Lessons From Julius - And Captain Picard

Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.

As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...

From Dennis Fassett, Cash Flow Mercenary...

I’ve been running into a lot of new folks lately. It’s fun talking with them when they’re on fire and working like a guided missile toward their goals.

But I have been hearing a good bit of angst from them, though. Honestly, that doesn’t surprise me. While this is the best Q4 that I have seen since I started investing almost 14 years ago, the amount of competition out there is staggering.

The other day I heard a young Padawan talking about a frustrating situation that he was in and how he didn’t see a way out of it.

By the sound of it, he had done everything right – he found a motivated seller and got the property under contract for 65% of ARV less the correct repair value, he marketed it to his buyer list and every channel he could think of including Facebook, Craigslist and other real estate related sites…

He received zero interest.

I could understand his frustration, especially for someone new on their first deal. I mean, what else could you possibly do?

Unfortunately, the answer in some cases is this: Absolutely nothing at all.

Why?

Who knows. There could be 100 different reasons why it wasn’t going to work. That doesn’t mean stop trying.

grapes But it does mean at some point you need to cut your losses and move on.

Listen to the Captain…

And that brings me to the first lesson from Captain Picard:

"It is possible to commit no mistakes and still lose. That is not a weakness. That is life."

I told this young Padawan to work it as long as he could, then let it go, forget about it and move on to the next one.

A few days ago, I was reading through some posts by new folks in a couple of different real estate investing groups on Facebook.

I saw a particular theme develop that day. It was all about the “hows.”

How to figure out ARV.
How to figure out the repair number.
How to know what the right offer price is etc., etc., etc.

That reminded me of my situation when I was getting started.

I had no clue how to do anything related to rehabs, rentals or wholesaling at that time. And there were no courses, programs, seminars or mentors around back then.

But I was talking to a guy in my neighborhood one day name Julius. He sold enterprise software for a living, and I was one of his customers at my day job. So I stopped by his house to visit when I saw him in his front yard…

After talking shop about software, I asked him what else he was up to. He shocked me when he said that he had just bought a house and was starting to rehab it with the intention of flipping it for a nice check.

Since I had just started, I began rapid firing questions at him:

How did you find the house?
How did you determine the rehab number?
How did you come up with the after rehab value?
How did you find your contractor?
How are you managing the rehab since you have a day job?
How do you know your numbers are right?

And on and on and on...

He answered the first couple no problem. When I continued peppering him, he held up his hand to say STOP.

Then he said:

Listen – this isn’t an exact science.

I found the house because it was in the neighborhood where I grew up and my parents still live over there.

I roughly knew the repair values because I just had a bunch of work done on my own house.

I know the fixed up value of the house because my parent’s neighbors just sold their house.

I used the same contractor I used on my house.

And I don’t know for sure that the numbers are right.

But I saw an opportunity so I took it.

Then, he said one other thing that has stayed with me since…

action He told me that it wasn’t possible to have perfect information. So what he did was eliminate as many of the “unknowns” as he could, then do his best to estimate the rest.

Then he acted.

It’s what I call the Julius Principle.

And it was eye-opening for me.

I was in corporate finance at the time, and in that field there’s usually a right answer to most questions. And because I wanted “perfect” information, I had passed on a couple of properties that would have been very profitable rehabs.

I never let that stop me again, and I went on to do a number of profitable flips while working my day job.

Face it – we’re never going to have perfect information. And because of that, we’re never going to eliminate all the risks. So our job is to reduce or mitigate as many of them as we can, and then ACT.

Over time it gets easier because you get better at it, but even the most experienced rehabbers I know still don’t have perfect information, and yet they still cash 5- and 6-figure checks.