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‘Touch’:  What Soccer Teaches Us About Real Estate Investment & Entrepreneurship

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real estate investment touchIt’s no secret—I’m a huge soccer fan (yes, I do love something other than real estate investment!).  When it comes to the teams I love (the Portland Timbers, the US Men’s and Women’s National Soccer teams, etc.), if there’s a match happening nearby, I’m going to attend.  If it’s not happening in my neck of the woods, I’m watching it on TV or online.

This love of “the beautiful game” stems from my childhood.  I grew up playing soccer; in fact, that’s practically all I did from the age of 8 through 18.  Around age 14, I started playing on more competitive teams, and I began to learn the real strategies, concepts and lessons of soccer.

Anyone who has played any meaningful amount of soccer is familiar with a concept called “touch.”  Put simply, ‘touch’ is—in my own words—the level of one-ness you have with the ball. When you have great ‘touch,’ the ball is like an extension of your body; you can control it with incredible precision.

Take an amazing world-class soccer player like Lionel Messi for instance. You can send any pass his direction—no matter what speed, spin or height—and he can trap it and have it drop to his feet like he cast a magic spell over it.  Once he’s trapped the ball, it’s virtually impossible to take it from him, because the ball is like an extension of his foot—he is 100% in-tune with the ball.

‘Touch’ isn’t about having huge strong muscles.  Rather, it’s much more about the tiniest, nearly imperceptible twitches in muscles that adjust to the ball and keep it exactly where you want it to be.

In business, there is also ‘touch.’  I was reminded of this the other day, as I was working on a new real estate investment deal.  I’d like to share that metaphor with you.

I put a new property under contract last week—it’s a small single family home in a very average working class part of town.  In other words, it’s a “bread and butter” deal—a house and neighborhood that regular people (especially first time homebuyers) can and do want to buy in.  When I buy properties, it’s often to fix them up and rent them out, but occasionally I resell properties.  Based on the current deal flow and needs of my business in the context of the other projects I am working on, I quickly determined this was going to be a house I would immediately resell.

As I was walking through the house with my contractor, trying to put together my exact scope of work and game plan, I was struck by how many tiny little nuances of the deal and situation I was taking into consideration as I formulated my plan. 

In other words, I was struck by how my sense of ‘touch’ kicked in.  Here is a rundown of many of those considerations that my sense of touch brought to my attention:

1)  The current overall real estate market in my city, and in this part of town in particular.

In my town, inventory is very, very low.  Demand far exceeds supply, so it’s a “seller’s market.” You could also call this a “buyers can’t afford to be that picky” market.

2)  The current status of the market at this particular price point, and at this time of year

I the lower-price-point, first-time-homebuyer market, inventory of decent homes in good neighborhoods is especially low. There are virtually no detached single family homes on the market in this part of town below $300,000.  As I write this, it’s August–a great time of year to be selling a house, in my opinion.

3)  The expectations and mentality of the likely type of buyer for this house, and at this price point

Because this is likely a home that will be purchased by a first-time homebuyer, and because these homebuyers are having difficulty finding options, my sense is that buyers will not be extremely picky on this type of product–I don’t believe they will let small things like “I don’t like the carpet color” stand in their way.  That said, these buyers are emotional, and things like curb appeal and charm matter a lot to them.  On the flip side of the “emotional coin,” because they are less experienced buyers, every little thing identified by their home inspector is likely to freak them out.

4)  The financing of a likely buyer for this type of house

First-time homebuyers likely don’t have a lot of cash to work with. They are trying to get low-downpayment loans, and would be likely turned off by bigger ticket repair needs that seem scary, daunting and expensive (like roofs, etc.).

On a different but equally important financing note, will a lender or appraiser have a problem seeing that the subject house just sold one month earlier for 35% less than the the new buyer is paying?  Sometimes lenders don’t like to finance “flipped” properties.

5)  The timeline of the deal and how fast I could get it back on the market

Like I mentioned, I think this time of year is a great time to be selling a property. But I have to close on my purchase in August, do the repairs, and then get it back on the market while it’s still Summer or early Fall.

My Resulting Strategy

Based on all these considerations, I decided what to do. I’m going to buy the property at a price where I can put about $20k into it, focusing on items with a high perceived value and that improve the presentation of the property (fresh, cool exterior paint, new front door, landscaping, new appliances, staging, etc.). I’m going to be careful not to over-renovate, though: I’m going to leave a few things that I know an inspector will find, and will plan to address those in a repair addendum.

After about 2 weeks of repairs, it will be late August, and I will put it back on the market at a below-market price (around $275k).  I will expect to receive multiple offers very quickly, and I anticipate accepting an offer right around $300k.

Real Estate Investment ‘Touch’:  Knowing the Right Considerations

‘Touch’, as it applies to real estate investment and entrepreneurship, is two things:

  1. Knowing what questions to ask in the first place
  2. Being able to answer those questions confidently and intuitively

It starts with knowing the right questions to ask….and this simply comes from experience and time spent in the field.  For example, when I first got started in real estate investment and entrepreneurship, I can assure you that it never even would have crossed my mind to wonder if the buyer would have trouble getting financing because I had resold the property at a higher price too quickly.

Secondly, once you’ve identified all the right questions to ask, you have to be able to answer them intuitively (or through some quick research). In my case, through my experience in real estate investment, I know that this house could likely sell for upwards of $300k…because nothing was selling for less than that.  Did I confirm this assertion by pulling comps?  Yes, you bet I did.  But the point is I had a gut sense for the market before I ever even did the research.

How To Develop ‘Touch’ in Real Estate Investment

Developing ‘touch’ in real estate investment is simple…but not quick or easy.  Simply put, it takes time and “reps”–you just have to get out there and study the market first-hand over a period of time.  To break it down and make it really specific, here are a few important things to do, to develop this sense of ‘touch’:

  • Look at as many sold properties as you can. What did the property sell for? How about the price/foot? What was the quality of finishes at that price point? How long was it on the market? And what did it sell for in relation to its initial list price?
  • Look at as many currently listed properties as possible.  Ask all the same questions as above with the sold comps.
  • Look at as many rental units as possible.  What are average rents? What are average rents per square foot? Per bedroom?  Are there incentives being offered? What are typical security deposits? Are utilities being billed back to the tenants, that aren’t reflected in the rent?

This is all about gathering as many data points as possible, and storing them in the database of your brain.  After a while, you’ll develop some good rules of thumb that will help you evaluate opportunities quickly and decisively.  For instance, you will eventually be able to say things like:

  • In this part of town, rents are usually about $1.50 per square foot.  This unit is 1,000 ft2, so a ballpark rent for this unit would be $1,500.  There’s a shortage of units, so vacancy rates in this area are less than 3% and it will be easy to rent this unit.
  • Nice homes in this neighborhood usually retail at around $250/ft2.  Buyers tend to pay a premium for finished basements, and high-end appliances are the norm. Days on market are less than 7, and properties are selling for 97% of asking price.

So get out there and develop some ‘touch’.  My goal is to be the Messi of my real estate market. Will you join me?

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