The problem arises when the nice guys invariably prove to be merely fair weather friends. They’ll be your friend the day you bring ‘em on the job, just to look it over. They’re certainly your friend when you accept their proposal. And the test of your friendship comes the day you agree to increase the contract price “because of all the changes…”

    So what’s ‘wrong with this picture’? First we need to know if this tradesman is in fact a contractor at all. We accept he’s been rehabbing for some time, maybe years. But is he properly licensed, carrying the insurance that will protect us the property owner, and is he substantial enough for his “guarantee” to mean anything? These are the tests of a true contractor, “general” or otherwise.

“I didn’t know…” is not a defense in Court
    The answers to these questions can be the difference between success and failure. To say truthfully “I didn’t know…” is not a defense in Court when confronted with a Stop Work Order and the potential of substantial fines. Nor will your friend the contractor be held responsible (if he’s to be found at all). Responsibility rests with the property owner. It’s what we call “doing our Due Diligence”.

    New found contractor-friend or not, in the end it’s all about Control. Your control of the job and those who work on it. The right licensing and insurance is a matter of knowing and insisting on the correct documentation; that’s due diligence. That’s also just half the challenge.

Guarantee is on us…
    We understand the contractor’s guarantee is only as good as his ability to honor it. Unfortunately, that guarantee is generally on us. And our ability to cover the inevitable mishaps is dependent on our ability to control the project costs.

    Experienced investors achieve this control by understanding project pricing, defining the Scope of Work, and by using ‘industry standard’ payment protocols. Those who understand and use these critical skills and tools succeed. Those who neglect these skills and tools risk failure and financial loss. #

Listen to this audio…

    In this case the system was functional, but the furnace “needed help”. It appeared rusted out and and gave the appearance of a dilapidated system. In fact it seemed to “work just fine”, but what about the evidence of rust on the furnace cabinet?

There are really two problems here.

The first is the fact that though the system worked well, the furnace 'looked bad' and, secondly, these days everyone seems to expect forced air as a feature of modernization. The answer lies with the developer’s intent. If the property is to be resold, then cosmetic features do need to be addressed.

There’s rust around the base of the furnace cabinet? Two choices here: Sand down, prime and repaint the furnace cabinet (I like that alternative), or (2) scrap the furnace in favor of a new one.

May be a tough choice. If I were a landlord, I’d clean up the appearance (repaint the furnace cabinet) and postpone replacement for another day; here we're concerned with function, not cosmetics. If my plan is to resell immediately, I will consider replacing the furnace (as a selling feature and marketing expense) while retaining the piping and radiators. (It might be a good idea to replace the 'traps' to restore full function, but that's a discussion for another day.)

    Most importantly, I wouldn’t hurry to replace the entire system with forced air unless we're contemplating adding central air conditioning; but we need to recognize that many markets won't support that added investment. The “public” might perceive forced air as the ‘modern alternative’, but forced air heating is inherently less efficient than steam or hot water radiant heat (explain this as a Selling Feature). Here, the responsible choice is to work with the system already in place. #

The answer to your job issues– (It's not about Courage)

     You may very well be the answer to your job issues. Looking for a second job? The best insulation against a layoff is a part time job already in hand. How ‘bout starting out part time? These days part time jobs may be as hard to come by as full time employment: Competition for part time jobs will be just as keen. There is an alternative.
     As they say, “Be your own boss.” It’s not about courage: Like any good business person, look for a Need in the Marketplace and fill it. Buy wholesale and sell Retail (just like the banks, ‘renting out’ your money!). Be a great Bargain Hunter. Start small, and “grow your business”.
     Here in Chicago and elsewhere,  we have a need you can fill. And that need is for Affordable Housing. Call it a niche market. Unlike much of the real estate market, the demand for clean, well managed affordable housing is as strong as ever. And at the presently depressed prices of distressed homes, investors are enjoying unheard-of profit margins.
     Maybe it’s time you put that “2nd Income Stream” into place. One property at a time. (Start small, grow your business…) It just makes good business sense. #

Q. “What is the format?”
A.  The Seminar begins Friday at 6 p.m. and continues through the next day. After a ‘break’ of 2 days, the group reconvenes Wednesday evening by TeleConference to address ideas and questions arising from the weekend sessions.
     It is typically a small group, perhaps 6-8 participants. The presentation is lecture based, with frequent discussion. A text, written by Elmes, is provided and, where useful, Case Study exercises are employed.

Q. “What topics will be covered?”
A. Topics will include…

• Entrepreneurship & Real Estate
• Market Overview
• How to Buy… How much to pay?
• Defining the Scope of Work
• Working with Contractors
• Marketing & Sales
• Managing Risk & Liability
• Developing  a Business Plan of Action
• And much more…

Q. “How will these topics help me with my business?”
A. Success in real estate is based on a mix of skills. Investors often benefit from being more entrepreneurial and understanding better the "production" side of the business. Real estate professionals seldom know even the basics of Construction and working with the Building Trades. There is much to be gained understanding the many important aspects real estate investing and dealing. Absent that, there are traps out there awaiting the uninformed.
     Quick mastery of the fundamentals will put one’s program on a Fast Track.

Q. “Is this a “stand-alone” seminar? Or is there more?”
A. While many get underway on the strength of the Seminar alone, others choose to participate in the Urban Rehabber Program (URP). The program provides a series of 6 additional workshops that expand on the material introduced in the seminar. Monthly “round tables” reinforce the learning and help build a Personal Network of like-minded entrepreneurs and investors.

Q. “What if I ‘don’t get it’ the first time?”
A. Seminar  (and Workshop) registrants are encouraged to “re-up” – at no added cost – a second time, within one year of the initial event.

Q. “Is the Urban Rehabber Program an ‘Investment Club’?
A. No, the Urban Rehabber Program is a teaching and networking program, designed to support those who are committed to actually ‘doing the work’. It’s not a monthly social club, or interest group, simply interested in real estate.

Q. “Is this the Right Time to ‘do real estate’?”
A. The main thrust of the program is dealing with “distressed real estate”. That’s where gains (wealth) are created most quickly. Distressed property is found in any market, any decade. The skilled entrepreneur or investor understands this dynamic and tailors his/her program to existing conditions, to maximum advantage. We view today’s market to offer once-in-a-lifetime opportunities for savvy investors.

Q. “Is ‘flipping’ back in fashion?”
A. Flipping was much maligned during the last decade or so, much to the disadvantage of skilled real estate dealers and rehabbers. Institutional lenders and title companies became particularly sensitive to any transaction which appeared to be a “flip”. 
     Since January 2010 these policies have changed dramatically, almost in overt support of the flip (quick sale) deal. We’d have to say for those choosing to deal ethically with the flip protocol, the time has come again. For now, the Flip is back.

Q. “Where will the Investor / Rehabber Seminar take place?”
A. The Urban Rehabber Program conducts its activities in Hyde Park, on Chicago’s south side. Since March of ‘09, we have met at the Lutheran School of Theology, 1100 East 55th Street. The university environment and facilities are particularly well suited to our educational purpose.

Q. “How much does it cost? What is the Investment?”
A. The tuition Investment is $595 (less for Members) and includes all materials. 90-day “trial” membership in the Urban Rehabber Program is included in the tuition, as is the Right to retake the Seminar a 2nd time within one year of the initial enrollment.

Q. “What if my spouse or partner wants to attend too?”
A.  We encourage spouses and partners to join in the Seminar Experience. Call for details.

Q. “What  about credit cards?
A. All  major Credit Cards are accepted.

Q. “Is there a Guaranty?”
A. If, after the first evening session, a participant is not entirely satisfied, then they may return the text materials and withdraw with a full no-questions-asked refund.

For more information about the Investor / Rehabber Seminar©: (Click here)

An Unexpected Resource
     A number of local and regional banks (quietly) never left the market. Their lending portfolios were largely unaffected by  the nationwide case-by-case takeover of over extended banks by Federal regulatory agencies. (That’s how, locally, we lost Omni Bank as a local hard money lender, when their parent bank in Atlanta, Ga., was seized by the Fed.)
     Meanwhile here in Chicago, a number of locally owned banks never left the field. These lenders always lent acquisition and rehab funds to investors and rehabbers; and they continue to do so today. In many cases, because they tend to be “relationship lenders” rather than automated underwriting-driven institutional lenders, their lending terms are often less rigorous than today’s newcomers to hard money lending in the Chicago area.

A Source of end-loan ‘permanent’ financing
     These very lenders may also prove an important source of the financing investors need to pay off short-term development financing used to buy and fix properties. Here, it may prove useful to explore staying on the “commercial lending” side of the bank.
     Commercial real estate lending departments work under different lending criteria than the residential lending department ‘across the hall’.
     Commercial real estate lending officers as a rule do not originate long-term mortgages. Their loans are not subject to “seasoning” issues. What they may consider – as commercial real estate lenders – is the 3-5 year “balloon” mortgage financing historically used by developers to recast  short term financing while awaiting more favorable long-term financing or selling opportunities.
     Savvy investors always seek “work arounds” to aberrations in the lending environment. For some, this work around may reside with the commercial real estate lending departments of local banks. #

   This is good news for homeowners hit with the negative effects on home values of neighboring foreclosures. The market absorption of today’s foreclosures will speed the recovery of property values for all concerned.

   For investors, however, this is a reminder “the clock is ticking”. Statistics on last quarter’s monthly home sales indicate increasing sales volume and modestly rising prices. Some regions of the country never saw the declines experienced elsewhere and when the occasional foreclosure appears, bidding wars ensue. No distress there.

   All business cycles turn. Fortunes are made by those who “time” their market moves, in this case buying when the market is down so the advantage is theirs when the market turns up.

   This is good news for both sellers and prospective buyers. Had the program been allowed to expire as scheduled, at the end of November, it is likely recent monthly increases in home sales would stall, or at least slow considerably.

   It is important to understand that the tax credit is not merely a reduction in taxes owed come April 15th,  but is in fact an actual cash payment to the home buyer from the IRS upon the purchase of a qualifying home. The payment is made based on the cost of the home, not upon the amount of taxes paid by the tax payer. For lower or moderate income households, the credit may well exceed the tax obligation of the buyer.

   When combined with historically low housing prices this represents an extraordinary incentive to home ownership. Better than a discount, in many cases the tax credit will contribute substantially to the down payment and closing costs of the home purchase. It’s another form of “instant equity”.

   It’s difficult to imagine what more the government can do to support recovery of the housing market. The effects are already taking hold, with property values on the rise in many markets. As backlogs of unsold homes diminish, property values increase. Call it traction or momentum, the signs are encouraging.

When economies rely primarily on Big Business for employment and economic growth everyone is dependent on the well being of corporate enterprise. We’ve seen the consequences of this dependence. And we’ve observed, with varying degrees of dismay the havoc that results when Business fails to adapt or, worse, runs amok. General Motors, Chrysler, Washington Mutual and A.I.G. come to mind.

For generations Americans celebrated our nation’s industrial and corporate giants as proof positive of American savvy, initiative, organizational brilliance and, for some, moral superiority: The perfect melding of Democracy and Free Enterprise. But then, by the latter third of the 20th century, this conviction was challenged repeatedly by failed military and diplomatic initiatives, the rise of Japan and Europe as industrial and economic rivals, and the threatened demise of business icons General Motors, I.B.M., Sears, and the American steel industry as a whole.

Many of these “intimations” of American business mortality came to a head in the crises of the last few years, beginning with the near melt down of the banking industry and the coincidental collapse of the housing market. As with our military escapades in the Middle East, American business adventuring had come home to roost. And now we appear to be awaiting a resurgent business climate to set things aright, to put people back to work so they might once again resume their traditional appetite for consumer spending.

The Case for Enterprise– Now

In the two decades prior to the turn of the century, the 1980s and ‘90s, U.S. Department of Labor studies of new jobs creation showed entrepreneurs and small business created virtually all the jobs in America. 21 million during the 1980s and 15 million during the ‘90s. Given that precedent, why should we hope for American business to both rehire and expand jobs creation in any meaningful way?

Another alternative is to do everything we can do, right now, to foster innovation and entrepreneurship. Every one of today’s highly touted business giants found their beginnings in the entrepreneurial impulse of, in most cases, a single visionary founder. The struggles today of these corporate Goliaths simply testifies to the distance they’ve traveled from their high energy entrepreneurial roots. These dynamic, creative up start business organizations were, in time, co-opted by a new, inherently conservative, managerial elite. Their decline may be directly attributed to their loss of entrepreneurial vision and behavior.

According to author and international business consultant Larry C. Farrell⁽¹⁾, these once dynamic, creative up start business organizations were in time co-opted by a new, inherently conservative managerial elite. These companies’ decline may be directly attributed to their loss of entrepreneurial vision and behavior.

Farrell cites four practices, or behaviors, fundamental to the success of the world’s great entrepreneurs–

1. Sense of Mission. Entrepreneurs truly believe they are doing something important, creating value.
2. Customer/Product Vision. Successful entrepreneurs are at heart Craftsmen. They have a single, integrated vision of customers and products. Steve Jobs was quoted as saying, “The computer is the most remarkable tool we’ve ever built… but the most important thing is to get them in the hands of as many people as possible.”
3. High Speed Innovation. The entrepreneur is always sensitive to the changing needs of the marketplace and understands the very life of his/her business depends on the ability to respond quickly. The trick is to keep this sense of urgency alive in the business. When that responsiveness is gone so too is the business.
4. Self-inspired Behavior. The greatest difference between bureaucrats and most professional managers. Entrepreneurs love what they do, and they constantly try to get better at doing it. They’re inspired to win and not lose because they face consequences, reward or punishment (by the marketplace) for success or failure. For them, Accountability is a Good Thing.

At its core, the Urban Rehabber Program is about Entrepreneurship. Housing just happens to be our product. Our success is pinned to our commitment to the four practices of successful entrepreneurs. #

1. See Farrell, Larry C., The Entrepreneurial Age (Allworth Press 2001)  

Click here for audio discussion of this article (or hit "refresh" to stream only)–

For further discussion, see: "Small Businesses Might Not Be the Key to Economic Recovery," by Stefan Deeran. The Comments on his piece are particularly interesting.

We don't just have to knuckle down and wait it out. We can look
around and see what it takes to turn that Sow's Ear into a Silk Purse.
You and I both know– There's no Quick Fix. But, with a Plan of Action
in hand there are huge opportunities available to us right now.

My students are taking  advantage of these opportunities today. Now,
before these opportunities go away and it's once again Business as Usual.
The way I  see it, we've got about a year. What can we do in a year to turn
things around for ourselves and our families?

Q. "Why do I need a business plan?"
Ans. A business plan obliges us to take a long look at our own resources
and capabilities and define what makes sense as a business opportunity.

Q. "Who needs a business plan?"
Ans. The 'restless spirit' who is uncertain of what his/her employer has in
store, who wonders if they're next when it comes to down sizing or layoffs.
The personal business plan is the Ultimate 'Plan B'.

Q. "Is this a time to spend money when I'm worried about my next pay check?"
Ans. Consider the alternative. Once disaster strikes, is there money available
to get help in developing a new plan? Make your plan for the future while
you still "have room to move".

Q. "Who's going to read my business plan? Who cares?"
Ans. If you go the to SBA for a loan to start a business, they'll be happy to
talk with you– Once you've finished your business plan. Lenders and Investors
will find your plans more credible– with your business plan in hand. But, most
of all, the plan is for you. To clarify and document the direction and quality of
your plan.

Q. "Can't I just read a book? Isn't there some internet software…?"
Ans. Sure, if you finish it. And do the work, on your own. Does the "fill-in-the-
blanks" software really help you think through the venture you are considering?
A real life workshop engages you in the questions that must be answered by
you alone, and helps you come up with the answers you need.

Q. "My job's OK. Why should I be thinking of new ventures?"
Ans. Savvy investors understand that fortunes are made in times of economic
upheaval (wars, natural disasters, recessions or depression). We are in  such a
disruptive time. The question is: How do we bend these difficult circumstances to
our own ends, as investors (or, perhaps speculators)? Find your opportunity and
put your plan of action in play.

There's more to be said, but the point is clear: We are in a time of great opportunity.
We can move to take advantage now, or sit on the sidelines as spectators, or maybe
even victims. Whichever is the possibility, it is time to take action.

Real estate works the same way. You can be a “generalist”, say, producing “housing”. Or you can be a Specialist, working within a market niche you understand like no one else.

We are talking about “micro markets” that meet a particular need. Take a look at the professions, at law and medicine. The days of the “general practitioner” are long gone. When we break a leg, we no longer go to our faithful family physician to fix it; we go to an orthopedic doctor who specializes in mending broken bones.

In real estate we want a lawyer who knows real estate inside and out, not the specialist in corporate law, or divorce. (Though the day may come…) What we want is specialized expertise for our Special Needs.

Today the real estate market as a whole is still “sorting itself out”, with most buyers on the sidelines. If you’re not satisfied waiting along with everyone else, consider carving out a niche for yourself. A niche where your Product is not just another house for sale.

For example–

• Handicapped accessible housing
• Owner occupied 2-and 3-flats
• Multigenerational housing, with first floor accomodations for the elderly
• Congregate housing, for unrelated adults
• The smaller home, for single homeowners or "empty nesters".
• etc. (how many can you think of?)

Each of these market niches has specialized characteristics, and sometimes even location specifications, like “close to public transporttionn”. Each niche has its own constituents (buyers or renters), its own advocates and agency sponsors.

And sometimes even unique funding or grant opportunities. (Now do I have your attention?)

Such niches are generally less sensitive to property value swings, or “down markets”. The need – the “demand”– is ongoing and hard to satisfy. The concern is more about simple availability and quality, not price.

All of this is to say: the niche marketer who addresses a particular group’s special needs will have less competition and steady business. In any market. At any time.