“Certainty,” and why it matters

Posted June 24th, 2007 by Joe Kaiser

Solving huge problems means earning equally huge pay checks.

Dear Rob,

Most people, real estate investors included, don’t really understand the concept of risk/reward when it comes to buying properties in foreclosure.

During my deposition it became obvious your office does not understand it, either.

When you don’t understand the consequences of risk, any profits, particularly “monster” profits, don’t seem earned and as we’ve witnessed, that sends your AAG’s scurrying off in all the wrong directions.

And by not factoring in risks, all they can infer is “scam.”

Your staff not only fails to recognize the importance of confronting the risk/reward question, I’m convinced they have no appreciation for the risks we investors must manage to consistently create profitable deals.


what makes a deal a deal?

Let me see if I can help you all out . . .

There are three things that make a deal a deal, and street-smart investors know that lacking even one puts them at risk of losing everything they’ve invested.

That means it’s critically important investors stay away from deals that don’t include the three things that matter.

And those three things?

Profit, 10x, and Certainty.


#1 – Profit

We look for situations with big equities and big problems. We know the bigger the problem, the more valuable our ability to solve that problem becomes.

Solving huge problems means earning equally huge pay checks.

And that’s why I’m a foreclosure investor.

There is no other place I can create the kinds of profits I earn as a foreclosure investor. It’s the only place I know of where I can provide solutions valued highly enough to justify those profits.

That didn’t happen by accident.

In terms of profit potential, (investors call that “EV” or “expected value,” – tops of my list of what makes a deal a deal, btw), the foreclosure arena is where it’s at.


#2 – 10x

I’m not a lender looking for 6% returns on my money. That’s not a business I’m interested in operating.

What I am is an investor looking to put my money into situations where I can earn 10 times what I invest. We call that “10x” and it is criteria #2 on my list of the things that make a deal a deal.

Yes, that means I invest $1,000 to make $10,000.

What it doesn’t mean is that I charge homeowners in foreclosure 1,000%, which is where I’m guessing your staff is headed here.

I often invest money in the foreclosure deals I put together. But it’s not the money that solves the problem or makes the service I provide valuable. The money, all things considered, is often a small part of the problem-solving equation.

Please understand that.

So, when I invest ANY money into a foreclosure transaction, I do so looking to make ten times what I put into the deal, and that’s minimum.

I’d much prefer 100x or even 1000x, because those are returns that allow me to stay healthy in this business.


#3 – Certainty

So what’s left?

Certainty.

And while it’s my #3 criteria, it’s no less important than the other two.

What’s certainty?

  • It’s knowing how things will turn out in the end.
  • It’s having some sort of realistic expectation things will come together as planned.
  • It’s that guarantee, in the very best of circumstances, of actually getting paid.

And with foreclosure investing?

Certainty is virtually non-existent. Gulp.

So how can I do deals if there’s zero certainty?

I can’t, unless of course I focus on situations where the other criteria is completely off-the-charts to make up for it.

And that’s why foreclosure investing is so difficult to understand for your office. Without certainty, our risk is off-the-charts and they don’t see it.

What they do see is me in situations where the potential for profit is off-the-charts, where I’m looking to make 100x, and not knowing anything about the foreclosure business and the risks involved, they assume that’s unfair.

It’s not – it’s called smart.


Profits are “scheduled,” not guaranteed

I sat across from former AAG Cheryl Kringle while she grilled me about a transaction I’d put together with a fellow in eastern Washington.

It appeared she had a problem with it.

We’d partnered up and with little time to spare, I invested thousands of dollars to save this fella’s property from tax foreclosure.

Our deal gave me a 30% ownership interest in the property, a property valued at somewhere around $170k. That meant for an investment of around $12k (if memory serves), I’d picked up a nearly $60k equity position.

Cheryl said something like, “That’s quite a return, Mr. Kaiser.”

I nearly fell out of my chair.


reality bites

Rob, how does your office so not get it?

It’s not a return, it’s a “scheduled” return. The certainty I’ll actually see that money is zero.

You seem to think I can just walk up to him, tap him on the shoulder and have him cut me a check. That day will never come.

What will happen is he’ll fail to make the annual rent payment he’s agreed to make (he did), and at some point we’ll have to come out of pocket to take care of all the things he promised to handle but has not.

Or, we’ll have to pay to get it cleaned up when he gets in trouble with the county, or we’ll have to pay the new property taxes out of our own pocket since he’s failed to pay rent.

And worse, now that your office has likely poisoned our relationship with him, we’ll have to duke it out to actually see a dime of the money we invested, much less the profits we earned.


It’s all about the risk

There are no guarantees in real estate investing, particularly in the foreclosure arena.

To invest successfully you MUST get a handle on the risk/reward question. It’s critical, so much so that if you fail to recognize it, you have zero chance of becoming profitable.

Predictably, your office doesn’t appear to understand that the risk/reward question is so vitally important. Or worse, as I believe, that it even exists.

Scary thought.

Respectfully,

Joe Kaiser


4 Responses to: ““Certainty,” and why it matters”

  1. Norma Nicholson responds:
    Posted: June 24th, 2007 at 6:34 pm

    If he went to work and only got paid for cases they won with big judgments/sentences would he work that way? That is what he is asking of a real estate investor. There is NEVER a sure thing in real estate investing – you can up your odds but there is no guarantee what your return will be. Plus you have everything on the line and the economy could go bust leaving you with real estate that has greatly declined in value with unknown factors in disposing of the property.

  2. Joe Kaiser responds:
    Posted: June 27th, 2007 at 7:33 pm

    Norma, good point.

    The idea that anything is a sure thing in the real estate business is only something someone who doesn’t invest in real estate would think.

    Joe

  3. DaveD responds:
    Posted: June 28th, 2007 at 7:11 pm

    Reality Bites?

    D@mn straight it does!

    I write this somewhere out in Yellowstone while I check in with you on vacation. Here I face the reality that Rob is getting a free education that a lot of us paid good money for. And would gladly do again ;-)

    Keep your chin up. If I were a betting man, my dough would be on Rob waking up. Even if it takes another course or two!

  4. Joe Kaiser responds:
    Posted: June 28th, 2007 at 7:38 pm

    Dave, rest assured, I intend to charge.

    Joe


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