The Power Of Forcing Factors

Posted on August 24, 2020 by Scott Gordon

I recently had a chance to catch up in person with a good friend of mine, who is the founder and CEO of a mid sized technology company with about 100 employees. It had been about three years since we’d spoken, and at that time the company he’d started years before was occupying every aspect of his life. He was being pulled in every direction at work and putting in excessively long hours to the point where one might think he was living in the office. Needless to say, he seemed very stressed the last time we spoke.

As with most entrepreneurs, he has several other endeavours or side hustles to which he devotes his spare time. One of these ventures had brought him to Santa Barbara for the day to meet with a vendor, and we made some time to catch up.

As we sat in a small bar by the beach drinking beers, I was struck by just how relaxed he appeared. He seemed less tense, he wasn’t checking his phone every thirting seconds. … heck, he was even laughing and smiling – something that was absent from our last conversation.

Curiosity got the better of me, and I rather bluntly pointed out his new demeanor and asked him what had changed.

“Well, it’s a funny thing”, he said. “About two years ago, I got together with a group of colleagues and personally invested in another company. Almost immediately after receiving our check – which was slated for investment to increase capacity, the CEO gave himself a pay raise and a bonus totaling almost the entire investment. He took nearly every penny. ” He went on to describe his sense of responsibility to the other investors, the lawsuit that they filed, and the subsequent legal actions that followed.

“The lawsuit consumed every aspect of my life. I didn’t have time to spend on my company, I was so entrenched with the lawyers trying to recover our investment. This went on for some time.“ He continued.

“But a funny thing happened. The team at my company stepped up in my absence. All of the tasks and responsibilities that I thought only I could do … well, my team did them.”

He went on to explain that now that his team was taking over the repetitive tasks he used to do, he was free to do other things to help the company grow. Their previously impressive growth was even more impressive, as they continued to capture market share from competitors.

This is the perfect example of a Forcing Factor. Forcing Factors are events that happen, often outside of our control, and force us to make changes. The recent global pandemic is a perfect example. People who would never shop for groceries online, or use video chat to communicate, are now being forced to do so in order to get what they want and need. The pandemic is a forcing factor. They can happen to business owners, and consumers. Sometimes we call them “ah ha” moments; the exact moment when it all clicks.

I’ll never forget the moment I realized the value of texting. “Back in the day”, I didn’t understand texting. All of the phones were flip phones, and to text someone you had to type out the message using a numeric keypad. Want to type the letter C? Hit the number 2 button three times.

I would think to myself “Why text someone when you could just call them. Calling is so much easier.” Then one night I went to a club to meet some friends. As I made my way through the club looking for them, I tried to call them. The music was so loud you couldn’t hear the conversation. I stood in the middle of the dancefloor, the phone up to my right ear and my index finder in my left ear, yelling “hello? … hello!”.

And then I got a text. “Second floor, right side, tbl 34”. And suddenly I realized the value of texting. The loud music had been a Forcing Factor which pushed me out of my comfort zone and forced me to use something that I wasn’t accustomed to using.

The great thing about Forcing Factors is that you don’t have to wait for them passively. You can engineer forcing factors, and push yourself outside of your comfort zone to make them happen.

You start by identifying an action or activity that is standing between you and your goals. I call this “The Blocker”.
Then you identify what enables The Blocker. I call this (very creatively) “The Enabler”.
Then you disable The Enabler.

It’s just that simple.

For example, let’s say that you identity that constantly checking email is keeping you from getting your work done in a timely manner. You’d then identify what enables you to check email (perhaps it is having a computer on, or having Internet access, or having the email client open). And then you’d simply disable that enabler. So in this example, maybe turning off the computer and Internet will inhibit your ability to do work, so perhaps you just set an autoresponder that you’re only available by phone for emergencies and you close the email client. You’ve just become your own Forcing Factor.

Monetizing Vacant Land Through Camp Hacking

Posted on August 21, 2020 by Scott Gordon

As the residential real estate market in the United States continues to heat up, I’ve been looking for alternative ways to invest. One option, first introduced to me by my Grandfather years ago, is landing banking. Land banking is the practice of acquiring land, and then just “sitting on it” like you would a savings account in a bank.

The premise is that over time, as development progresses in surrounding areas, the value of the land will increase. During that time, because you’ve kept that land undeveloped, the maintenance cost (including the tax basis) has stayed very low. At some point in the future, you sell the property in a 1031 exchange, and the process starts all over again.

This real estate investment strategy has its pros (such as it’s easy to start and has a low maintenance cost) but it also has its cons. The two biggest cons is that the land can generate little to no cash flow, and empty land is a prime target for dumping.

The easiest solution for this is to find a way to monetize the empty land, and two friends of mine have come up with one which I call “Camp Hacking”.

The concept is simple. Scouring public and private auction sites, they acquire small remote parcels of land. Their goal is to acquire a piece of property for under $1,000.

They then add a composting toilet to the site (est. $500), and voila – they have a campsite.

They post this campsite of listings websites like www.hipcamp.com, where they generate $20-$30 a night ($300-$500 a month) from campers looking for remote getaways far from the hustle and bustle of “city life”. Suddenly their empty piece of land is a thriving revenue generating machine.

Let’s run the (hypothetical) numbers:

Initial Costs

Acquisition Cost: $1,000

Equipment: $ 500

Sub Total $1,500

Annual Maintenance Costs

Accounting: $ 400

Corporate Licensing: $ 300

Marketing Fees $ 500

Insurance $1,000

Property Taxes $ 150

Sub Total $2,350

Monthly Revenue

Average Monthly Revenue $ 300 does not include fee to manage

The Numbers

Months Until Break Even: 20 Months

Ongoing Monthly Profit: $104

Return on Initial Investment: 6.9% not including appreciation

So even at a conservative estimated monthly revenue, the property delivers a tidy return. If you can increase occupancy and / or the average nightly revenue, and decrease costs … perhaps by acquiring more properties, and allocating the fixed costs against a greater revenue stream … then this number only increases.

As with all real estate investing, it all comes down to the numbers. Camp hacking represents just another opportunity to creating semi-passive revenue from real estate.

How I Simplify Being A Landlord

Posted on August 14, 2020 by Scott Gordon

It seems that lately a lot of friends with residential rental properties have been lamenting to me about how difficult they are to manage. They talk about constant issues and problems, and how they’re so fed up that they just want to sell their rental properties and get out of the landlord business completely.I can relate – this used to be a consistent source of frustration for me as well. And for a short period of time, because of the frustration and a few other reasons, I got completely out of real estate too.But the good news is that being a real estate landlord doesn’t have to be a frustration. Much like most things in life, the difference between difficult and easy is a little bit of knowledge. I’m going to share a system that I use to manage my properties. My hope is that if you’re experiencing the same issues, you’ll find my system helpful. And by all means, please feel free to adapt and modify my system to suit your particular needs.So without further delay, here’s how I make being a landlord easy.

I choose the right tenants.
This is so critical, and the origin of most any problem can be traced back to having the right tenant. I’d rather have the home empty than have the wrong tenant in place.
The right tenant is more than someone who pays the rent on time. In fact, paying the rent on time isn’t my top criteria for a tenant. My number one criteria is that they treat the home with care, and communicate with me. Communication is key. They need to feel free to reach out whenever there is an issue (more on how I manage that below); I’d much rather catch a problem early when it is simple to fix than later when it is more difficult.

How do I know that they meet this criteria before they move in? I meet with them! I’m honest and upfront about my expectations of them as a tenant, and give them an opportunity to share with me their expectations of me as a landlord. I scrutinize their application, run the credit and background checks, call their references, etc. And I welcome them to call my current tenants to learn more about me.
I’ve built an amazing team.
Having the right team makes any landlords job exponentially easier. These aren’t employees, they are simply people who are dependable, trustworthy, smart, knowledgeable in their field, and make themselves available. I’m constantly evaluating new potential members of my team, and adding people to the bench in case one of my “starters” isn’t available. And I keep copious notes on the performance of existing team members, so that I don’t accidentally rehire someone who doesn’t do a good job.

One pro tip: I never burn a bridge. You never know when you may be in a jam and absolutely need to rehire the person you swore you’d never use again. No matter how bad the work product, I never make it personal. I’m not a push over – when a job isn’t done right I address it – but I don’t take it to Defcon 1 either.

My team includes:
1. A real estate agent (for each geographic region)
2. A lender
3. An insurance agent
4. An attorney
5. A handyperson
  1. I also keep specialists, like plumbers and electricians, on hand
6. A gardener
  
  I insist that the latter two are capable of video chat, and sending me before and after photos … just in case I’m on a beach and cannot be there in person.
I check on the properties.
When I’m in the area I drive by the properties. I keep in touch with the neighbors. Every three to six months I inspect the inside of the properties. Before the tenants move in, I explain that this will happen and how it will happen (I give them plenty of notice, let them know that they can be home if they like, assure them that I am only looking for specific things like water leaks, etc., and that it only takes about 10 minutes).

If there is an issue, we address it. If there is an issue caused by tenant behavior, we address that too. This goes back to clear, professional communication.
I create a home guide for each property.
I “borrowed” this idea from an AirBNB host. I loved the idea of an online document which outlined all of the particulars of the property. I have a Google doc for each of my properties which outlines all of the important numbers, local resources, rules and guidelines. If the tenant has a question or problem, they can check there first … then contact me if the home guide doesn’t answer the question (after which I immediately update the home guide!).
I collect rent using an automated system.
Some landlords accept checks. Some accept direct deposit. I’ve found that both of these are flawed, and use Cozy.co instead. Checks get lost in the mail. Some states make it difficult to evict tenants if they pay and you accept a portion of the rent, which is possible with direct deposit to your bank (not to mention I’d prefer they don’t know where I bank!). Cozy is awesome. They accept the rent, allow tenants to pay with their checking account with no fee (or credit card with a nominal fee), apply late fees if necessary, and don’t charge a fee to the landlord! How do they make their money? They hold the rent income for 7 days before releasing it to my bank account, and make interest on the float. You can upgrade to their pro membership which will transfer payment within 3 days. Cozy also offers a host of optional fee based services like background checks.

Thanks to Cozy, I no longer have to wonder when the rent will show up, drive the my PO Box and hope that the checks are there, deal with tenants who claim the check is “lost in the mail”, etc. Cozy tells me when the tenant has scheduled the rent payment to be paid, so at any given time I know immediately who is planning on paying their rent on time and who isn’t. And Cozy deals with the uncomfortable conversation (for some) about late fees, as the late fees are automatically applied when the rent is paid after the grace period.
I purchase a home warranty for each property.
Some people don’t know that you can purchase a home warranty for rental properties. While coverages vary, home warranties generally cover issues with appliances (including clothes washers, dryers, refrigerators), air conditioners, interior plumbing, pools and spas, etc.

For each issue, there is a nominal call out fee (ranging from $0 to $150, depending on the plan you choose). The rest is handled by the home warranty, provided it is a covered item. They choose a vendor, coordinate the appointment time, follow up to ensure the work was done correctly, etc. If an issue isn’t covered by a home warranty, I can either use one of my vendors OR the vendor the home warranty company recommends (and pay them directly). They have a list of trusted vendors who have been vetted.

I purchase a home warranty for each of my properties, and build a clause into my lease that the tenant will pay the first $150 of any repair (which covers the call out fee).

There is a lot of debate on whether a home warranty is worth the money. Some people question if the $350-$500 you spend a year on the warranty is more than you would spend on having repairs fixed yourself. I think that this argument doesn’t take into account the biggest value of a home warranty – the tenant has a hotline that they can call 24/7/365 about any issue with the home … and that hotline isn’t me! While I love and expect great communication with my tenants, I don’t want calls at 2 AM nor while I’m on a beach in Hawaii. Not to mention the tenants deserve prompt, professional responses to their immediate needs. The home warranty covers both.
I turn current problems into future solutions.
It’s unrealistic to think that being a landlord is going to be trouble free. You’re going to have issues from time to time. The trick is how you handle them. My system wasn’t just created, it was curated. Each time there is a hiccup, I focus on creating a solution so the next time the same problem occurs it won’t cause me as much stress.

I call this “future proofing”. It’s why my leases have an addendum with 12 items that aren’t included on boilerplate leases, and it’s why I have a home warranty on each home.

I hope that you find these tips helpful, and it gives those of you thinking of selling your rental properties simply because they are a hassle some other options.If you have questions or suggestions, please let me know. As I mentioned, this system was curated over time thanks in part to people who had more knowledge than me at the time. It can always be improved, and I welcome the feedback!