The buck stops with you.
Dan Heon’s real estate investment story teaches a lot of important lessons. If you’ve read through this book from front to back, including the Investor-in-Action profiles, as you read Dan’s profile you′ll realize that he has considered and applied every tip covered in the book, which is the hallmark of sophisticated investors. More importantly, you will also realize that all of the Investor-in-Action profiles are really stories about individual investors taking personal responsibility for the financial health and security of their real estate investment portfolios.
Dan’s story is important because it shows the value of staying the course. He nearly lost his business because he wasn’t paying close enough attention to his financial situation, but he recovered by taking action. He hired quality bookkeeping and accounting services and became a true proponent of sound financial-management strategies when he put into place the systems he and his team badly needed in order to safeguard and grow his portfolio.
For investors like Dan, where there’s a will, there’s a way. As Dan progressed as an investor, he made mistakes and hit roadblocks, some of which held potentially devastating consequences. Each time he met one of these problems, Dan turned it into an opportunity to provide a solution to strengthen his business. So read, learn and remember: success is a process.
When Dan Heon’s accountant told him he planned to retire, Dan set about hiring a new one so he could transition from one to the other. He talked to other real estate investors, and then gave the accountants he’d been referred to a call. As a mortgage broker and real estate investor who values customer service, Dan saw that first phone contact as a kind of test. If an accountant didn’t return his call within a week, Dan took him or her off his list, figuring they were too busy or didn’t want his business. With those who did call back, he chatted for five to ten minutes and set up face-to-face meetings with the professionals whose answers he liked the most. Those meetings lasted about 30 minutes, focused on business generalities and allowed Dan and the accountant interview each other. It was a thorough
process, and it accomplished Dan’s primary goal — to find the right accountant who had experience in investment real estate.
That kind of attention to detail wasn’t there when Dan started investing about 15 years ago. A diesel mechanic with a well-paying union job, Dan got into investing because he was frustrated by the dollars and no-sense reality of his job situation. He’d worked hard to get a full-time position on the same shop floor where he’d completed his apprenticeship, only to find himself surrounded and astounded by what he now calls a “union mentality.”
With pay based on seniority versus merit, Dan was stuck making the same money as the guy across the work bench. Only the other guy had been there 20 years. No wonder he thought night shifts included a little nap time on the company payroll!
Determined to take control of a better future for himself, Dan started investing in real estate. He arranged his work life so he could focus on his financial future and his investment real estate at the same time. That was a smart move, since banks are amenable to an investor who has a full-time job, as that provides some welcome security for loans.
Using seller financing, whereby the seller of a property provides the loan, he bought his first few houses with his sights trained on growing his portfolio to create short-term cash flow and long-term wealth. He bought more property as soon as he had money in the bank.
In hindsight, his predilection for growth wasn’t so smart. Dan’s portfolio was growing, but he wasn’t keeping track of how much money he owed and how soon loans had to be paid back. Working without a real business plan or a tax strategy, he eventually faced a dire truth: he had six months to repay $200,000 to private lenders. Dan weighed his options. He could sell everything, pay back his lenders and pay taxes on the capital gains to the government, then start over. Or, he could find a way to raise the cash he owed his creditors.
Option two was complicated, but since he wasn’t keen on starting over or on paying tax and keeping nothing for himself, Dan became a mortgage broker, specializing in mortgages for people who wanted to buy real estate for their own investment portfolios. He also started to attract a considerable amount of RRSP money to real estate investments. “The whole plan came from knowing that investors like me needed more creative ways to finance their real estate purchases,” recalls Dan. With his creditors paid, Dan then took an honest look at his time on the brink of economic disaster — and vowed never to let himself get into that situation again.
By late 2009, Dan’s own real estate company had purchased more than 75 properties.
More impressive than the steady growth of a sustainable investment portfolio is Dan’s willingness to mentor novice investors through some of the same management and organizational issues he encountered in his early investment days. He’s also willing to share his experience with more complicated real estate development deals and regardless of whether he’s talking about hiring an accountant or putting together a multi-million dollar deal, Dan’s biggest message targets the need to build a team:
Sophisticated investors take responsibility for the fact that they need other people to help them do the things they want to do.
Without that expertise, novice investors waste valuable time reinventing wheels which are likely to fall off over time, says Dan.
Behind the Team
On the financial management and tax strategy front, Dan backs up his focus on team by reminding investors that success is in the following details:
1. Seek peer support so you can learn from the success of others.
A proponent of what he calls “the power of the group,” Dan also encourages newbies to join a local chapter of REIN. His own experience with doing this helped him learn the proven systems sophisticated investors had already adopted.
Being surrounded by people in the know, continues to help him navigate the many variables associated with changing markets. A few years ago, Dan still self- managed a few properties close to home. When the market changed dramatically in 2008, he hired professionals. “In a good market, you have ten people beating down your door to rent a property and you pick the best one. In a tougher market, you have to do more creative ads and keep on top of what people are looking for in a rental property and where they want to live. I really don’t have time to do that, so I’ll let a professional help me weather this period,” notes Dan.
2. Adopt a good bookkeeping system.
You should have a bookkeeping system in place before, or be developing it concurrently with, the purchase of your first property. This is the best way to keep track of what you own and what you owe. “If you don’t know where your business is at financially, you’re running blind,” says Dan. “Having the right accountant and the right bookkeeper in place was like installing a navigator or GPS for my business.” If you don’t get the information you need from your bookkeeping and accounting systems, look for ways to change them.
3. Be diligent and don’t let things fall through the cracks.
Everyone makes mistakes, says Dan. “I was so disorganized and the problems I faced with creditors literally forced me to become a broker and take my business in another direction. If you don’t want to do that, don’t let yourself get into that kind of situation.” Never guess at your financial situation. It is better to know and make decisions based on reality.
4. Remember that you get what you pay for.
You can’t act on what you don’t know and when it comes to tax strategies, Dan admits there’s an awful lot he doesn’t know, and neither does he have the time to learn it. He’s listened to a lot of novice investors say they can’t afford quality legal or accounting services. Dan tells them they’re dead wrong. And the proof is in the rebate cheque: Dan recently got a $16,000 rebate he didn’t expect and he credits that cash directly to his accountant’s expertise.
“I know it’s tough to look at what’s coming in and out of your business and still
say ‘this service is worth it.’ But unless you really know how to write and follow a business plan and develop long-term tax strategies, you’re going to need good advice on an ongoing basis. Without it, your business can’t grow.”
ACTION STEPS
✓ What two components of your real estate business are the largest users of your time, or give you the most frustration? Who do you know who could help you do a better job of running your investment business?
When will you contact that person?
✓ Once you know what you need to do, don’t skip steps, even in a booming market.
✓ Review your system from top to bottom at least once a year. This is like an athletic training camp. Review and practice the basics so the steps become automatic. This minimizes mistakes.
✓ Forget about knowing it all. You will never know it all and you don’t need to. That is your professional’s job.
✓ Don’t worry about making mistakes. No matter how good you are, you will make some errors. Focus on continuous improvement.
✓ Remember that “systems” do not need to be computer-based or formal.
They do need to increase efficiency and be effective. Just make sure they are proven and help you achieve what you are trying to create.