos.com is actually LIVING their core values.  How amazing.

It’s giving us all something to learn from.  Rock Star Real Estate Inc. has been forever altered becasue of this run-in with the Zappos.com family.

Here’s their ten core values and a video explaining them:

After meeting Georges St. Pierre and visiting Zappos.com I was pretty much ready to go home by the time we arrived at Mandalay Bay!

We walked the strip and as we arrived at the Encore hotel we found the spot where Steve Wynn recently ripped down the $10 Million dollar new entrance to his new Encore hotel.

Why?

So that his guests wouldn’t have to see the unfinished development across the street.  We assume the developers when bankrupt during this recession and left a vacant lot visible to all of Steve Wynn’s guests.

So he ripped down the brand new hotel entrance and moved it to the other side of the building.

In it’s place he built a $60 Million Dollar Beach Club.   We took a quick video so you could see exactly what we’re talking about…

That’s it for now.

And the next time you’re in Vegas I would strongly suggest adding the Zappos.com tour to your agenda.  Highly recommended.

Until next time, Your Life! Your Terms!

We had one of our Inner Circle members fly in from Meteghan, NS earlier this week. We really enjoy our member events because it gives us a chance to speak to a lot of people that we don’t get to see on a regular basis.

And it is even better when we have some of our members from other parts of Canada or even other countries join us.

Of course, we couldn’t let this opportunity go by without getting some insight into what type of investing is working in Meteghan right now. As a small fishing town with a focus on lobstering their economy hasn’t been as robust as other areas in Canada.

But Todd King has found his niche and is making it work. Thanks for sharing Todd……we love the shirt!!

Everything single person we’ve met that has had any type of success with Real Estate Investing has had to face “the test”.

It’s almost as if the world is out to verify that you’ve got what it takes to succeed by throwing you a hard curve ball.

What the heck are we talking about?

Over the past couple of days we’ve been out here in Calgary at Greg Habstritt’s Simple Wealth conference.  It’s one of the highest level real estate conferences you’ve ever seen.

No “hype”, no “quick fixes” … just the honest truth about real estate and what it takes to make money in this business.

And there’s a common theme flowing through every successful investor’s story…

Here it is:

There was at least – AT LEAST – one point in their investing lives that they were so seriously tested that they almost quit the business.

They questioned what they were doing.  They questioned they value of what they were getting in return for their efforts.

Their family questioned what they were doing.  Their spouse questioned what they were doing.  Their friends questioned what they were doing.

They questioned their ability.  They questioned their skill.  They questioned everything.

They were experiencing “the test”.

Don Campbell described how the windows were stolen out of one of his multi-unit buildings (the windows of all things!) .

Greg Habstritt described how early in his career he was on his hands and knees scrubbing the floor in rental property after a sewage backup.

Two other investors described how they paid a contractor 80% of his fees right upfront and only saw him again when they were face to face in court.

This is not an easy business.  Simple, but not easy is a phrase thrown around a lot.

And there’s a very high probability that if you get into real estate investing in a serious way you’ll have more than one of these “tests”.

But if you have the guts, the drive, the work ethic to stick things out magical things begin to happen.

Let me share a story of our own to illustrate.  We’ve shared this story a few times with some investors but we’ve never revealed how close we came to quitting everything because of it.

We were attempting to fill a single family home with a tenant/buyer using a lease/option strategy.  
We were working with another investor on this deal and because of various financial considerations (he needed the money) we were under intense pressure to fill this home quickly and for top dollar.

This investor we were working with needed to get some money back from the investment quickly or he was going to be some financial trouble (long story).

And because we had some experience behind us at this point we bit off more than we could chew and promised that we could raise $10,000 in upfront money from a tenant in 7 days.

Before we continue there’s two HUGE lessons right here.

Number One:  Never get yourself in a position where you NEED a return on your cash in a short period of time.  It makes you desperate and as we’ve shared before money has a way from running from desperation.

Number Two:  Never “over promise”.  Always under promise and over deliver.  I learned that in my software sales days and it holds true in any business.

Back to the story…

For anyone familiar with lease/options you may know that to get $10,000 plus first and last month’s rent on a vacant home within one week of closing is a fair sized task.

It just doesn’t make sense to guarantee that to anyone.

But we did.

So we began to advertise the home and get appointments lined up.

On the first day out at the property we had about 4 people show up.  This was on Sunday, two days after closing.

We had a decent turn out but there wasn’t anyone who was a right fit for the property.

And then the fun really started.  It was the middle of winter and it snowed hard for the next day so we didn’t make any appointments to show the home.  We kept thinking the snow would stop and we would be able to get out to the property shortly afterwards.

By the time Wednesday rolled around we realized that the snow might never stop.  Ever!

So we began hitting the phones and asked anyone who would listen to meet us at the property that night in the middle of the storm.  They thought we were crazy but we were running out of time – we needed to collect some cash.

Somehow four very brave souls ended up meeting us at the home.  And because of the snow I left my car at home and drove my wife’s SUV out to the property.

The snow was so bad that everyone who arrived just stopped their car in the middle of the street in fear that they would be stuck if they pulled off to the side.

It felt as if there was literally no one else out on the roads but us, those four possible tenants and the snow plows.

So I jumped out of the car and greeted everyone in the middle of the street.  On my way over to their cars I noticed that there was a five or six foot snow drift in front of the house.

The drift thing was huge!  

My heart sank.  

These people had risked their lives driving in these insane conditions and we couldn’t even get them into the house!  

Just as I was about to break the bad news one gentleman says “Look, someone is blasting through that snow like a hot knife through butter!”.

I turn around and see Nick clearing a two foot path from the street to the door with Superman speed.  To this day I’ve never seen so much snow cleared so quickly.

And then it hits me like a ton of bricks.

I could not believe it.  

I frantically stuffed my hands in every pocket possible looking for them but came up empty.

I had forgotten the keys.

In my rush to take my wife’s car I had left the keys in mine.

Ouch.

Big ouch.

It felt like the proverbial rug had been hanked out from under me.

So standing right there in the middle of the street I went up to each person’s car and let them know that I was a fool and had forgotten the keys.

You should have seen some of the expressions on people’s faces.  

It was classic stuff.

That day it wouldn’t be the snow that stopped us – although it should have been – it was my lack of organization that sealed our fate.

When Nick turned around from shoveling and asked why everyone left I think his heart hit the ground as I explained what I had done.

We were emotionally pummeled at that point.  Nick was handling the situation better than I was…I was a puddle on the ground.

Feeling embarrassed and disappointed I couldn’t figure out I was going to explain to the investor we were working with that I had forgotten the keys.  I felt like I alone was the reason he may have to make some serious financial decisions in about 3 days.

With nothing left to do we stood there for a while and then began shoveling the driveway.

I’ll never forget that shovel.

I remember throwing the snow and beating myself up inside with each toss.  I was questioning what I was doing.  How could I promise someone something and then handle the follow-up so poorly?

How could I even call my self an experienced investor?  These were amateur mistakes.

I vividly remembering debating, right there on the driveway, if I should just get out of this business.  It was too emotionally draining.  There was too much responsibility.  There was too much hard work.

Why was I about an hour away from home shoveling a driveway when I had a beautiful family at home?

What was I doing promising such things?  I knew better.

And then something just came over me.  I have no idea what it was.  But I recall throwing the snow farther and farther and screaming inside that I was not going to give up.

That no matter what tests were thrown my way I was going to come out the winner.

I would face any battle head on.  I was not walking away and I was not going to lose.

At that moment something literally snapped.  I was emotionally and physically different.

Somehow a new level of energy and focus had come over me.  

I know this sounds completely ridiculous but it’s the truth.

It’s almost as if the moment I decided that I was not going to give up things magically changed course.  

On the drive home I was determined to win.  I don’t know if I’ve ever had that much determination ever again.  It was a unique experience.

Over the next two days we called every single possible tenant that had left us messages multiple times.  We did reminder calls on Friday night for our Saturday appointment.  We left no stone unturned.  We were going to win at this game.

On Saturday we drove back out to the property and greeted possible tenants as they arrived.  The snow had stopped and it was a beautiful and sunny -10 degrees

The third person into the house walks directly up to me and pulls out her cheque book.

She speaks these words,

“I have $10,000 and I want this home.  I make good money but have run into some credit issues.  My kids go to that school around the corner and my parents are willing to co-sign on lease if necessary”.

WoooHoooo!

Can you believe that?  I had never heard sweeter words in my life.

She wrote out a $1,000 deposit on the spot and we sealed the deal a few days later.  Those people went on to purchase that house.

I drove home like a proud warrior coming off the battle field.  I was unstoppable at that moment.

It was amazing.

Looking back I obviously would have done things a lot differently.  You never want to get involved in a situation where the pressure to make money is unreasonably high.

You never want to promise something in too short of a time.

But we survived.  It felt like we had stared into the eyes of defeat and won.

That experience gave us enough confidence to know that if you stick with things … if you have the passion and the work ethic – anything is possible.

That day I almost gave up investing in real estate.  No one knew how close I had come throwing in the towel.

Over the next eighteen months we successfully worked on over 100 properties.

And we’ve had other tests thrown our way.  But now we know that if you stick with things you’ll always come out a winner.

So expect your own test.  And if you haven’t had one yet then it’s coming.

Be prepared.  Real estate investing is more a battle of the mind than anything else.

You can do it and you will!

Until next time … Your Life. Your Terms!

Recently this topic seems to be popping up over and over again…

Most real estate investors graduate from Stage 1, “I want to make a Million Dollars by yesterday” to Stage 2, “OK, I realize this is work like anything else and I want to educate myself about proper real estate investing”.

The lag between Stage 1 and getting to Stage 2 varies from investor to investor.

Some people get caught in Stage 1 for years and face the endless treadmill of frustration always searching for the quick and easy money.

We have news for those people … there ain’t any.

It takes a sophisticated investor to capitalize on a good opportunity and make, what may seem, like “quick and easy” money.

The reality is that it took that person years to develop the skills to pull it off … and the process to get to that point wasn’t easy.   There were battle scars involved in getting to that point.

When you realize that real estate investing is like any other business then you spend your time and energy learning to master the craft – just like anything else.

And often you end up singing the mantra of “Cash Flow, Cash Flow and more Cash Flow”.

It becomes your “Cash Flow Song” that you sing to yourself daily.

The song includes phrases like, “the more cash flow the merrier” and “cash flow is king!”

That’s what we did anyway.

We sang the cash flow song all day long … and we still do.

Positive cash flowing real estate is obviously the way to go.

It’s easy to hold onto properties that pay for themselves through good times and bad times.

But along our journey we noticed that this belief in positive cash flow sometimes distracted us from two even more important points:

1. That “Exit Plans” are critical to long term survival.  

2. And that “Ownership” trumps cash flow.

We now think the words “exit plans” and “ownership” should be added to the cash flow song.

Let us explain…

Recently a real estate investor cornered us and aggressively pitched us on the idea that his duplexes were much better investments than our single family homes.

Well, first of all, to each their own.  There’s no single right answer to investing.

But upon questioning him about his management of these properties we uncovered that the utilities were “shared” and that this often caused problems between the tenants who argued about who had to pay what.

That wasn’t the important discovery though.

Shared utilities are often a sign that a property is “non-conforming”.

A non-conforming duplex can mean that the city has grandfathered the property and its fine to operate it as a duplex as long as the use of the property doesn’t change.

Or, it may mean that the city doesn’t allow them and will actually enforce by-laws to make you, the landlord, convert the property back to single family use.  And you may even have to spend the time and money to find the tenants new places to live.

And in this case, it was the later.  The city isn’t completely aggressive about it, but they get out there and enforce their by-laws occasionally.

The city even posts some risks and warnings on their website:

Risks of an illegal or unsafe basement apartment:
 
Increased liability – You, as a homeowner, are responsible for meeting established standards for a second suite. If anything, such as a fire, happens, you would be liable, because you failed to meet requirements.

Loss of insurance coverage – Building a rental unit in your home is a major change to your home. If you don’t let your insurance provider know that you have changed how you are using your home, you could, in fact, make your coverage “null and void”. (This means that you would no longer have any insurance coverage.)

Limited damage recovery – An insurance policy does not cover the costs for rebuilding your home to meet current standards. Your insurance company is only required to cover the costs of restoring your home to the state that it was in when you bought your policy, before any damage.

Prosecution — If you do not meet City codes, you are breaking the law. You run the risk of being charged and can face fines of as much as $50,000 — or even a year in prison — for each charge.

Financing – Banks and other lenders don’t generally consider income from an unauthorized basement apartment when you try to qualify for a mortgage loan.

Tenants – You are a landlord. You must maintain your basement apartment in good operating order and you must follow all fire safety laws. Tenants may apply to reduce their rent if the unit fails to meet municipal health, safety, maintenance and property standards.

Tenant insurance – Your homeowner’s policy will not cover property that a tenant of an unauthorized apartment owns.

This is important information.

You see, although that particular property cash flows very nicely we don’t have the flexibility we need with them.

If for some unforeseen business or personal reason we need to sell the property quickly, for whatever reason, we may not be able to.

We may have to somehow get one tenant out of there … which can be tricky of course, and then convert the property back to single family usage in order to make it attractive to the largest pool of buyers possible.

During the the last decade Canada has been a real estate investors dream … and its caused some investors to get lazy.  They miss the big picture, which is LONG TERM THINKING.

Many people have forgotten the chaos of the early 1990′s when GST came out, NAFTA came into affect and interest rates were rising like an oil gusher.

That essentially froze the real estate market.

And the only properties that were selling with any ease were the very nice little single family starter homes.

We know this because our family was caught holding the bag when the floor under the market fell out and we were eating negative cash flow like it was going out of style.

We had it for breakfast, lunch and two scoops for dinner.

And it tasted like crap.

So for us, having a very clear and well defined exit plan is crucial to every single real estate decision we make.

And that brings us to our next point….ownership versus cash flow.

We go into every single investment, whether it be a flip or a lease/option or a regular rental with the mentality that we’re owning the property FOREVER.

So if we’re doing it a flip it better be on a property that we can rent out easily if the market changes during our renovations.  And that property better be in an area that meets our criteria.

Same for lease/options.

Same for everything.

Because when we go into each property thinking we may own it forever we don’t get caught up in the hype of “this property cash flows at $1,000 a month and we gotta have it!”.

That’s a rookie mistake.

So if our “flip” doesn’t work out we can rent the property for a monthly amount that we’re comfortable with and be happy adding it to our real estate portfolio.

Although “cash flow” is at the top of every investors mind we alway supplement it with idea of “ownership”.

Would we be comfortable owning the property through any type of real estate market?

If the answer is yes, then we proceed.  If not, we bail…no matter the cash flow.

All it takes is to lose a good tenant and then the cash flow that was glorious on day one turns into a negative cash flow that may be difficult to turn around.

And if the property gets shut down by the city, or the property isn’t in an area that can attract equal quality tenants easily, then, to us, it’s not a good investment.

Please don’t think this applies to only non-conforming duplexes.  This thinking applies to absolutely everything.

For example, if you’re buying 5 condos in downtown Vancouver or Toronto to make a quick flip … what happens if there’s 40 other investors in the same building all doing the same thing?

What’s your exit plan then?  There’s likely many other options but you’d better run the numbers and cover those bases before you get in.  No?

So the next time you hear someone singing the “cash flow song” add the words “exit plan” and “ownership” to the lyrics.

It makes for a nicer tune and it may save you a lot of grief one day.

Until next time … Your Life. Your Terms!

As you know, we are always searching for additional streams of cash flow, and over the long weekend we discovered another one.

I couldn’t understand the numbers behind a horse as an investment but at a recent Grand Prix in Ontario Jp Gulbis helped explain how a horse can generate both cash flow for their owner and equity build up……who knew??