Lessons on Real Estate Investing, Alligators, and Fleas
[My Investor & Entrepreneur Profile Series features big ideas, questions, and answers from fellow entrepreneurs and investors. I hope you find these people as fun, interesting, and helpful as I have.]
This article features Dr. Louis Stone, who after my parents has been my most important mentor in business and life.
Dr. Stone has been an entrepreneur, a consultant, a real estate investor, a business professor, an unorthodox thinker and philosopher, and a mentor to many others who lean towards the unconventional like himself.
I met Dr. Stone when I took a business management class for fun at Clemson University after I graduated in 2002. I heard he invested in real estate, so I stuck around after class to ask questions. Before I knew it, I was riding around in his car looking at deals and talking about business, philosophy, and life.
We now walk more often than we take car rides, but my schooling still continues to this day.
Dr. Stone was the private investor on the very first deal my business partner and I bought. You can hear more details about that first deal in my interview with Joe Fairless, “What to Do When You Have a Great Idea and No Money.” He has also invested with and advised us on many more real estate deals since then.
Below are a list of the best ideas I’ve picked up from Dr. Stone over the years. At the end I’ve included interview questions that I asked him directly in a recent email.
One of the things I really love are his folksy, memorable punch lines to help you remember the concepts. Enjoy.
Why Real Estate is a GREAT Business
Reason #1: Not dependent upon moving up ladders, breaking invisible ceilings (for women and minorities), and playing corporate politics.
If you work in a bureaucracy or large organization, you know how this goes. But in a small time, local real estate business, opportunity and the American Dream are alive and well.
Reason #2: Can keep overhead very low by working out of your house with just a cell phone, a fax machine, and a computer.
When you invest in permanent overhead like an office, employees, and equipment you must make a profit for months or years to justify the outlay. It also increases your risk. Stay small, agile, and happy.
Reason #3: Relationships actually mean something.
One transaction in real estate can be very profitable. One relationship built with a seller, with a lender, or with a tenant can make you wealthy.
Making money is about helping people. A business fundamental is “Find a need a fill it”. People who own real estate still need help, and if you can help them, you can make money.
Find a Need and Fill It
If you want to sell what John buys, you must see John’s needs through John’s eyes.”
You may have a similar phrase which is “find a need and fill it.” The difference is more emphasis on what is sometimes called empathy. This means not only knowing what John needs, but feeling what John needs.
To give you an example, you know that John is a renter who is paying $800 a month rent, and could therefore afford to pay $800 a month to buy a house from you. So why wouldn’t John see the obvious and buy a house and own something?
Well, I have found that there could be many reasons. Often I have found that John has a fear of talking to lenders. Maybe he feels they will tell him he is not “good enough” for a loan and his feelings will be hurt.
So what can you do? Hold John’s hand. Go talk to the lenders about John, and try to walk his application through for him. You build the relationship with the lender, and you know how to move through the application process with less effort and stress.
Remember, you are not only investing in real estate, you are investing in people and relationships.
Don’t Reinvent the Wheel
It may be easier to steal from the bank robbers, than to steal from the bank.”
Picasso said “good artist borrow, great artist steal.”
“If you steal one’ person’s ideas it called plagiarism – if you steal from ten, it’s called research.”
“Don’t reinvent the wheel.” The message is the same. You can use your time more productively by learning from others.
What did you learn today from somebody who knows more than you do? Or, were you too busy telling others how much you know?
Why Is It Important to Ask Why?
Why you do want to get involved in the real estate business? You will definitely have your tough days, and you may want to say this is too hard. But you’ve got to keep reminding yourself why you are going to push on until you reach your goals. Let’s think of goals under three headings.
- Financial – “I will have a paid for rental house for each child’s college education, starting in 15 years.”
- Emotional – “I want the freedom and independence to make my ideas work.”
- Moral – “I believe I can make a difference by providing decent and affordable housing to an under-served group of people.”
We are all motivated, according to Aristotle, by rational, emotional, and moral forces.
Think about tapping into all three by writing your goals using these headings. It’s like having three engines to power you, instead of one.
Remember, “You Have to Catch Your Own Alligator”
If you have seen the series on the History Channel called “Swamp People,” you see the folks down in the Bayou didn’t buy into this “redistribution of wealth” thing.
The swamp is full of alligators, and you can get tags that allow you to catch the alligators. The character in the show, Troy gets about 150 tags per season.
But getting the tags is the easy part. To bring a real alligator in and to get paid, Troy is responsible for much more:
- Figure out where the alligators are
- Chase after them.
- Catch each alligator (and we thought buying a house was hard!)
- Bring the big ‘ole alligator in.
- Find a buyer for the alligator.
- Collect the money.
And what about the folks who have just been sitting on the porch all this time? Does some of Troy’s alligator money get “redistributed” to them? In the Bayou and in the real world most of us live in, you don’t make the money until you jump in with the alligators.
What’s your day look like? Sitting on the porch?
Let a Good Dog Have Pups
The phrase “let a good dog have pups” means to take what’s working and do a WHOLE lot more of it. Let your good dogs multiply!
It was a favorite of a simple (maybe not?) Arkansas chicken farmer billionaire, Don Tyson, that I had the pleasure of working for as a consultant for a few years. Although Don was always stimulated by new possibilities, he successfully kept doing what was working. This provided him with the resources to expand as well as to experiment. Tyson grew to be the a worldwide giant, not only in chicken, but beef, pork, and fish.
By the Inch Life’s a Cinch
“By the yard life is hard, by the inch life’s a cinch” was from motivational speaker Zig Ziglar. The idea is to analyze and organize a project (including your own life) or major task, into small sub tasks, or baby steps.
It takes a little time at he beginning, but it saves time and other resources in the long run. You build enthusiasm as you knock down the sub tasks, or obstacles, one at a time. You establish momentum (a body in motion stays in motion). Also, you can see how to efficiently time and group tasks. And, you can see the sub tasks you could possibly delegate, or outsource.
Just Get Out and Sniff Around
(Dr. Stone’s idea, Chad’s explanation)
Putting together deals does not have to be complicated. Opportunities are found by helping people. And to help people, you need to get out from behind your computer, get out in the world, and talk to people.
Dr. Stone calls this “sniffing around.” When I first met him, his daily routine was to make a big circle in his car around his territory. He let me ride along.
We’d stop at banks and chit-chat with bankers. We’d stop at real estate offices and talk to agents. We’d stop and talk to someone mowing their lawn. We’d stop and talk to people sitting on a porch.
Good things happen when you’re in motion. Good things happen when you talk to people. You get to listen and learn.
Sometimes you learn about a problem that involves real estate. And if you’re smart, you’ll even get to help solve that problem in a way that benefits you both.
How often are you talking to people and sniffing around? Or are you stuck behind a computer?
Learn to Love Dogs With Fleas
(Dr. Stone’s idea, Chad’s explanation)
The best real estate deals according to Dr. Stone are the “dogs with fleas.”
This means that it has potential to be more valuable, but you have to do something (get rid of the fleas) before it happens.
In real estate these are called “value add” deals because you’re using your knowledge and entrepreneurship to change the value.
Some examples of dogs with fleas are:
- Rents too low
- Yard or building needs cleaning, repairs, or upgrades
- Layout of building is obsolete
- Financial or life problems with the seller (often fleas aren’t with the property!)
- Use of property can be changed (ex: residential to commercial)
- Density can be increased (ex: 1 house to 8 apartments)
- Multiple properties can be combined
- Bad tenants who need to be evicted
- Bad title
Fleas come in many varieties. Getting rid of them is a valuable service. Learn how to identify and get rid of fleas, and you’ll love dogs with fleas, too!
Interview Questions
I asked these questions in an email I recently sent to Dr. Stone.
Money & Wealth Building
What does retirement or financial independence mean to you?
Freedom to imagine
How has financial success changed your life? What hasn’t changed?
Freedom to imagine
What is your #1 investing tip for long-term safety and growth?
Have liquidity for tough times
Do you invest in real estate? If yes, why? If no, why not?
Yes. Can use OPM [other people’s money], minimize taxes, bootstrap up in increments, and have variety.
If you invest in real estate, what’s your favorite niche or niches? For rentals do you manage yourself or hire a 3rd party?
No favorites, want variety. Use management on case by case basis
If you had to start over and wanted to become financially independent, what’s the most important thing you would focus on?
Minimize overhead, and keep lifestyle low-budget.
Life
Do you have any tools that help you manage your life, like a physical planner or digital software?
Nope.
What does a typical morning routine look like for you?
Coffee with my girlfriend and newspapers.
Try to stay away from too many routines that turn into ruts
[Chad: Dr. Stone has a sense of humor and has been married to a wonderful woman, his “girlfriend” Nancy for many decades]
What’s your #1 habit to stay personally productive and fully engaged in life?
Stay in motion.
Who have been your most important heroes, mentors, or teachers?
My gut.
What are your favorite books or authors? In the business, investing, or real estate categories? In the life and philosophy categories (other than a sacred book)?
All about motivation and drive
What advice do you have for a young person just considering their future career and life as an adult?
Do a gut check. If you don’t feel it, it won’t work.
What legacy do you want to leave personally and in your career?
None – Let the next generation choose their own way.
[Chad: this is an interesting answer which shows what I love about Dr. Stone. But I think his ideas, his life example, and his influence on many people, including on me, speak loudly enough about his legacy.]
For Fun
What hobbies do you enjoy?
The gym and library
What do you do for exercise?
Loved basketball for decades. Gym now.
If you could travel anywhere in the world or get to do any experience, what would it be?
All the world is interesting
Your Business
What is your business all about? What valuable service or product do you provide?
Dogs with fleas. Opportunities to add value to undervalued assets.
I hope you enjoyed this article and interview with my friend, business colleague, and mentor Dr. Stone.
Do you like this format? Is there anything else you’d like to hear about? What were your favorite ideas, lessons, or stories from Dr. Stone?
I’d love to hear from you in the comments section below.
Enthusiastically your Coach,
