How to Ru[i]n a Business

The post originally ran on the Hermit Haus blog because that is where we talk about running a business. It derives from efforts on behalf of our new non-medical, personal assistance company, Hearts Homes Hands.

This post originally appeared on the Hermit Haus Redevelopment website on 2019-09-28. A slightly edited version also appeared on the Hearts Homes Hands blog.

Over the past few weeks, our sister company, Hearts Homes Hands (Hearts, for short) has been trying to get some promotional items with the lovely helping hands logo embroidered on them. Since Hermit Haus has previously purchase such items from the big online vendors, we knew that the quality of the items they provide tends to leave a bit to be desired. So we decided to buy the shirts from Lands End and have a local company embroider them. This decision provides the quality we like while supporting local businesses, a win-win.

Based on our experience so far, here are a few rules to follow if you want to avoid doing business.

Don’t Have the Equipment

Our first call was to a local tailoring and alterations business. It was a long shot, but we like her, so we wanted to give them the business if we could. Unfortunately, they don’t have the right sewing machine for the embroidery work. That’s not really surprising, since it isn’t their core business. It’s not a big deal, but it does keep them from expanding.

They did refer us to another local business that does. They just didn’t tell us that’s what they were doing.

Don’t Follow Through on Commitments

The owner of the second business actually did have the equipment and called us at 9:00 o’clock on a Saturday night (impressing us with their dedication) to say they would call on Monday to talk about the details. They didn’t. We did get an email Monday night saying they would be in touch with us on Tuesday. They weren’t. Nor did they answer when we called back the original number.

Don’t Provide Contact Information

We then set about looking for another local business to do the work for us. We found a Facebook page for one with no phone number and no email listed. See the previous “rule” and guess what happened to our FaBoo messages. How are you going to get new business if you make it impossible for your customers to contact you? You don’t have to answer the phone yourself, but somebody needs to.

Don’t Have a Physical Location

Now you may think that brick and mortar operations are passé. It so, why did Amazon buy Whole Foods? Why does Google have so many offices throughout the country for Google Fiber and their other marketing ventures. No, if you’re going to have to interact with your customers—especially if you rely on local customers—you need a place to do it.

The result of all this is the Hearts leadership team is going to our first industry event without clothing to identify us to potential customers and referral sources. Sigh. Anybody have a Sharpie?

Aging Well

Ursula K Le Guin started blogging—mainly about aging—at 81. The blog was excerpted into No Time To Spare: Thinking about what matters. Photo by: K Kendall on flickr. This file is licensed under the Creative Commons Attribution 2.0 Generic license.

This file originally appeared on the Hearts Homes Hands aging blog on 2019-09-24

While we will talk about the business of running Hearts, Homes, Hands and providing in-home, non-medical elder care once we start accepting clients, that’s not the only purpose of [the company] blog. We want to share things we learn about the aging process and how to help live your life to the fullest as you age. And unlike other businesses, we hope to help you never become one of our clients.

So here is a look at some other blogs:

10 Bloggers Who Make Aging A Whole Lot Easier

As the title says, Huffpo lists 10 blogs, mainly run by journalists, that deal with aging well. One of them might suit your needs.

The Age-Well Project

Annabel Streets and Susan Saunders literally wrote the book on The Age Well Project. Their blog discusses their ongoing journey into elderhood.

Ursula K. Le Guin

Le Guin, was one of my favorite authors growing up. Unfortunately, she died last year, as we all eventually must. She started blogging at 81, and her writings continue to inspire me. I often quote he response to the misguided saying, “You’re only as old as you feel.” She responded, “If I’m ninety and believe I’m forty-five, I’m headed for a very bad time trying to get out of the bathtub.”

Just Be Careful

A Ponzi scheme uses the investments of later participants to fake profits to earlier ones. Sooner or later, all Ponzi schemes collapse from their inability to generate enough new investment to pay older investors.

This post originally appeared on the Hermit Haus Redevelopment website on 2019-09-23.

There’s been a cautionary tale running around the news this week. It makes me think of something the Oracle of Omaha once said. “You cannot build a good career with bad people.” This statement has been interpreted as “You can’t make a good deal with bad people.”

I don’t know enough about Clayton Morris to make a value judgement on his character, although his career as an entertainer on Faux News does not earn him any brownie points in my book.

Morris left Faux News to form a turnkey investment company that buys, renovates, and manages rental properties for investors. There are a number of companies that do this job well, but you are always taking a big risk when you invest in a property you may never see.

I’ve linked to a short podcast that discusses the story. You can read more details in this NY Times story, which describes the numerous lawsuits against Morris—one in federal court.

Here’s the audio.

A couple of points:

• Real Wealth Network, which produced the podcast, may compete with Morris in some markets. I can’t tell because Morris Invest does not list the markets in which he is active. Real Wealth does.
• Being sued does not necessarily mean you have done anything wrong.
• But leaving the country in the midst of a law suite does not inspire confidence.

When you’re investing, failure to distinguish between fake data and facts can cost you big time. Celebrity is not the same thing as legitimate credentials. Photo Source: kenishirotie Licensed through Envato

Protecting Yourself

So, how do you know if you can trust the people you’re investing with. Ultimately, that’s something you can never be sure of, but there are a few things you can do.

Due Diligence

Due diligence is a legal term that simply means being careful. Before you invest, find out everything you can about the people you’re thinking about investing with. Just be careful.

Their Experience

Never risk your money with inexperienced people. Have they been in business long enough to establish a track record? Look for previous projects they have done. Were those projects completed on budget and done well?

The Investor Experience

What have other people experienced when investing with them? Talk to other people who have invested with them—anyone you can find, not just the ones they point you to. Have they paid off on time? Have they communicated well with their investors?

Character

This is the hardest part. Are they good people? I’m not asking if you like them. Con artists are very likable, and “superficial charm” is a trait of most psychopaths.

Their character trumps their experience. Are they good people? Do they contribute to society? Is helping others at the core of their mission? Do others trust them?

But the bottom line is that investing is risky. If you invest carefully, you can expect to make money more often than you lose it. If don’t learn everything you can about your investments, you’re not investing; you’re gambling.

Whether you’re investing or gambling, some advice my older brother a “professional gambler” once gave me still holds true. He said, “Don’t put any money on the table you wouldn’t set fire to and walk away from.” For investing, that boils down to “Don’t invest your rent and grocery money.”

Crustier

This is the brush I currently use to maintain my callouses. It’s easy to grip and has very stiff bristles. My previous brush lasted almost five years. These brushes are a much more frugal way to maintain your feet than one of those dangerous trimmers.

This post originally appeared on the Hearts Homes Hands website on 2016-02-00.

As we get older, most of us get … crustier? I’m not talking about our personalities, although my friends—yes, I do have friends—would tell you I’ve gotten more than my share of that. I’m talking about dry skin and callouses on our hands and feet. Especially our feet. Especially our heels.

Or is that just me?

There are all kinds of products to help trim the callouses that develop on our feet. Most involve some kind of blade. And I’ve known even the sure-handed to get over zealous about trimming and injure themselves.

So, here’s my solution. For years now, I’ve used a simple kitchen brush. It needs to have a good handle so you can grip it easily. A long handle gives more reach, but a short handle gives better control. As I’ve gotten less limber, I’ve come to prefer the longer handled brushes like the one in the sidebar.

First, soak your feet or hands. I use mine in the shower, where I have a bench so I can sit or elevate my feet as I need. A pan of hot water also works nicely. Once the callouses soften, rub them in a circular motion. This action removes the excess skin, but leaves the healthy skin. And because the bristles bend, you don’t have to worry about cutting too deeply.

I hope this tidbit helps.

How to Get Through College Without Drowning in Student Debt [iii]

To get where you want to go, you need a plan, a vehicle, a mentor or guide, and the willingness to get out and push.

Many people graduate university with enough debt to buy this nice starter house in Cameron, TX. Now add the stress of finding a job and starting a career so that you can begin to repay that debt. There has to be a better way!Starting with no educational debt, the roofers on this job stand a better chance of achieving financial independence than many debt-ridden college graduates.

This post originally appeared on the Hermit Haus Redevelopment website on 2019-02-22.

Part III: Pay for Your Education Without Sacrificing Your Future

One of my younger friends once told me a staggering truth while recovering from the party to celebrate his graduation from the University of Texas. “Yesterday, I knew who I was,” he began. “I was a college student with a 3.7 GPA. I lived in a dorm and had a meal plan. This morning I’m homeless and unemployed.”

Being homeless, unemployed, and facing a mountain of debt with no real hope of ever paying it off is not an uncommon situation in this country.

Unless you are born to wealth, there are only a few options to obtain a degree without also acquiring ridiculous amounts of debt. The most obvious way is to work and pay as you go. That’s what I did. I graduated with honors from both my undergraduate and graduate programs without debt by working full-time while being a part-time student.

Here’s How I Did It

Just as you wouldn’t start a construction project or a reno without detailed construction, financing, and contingency plans, you shouldn’t start your education without detailed career, financing, and contingency plans.

At the beginning of each semester, I would sign up for two or three classes in my degree plan and put the tuition on my credit card. During adds-and-drops, I would get the syllabus for the classes and determine the difficulty (and time requirement) of each class. If I judged I could successfully complete the courses without endangering my job or family life, I would buy the books (also on my credit card) and do the work—both the class work and the jobby job work.

If the task of working and schooling appeared too daunting, I would determine which class (or classes) to drop to ensure my academic success, hopefully before the university started assessing a fee for partial completion. I always made this decision before the deadline to withdraw passing.

As the semester progressed, I would pay off the credit card. This strategy is one of the only times I would consider credit card debt to be "good debt."

If something came up at work (like getting sent to Panamá for ten weeks) I would cope the best I could. Sometimes, I would have to withdraw (passing) from a course. If it turned out I had misjudged the difficulty of the course or courses I was pursuing, I would have to decide it I could slug it out or if I would have to drop a course. Sometimes this decision was overshadowed by how often the course was offered and the competition to even get in. I only took electives that really interested me and would advance my career.

At the end of the semester, I would check off the course(s) successfully completed on my degree plan and start planning the next semester. Sometimes, I would not have been able to pay off my credit card, which would limit or eliminate the number of courses I could attempt the next semester. Sometimes, my employer would reimburse or partially reimburse my expenses for courses that directly applied to my jobby job.

Employer educational benefits are the secret advantage of working while you pursue your degree: your employers want you to succeed and most will help you do so financially! After all, a better-educated, better-qualified employee is in your employer’s best interest.

All It Takes Is Time

By paying as you go, you control the Cost of your education but may sacrifice Speed. But I believe the smaller course load I attempted each semester increased the Quality of my education by enabling me to pay more attention to what I was learning.

This approach was not without cost. It took me ten years to get by bachelor’s degree (normally a four-year degree) and four years to get my master’s (normally a two-year degree). This meant that any degree-related career advancement was also deferred. And neither could I benefit from many of the social aspects of university life because I had to run home to family and jobby job. [But, honestly, I am a hermit. The social aspects of university life never appealed to me.]

On the other hand, I graduated with real-life experience that increased my value in the work place and ensured I could work in the field I had chosen to study. My initial plan to be a psychologist was derailed by the economic realities of that profession just as much as my plans to be a professional musician. And keeping grounded in the working world kept me from the horrors I’ve seen of hopelessly lost academics who charged straight through to a doctorate with no grounding in how the world actually works.

What Matters to You?

Like all the “advice” I give, my version of the pay-as-you-go approach to education worked for me. It may not work for you.

Only you can decide if graduating without a significant debt load is more important than the future value of the overall university experience. No decision is without sacrifice. No plan is right for everyone.

Deciding If an Opportunity Is Right for You

Although the decision to invest or not is binary, the question really boils down to, “Is this the right investment for me right now?”

This post originally appeared on the Hermit Haus Redevelopment website on 2018-11-27.

Your reason for investing should drive the type(s) of investment(s) you invest in. To oversimplify a bit, there are two investment strategies: building wealth and creating income. In the real world, these two strategies are not mutually exclusive. Where you are in life will influence your strategic choice.

Let’s look at an example rental house that requires no initial out of pocket investment. We’ll assume the debt on this property covers the initial renovation and all the costs of acquisition. We’ll even assume the house provides positive cash flow from the time it’s rentable—$50 each month after allowances for debt service, taxes, insurance, vacancy, maintenance, and capital replacement (big ticket items like HVAC units that can’t be expensed off in one year).

Multiple Perspectives

Here are a few ways to look at this opportunity:

What’s the Difference Between Distress and Motivation?

If you have almost $2-million available, have friends in New Zealand, and love the views as much as I do, this village may be the right investment for you. Check out the listing on OneAgency. They have lots more exciting pix. Photo by: OneAgency

This post originally appeared on the Hermit Haus Redevelopment website on 2018-11-19.

You know we’re always looking for our next redevelopment opportunity. We’ve talked about distressed properties and the opportunities they present if you can look past their challenges. I’ve also talked about how the numbers have to make sense and we buy only a small percentage of the distressed properties we look at.

Why is that?

A distressed property is only one indication of what may be a motivated seller. The level of seller motivation rather than the level of property distress is the real driver of what makes a property we can buy.

Some of the things that may motivate an owner to sell include:

• Physical distress arising from deferred maintenance or the inability to pay for needed repairs
• Lack of interest in an inherited property or a second home the seller just doesn’t want to deal with
• Landlord fatigue that comes from not understanding how to manage rental properties and tenants or when the landlord moves away
• Financial distress arising form health problems, job loss, or financial mismanagement

In any of those cases we can help the seller overcome a (hopefully) temporary problem by buying their property and taking on the headaches they can’t or don’t want to deal with.

One of the challenges in our business is understanding the difference between distress and motivation. This article is one of the best example examples of how to tell the difference between distress and motivation. Here are a few salient facts if you don’t want to read the original article:

• An entire village near Lake Waitaki in New Zealand is for sale with an asking price of $1.8-million.
• Once home to almost 3,000 people, it has been “mostly vacant” for almost 30 years.
• In 1995, the village was awarded historically protected state to prevent its demolition.
• The current owners bought the village in 2011 to use as a corporate retreat center.
• When those plans failed, they put the it back on the market in 2015, but it has not sold as of this writing.
• Recent changes to New Zealand laws prohibit foreign investors from buying homes, limiting the pool of potential buyers for this property.

So far, that sounds like a classic distressed property, even without considering the condition of the homes and the lodge it comprises. I know I would be motivated to sell if I had almost $2-million tied up in an investment that generated no income and had been on the market for three years.

But is the current owner motivated?

“It’s simply a matter of waiting for a person to pay the price we are looking for,” is the definition of an unmotivated seller?

So, no. Even though Suna and I have discussed eventually retiring in New Zealand, we would have to walk away from this property.

I’m Making Them Birds

While you can't just paint over all your mistakes or confusion, you can choose how you let them affect your mindset. Photo by Suna

This post originally appeared on the Hermit Haus Redevelopment website on 2018-10-06 .

Starting with Why: Every day in business, you encounter things that annoy, frustrate, or confuse you. I wanted to talk about how I've chosen to accept some of the things I cannot change.

One of the more frustrating points about running a business is that you can either know what it’s really worth or keep accurate books for taxes. And never the twain shall meet.

Businesses are punished on their balance sheets for being good negotiators. At the same time, they are required to take totally fallacious “expenses” while being forbidden from taking real ones. Here’s a few examples:

• Cost basis
• Depreciation
• Capitalized expenses

Cost Basis

We recently bought an asset from a motivated seller for much less than its appraised value. We got our loan based on the appraised value, but we are required to book the building at the purchase price. As Zacks explains:

Under corporate accounting standards, when a company acquires an asset, it puts that asset on its balance sheet with a value equal to its "historical cost" – what the company paid for it. If it's a fixed asset with a limited lifespan, such as a building or a piece of equipment, the company gradually depreciates that asset over time, which reduces its balance sheet value. Even if the company has good reason to believe that an asset has risen in value, it still cannot increase that asset's "book value," the value reported on the balance sheet.

So we have a $120-thousand building we have to book as an $80-thousand asset. And we have an $85-thousand loan against that asset. So our books show us with $5-thousand of negative equity instead of $15-thousand it positive equity. Our books show us making a stupid purchasing decision instead of a really good one.

Depreciation

Now factor in depreciation. Nobody doubts that assets (be they machines or real estate) eventually wear out. Rather than qualifying that wearing out, businesses are required to take what I like to call “stylized depreciation.” (“Stylized” sounds so much better than “fictional.” Doesn’t it?) I think the real term is “standard depreciation.”

The IRS assumes a 39 year life for commercial buildings and a 27.5 year life for residential rentals. For the asset I mentioned above, we’re required to write down 1/30 (2.654%) of the $74-thousand valuation of the building—not the land—every year until we eventually show no value for the asset except the cost of the raw land at purchase. And remember depreciation affects value. So our building will be worth about $1,900 less every year. It will show negative equity for 10 to 15 years.

We must really suck at business! We don't, but that's the story our books will continue to tell about this building.

The only good thing I have to say about depreciation is that it also reduces my net taxable income. Maybe not as much as my actual expenses would if they were not capitalized, but every little bit helps.

Capitalized Expenses

Capitalized expenses are pretty much what they sound like—expenses businesses are required to show as assets. Sometimes that makes sense. One of the first things we’re going to do with our new building is to spend about $6K on a new HVAC system. That’s money we have to spend (an expense) but it also pays for an asset that should last a few years—probably longer than its depreciation period. That means it increases the value of our building until it doesn’t. (I don’t know how long that is, which is why we pay a good CPA firm lots of money every year. Luckily, I think that counts as an expense.)

But sometimes it doesn’t make sense to capitalize expense. All or the settlement costs, including legal fees, we paid to buy that building are capitalized. We spent the money on a one-time service with no ongoing value, but nope! That’s an asset, not an expense.

All these (and other) factors encourage businesses to churn their holdings. If you hold a building long enough, it looks like you are broke no matter how much the building is actually worth. But if you churn your holdings, you can make it look like your business is growing, even if you pay too much.

As I write this post, I’m wearing a T-shirt with a picture of Bob Ross painting. The caption talks about repainting mistakes to make them into birds. So rather than get all “Back in Black” about these accounting idiosyncrasies that make it so hard to know how well my businesses are doing, I’m making them birds. I like birds. Birds make sense.

Solving Problems

My mom used to say, "When you point at someone else, you have three fingers pointing back at you." That's the best argument for an internal locus of control I've ever heard.

This post originally appeared on the Hermit Haus Redevelopment website on 2018-06-23.

Do you ever feel that the universe is conspiring against you? No matter what happens, something goes wrong so that it doesn't work out the way you want?

Every now and then, we all encounter situations like this. How we react to them is usually based on what psychologists call "locus of control."

People with a strongly internal locus of control:

• Believe they are fully in charge of their destiny
• Take responsibility for their actions and mistakes
• Actively take corrective actions

People with a strongly external locus of control believe that their fate is in the hands of fate (or something else). The events in their lives "just happen to them."

Most of us fall somewhere along the line between these two extremes.

Right now, we have a contractor we are having a lot of trouble getting paid. Our goal is to pay our contractors fairly and quickly on completion of the job. We've sent two checks to this contractor, both of which have gotten lost in the mail. (He's in a distant city, and the work was done on one of our investment properties there.) He did his work promptly and well. We tried to pay quickly, but....

Last night we tried to wire the money to him, but his bank rejected the transfer. We have verified all of the information twice, even three or four times now.

I have a very internal locus of control, but I'm starting to feel that this situation is out of my hands.

What would you do to resolve this problem?

The Waiting Game

When you’re not confident the market will continue to rise, it’s better to be cautious about acquisitions. What do you think the future holds?

This post originally appeared on the Hermit Haus Redevelopment website on 2018-06-18.

I’m back.

I haven’t posted anything for a while, mainly because I haven’t felt like I had anything constructive to say. You see, we’ve been selling off our inventory, as Suna and been talking about. But we haven’t been buying anything. Not since December.

Other people were buying things, but we kept walking away without buying or letting other people out bid us. That made me feel as if it were my fault. I must have been doing something wrong.

But I wasn’t.

You see, the only thing worse than no deal is a bad deal, and bad deals are all we’ve been encountering for the past few months. And I’m not the only one.

According to Sovereignman, Warren Buffet has been going through the same dry spell.

So… here is the most successful investor in modern history who:

1. Didn’t buy anything in 2017;
2. Is stockpiling a mountain of cash;
3. Is now selling an asset that he would typically hold forever, because another company made an absurdly high offer for the business

...[I]t seems pretty clear from Buffett’s actions that it might be a good time to take some money off the table and wait patiently for the compelling opportunities yet to come.

Buffet himself has noted that he walks away from more than 100 “opportunities” for each deal he closes.

That got me thinking about my friend Shenoah Grove who points out that the Austin market is now almost ten years into our five year business cycle. And even though the market doesn’t show any signs of slowing down, you have to worry if it is too hot.

Following Buffet’s lead, I think it’s time to wait for deals that are so compelling that they’ll fund themselves or make money even if the market turns down. We may even have some of those on the horizon.

Stay tuned. Or better yet, help us find a really good deal. We believe in sharing the wealth.