On Selling
Use family realtors: The agent who sold our home had his own agency along with his wife and daughter. All three people had different strengths and weaknesses, but as combination they were a great team. We felt like we were getting three agents for the price of one. Our buyer agent also worked with his wife (i.e. spouses selling houses) and that helped him so that he could always put us at the top of his priority list. Bottom line, if you can get several agents working on your behalf for the price of one, in our experience that has been a better way to go.
Use a nearby realtor: We’ve found that if the realtor lives nearby (especially in your own neighborhood), they’ll tend to work harder for you than if they have to drive 30 minutes to get to your house for a showing. Time is money in real estate and the less time they have to spend traveling, the more time they’ll devote to selling your home.
Find an experienced agent: You really want someone who has been around longer than the last few years and who has experienced both good and bad real estate markets. Simply put, your agent can’t sell your home if they’re also having trouble paying their own bills and gas money. In addition, make sure you can cancel your realtor agreement at any time you see fit. Many agents will force you to stick with them for a certain period of time but the best agents will never force you into that type of one-sided relationship.
Only show buyers what you plan to leave: Before showing the house - make sure you remove anything that you want to keep. And, I mean everything! For example, we had several cheap Ikea shoe shelves in our home and the buyers specifically requested them even though we planned on keeping them. In addition, the way the housing market is right now, buyers are putting a lot of personal possessions into their offers so if you have something you can’t let go, move it out before you show.
Get your home staged: If you suck at decorating, admit it, and get the sucker staged. Both my wife and I enjoy and frankly spend far too much money on home decorating so this was not a big issue for us, but we have friends who refuse to stage because they think they shouldn’t have to. Frankly, if you don’t think your home is suitable for a magazine photo shoot, a good stager can be of tremendous help. The fact is that when people look at your home, they look mostly at the furniture and the lifestyle you live. The key to getting top dollar is to provide a buyer a lifestyle they can move into. If your lifestyle sucks, you need some help. So get it!
Clean it up & declutter: No matter what, make sure the home is clean (all of the animals are out of sight) and the clutter is gone. We visited many homes and we couldn’t believe the filth that some people live in and all of the junk they have. Once you decide to put your home up for sale, you no longer live there. So, move your crap and animals out, get it cleaned, and make your home fit for a king.
Get the hell out: If you’re having your home viewed by a prospective buyer, get the hell out. There were several homes we liked and would have considered more if the owners were not present during the showing. The owners made us feel uncomfortable and never helped us to like a house more by their presence. In fact, my favorite was the guy who decided to play guitar on his living room sofa to entertain us while we “looked around.” Although it was a nice home, we never gave that home much of a chance.
Make the repairs: Have a list of items in your home in need of repair (wall cracks, leaky faucets, etc.) and get them fixed, especially the visible ones. Most people want a turn-key solution and that includes having no items to repair the first day they move in. Offering a home warrantee for the first year is also an absolute must.
Be realistic: You never know what your home is really worth until you try to sell it. It doesn’t matter how much you’ve put into it, what it would cost to rebuild, and what others have told you (including your agent) regarding the home’s value. If you really want to sell it, find the true value and be prepared to go there to get it sold fast. Most homes don’t sell because home owners refuse to face the music and come fully to terms that they’ve purchased a losing investment. As we all know from the market, it is tough to admit it when we are wrong and take ownership in the consequences, but it must be done. Clearly, this is a tough pill to swallow now especially because so many are upside down in the homes, have used their homes as ATM machines, and ultimately owe far more than what the home is worth. Until this dynamic is changed in a significant way, I don’t see how the housing market will stage a big recovery.
On Buying
Buy what you can afford: It really is that simple. Try using some of the online mortgage calculators to get an idea of what you can afford and then cut those estimates by at least 25%. You never want to put yourself in the position that you and your spouse are sweating the mortgage payment every month. Indeed, bad stuff happens to people (family illness, large medical bills, loss of job, etc.) and none of us can entirely insure ourselves against those awful possibilities, but at the same time you want to give yourself plenty of room for error. The 25% difference will also allow you to “pay yourself first” and fully fund your retirement plans.
Take your time: Trying to force a quick relocation is a recipe for disaster. After all, learn from our mistake this year. This past July we were stupid enough to think that if we shopped for a new home in a week (it’s a small town, right?) that we’d be able to find the best place for our money. While we found a great builder and a very nice home, it was built on a flood plain known by many, but rarely disclosed by agents or builders. By sheer luck, the home was flooded two weeks prior to closing which saved us thousands of dollars. After that happened, we rented a home for awhile and pretty much spent all of our free time shopping for a new home. Although it is a tremendous hassle to move two times (once to the rental and again to the more permanent home), it is the best way to go. No matter how much you can learn about a new place, there is nothing that replaces actually living there for a time.
Do the research: A good agent will help tremendously, but like most things, you really need to know more than what the agent can or will provide you. This just takes a lot of time. Before all was said and done, we visited over 70 homes and the three homes we made an offer on, we visited several times (an average of 5 times) before making the offer. In addition, we did a lot of outside research as well. In fact, so much so that when our home appraisal came in, we were only off by $5K dollars. So, by visiting so many homes, we had a good idea of what our budget could afford and where the true values were. A few more extra tips: 1) Visit every house for sale in the neighborhood even if it is not in your target price range. This will help you understand the market and the fair value of the location. 2) Do drive-bys on the weekends. The neighbors are usually out and working on their yards and if you strike up a conversation with them you’ll discover things about your home and neighborhood that you could never have discovered in any other way. 3) If you know who built the home, get to know the builder and other homes he has built. If possible, talk to owners of those homes and ask them about their experience and problems so far. 4) Try to find a good value in an expensive neighborhood. Just three homes away we have a home that is 4 times as much as ours. 5) Location, location, location: find out where the realtors and the builders live and you’ll know the best place to start. It is by no coincidence that our new neighbors are both. In addition, you’ll need to research the foreclosures in your area to make sure you’re not surrounded by homes that will significantly sink in value.
Make a low offer & walk away: Though it is a very emotional decision to buy a home (even for an experienced trader), you have to adopt a robot mentality regarding this decision. Emotional decisions, much like in investing and trading, are wrong decisions. As our agent once told us, “Make them an offer. The worst thing that can happen is that they say no.” And, he is right. Figure out how much you think the home is worth (your agent can provide comparables concerning price to square footage, etc.) and then make an offer you know they won’t accept and walk away when they don’t. Although we did this several times to no avail, the home we purchased yesterday we made our original offer at the beginning of September. The owner refused to budge and negotiate, but as time went on, he changed his point of view. No doubt, the conditions of the market and economy these past few weeks played a significant role, but we were willing to stand our ground, make him a low-chance offer, and see what happens. After several months passed by, the owner became more motivated and had far reduced expectations, so we were ultimately able to get to a price we both could live with. In the end, your first offer should never be accepted if you’re doing your job. Keep in mind that most real estate agents will advise you to make an offer that has a good chance of success, but that is because they want to sell a home more than getting you the best price.
Hire a good inspector: Licensing requirements to be an inspector in Utah (and many States for that matter) is a complete joke. So we hired a man who builds homes for a living (in fact a competitor) to offer his own evaluation. A guy who builds homes is going to know a whole lot more than some joker selling themselves out as a licensed inspector. The good thing about this market is that many home builders aren’t working very much and they would love the opportunity to criticize another person’s work. That’s the type of inspector you really want.
Make the seller feel like a winner: One of the things I learned back in law school is how to negotiate. I took several classes on dispute resolution and fortunately many of those skills have stayed with me. One of the things I learned is that in any tough negotiation you have to ask for things you don’t really want so that you can give in later on provide the seller with the feeling that they have “won.” I have two examples here to share. In our old home, we had a 40 inch flat screen hung on the wall of our kitchen. Because I didn’t want to move it (plasma screens are notoriously tricky to move without causing damage) I purposely excluded it from the sale of our home. When our home was showed, my wife even put a sign on the TV saying that “this is not included in sale.” Sure enough, in the buyer’s offer we received, they said they wanted the TV to be included. This allowed us to give in to that demand (something that we wanted to do anyway since we didn’t really want to move it) but it made the buyer feel much better about the deal. Here’s another example. When we made the offer for our new home, we asked for several personal possessions that we knew would stir emotions (for example, like the fancy downstairs pool table). Although I enjoy playing pool as much as the next guy, it didn’t really matter to me that they left the possession so we asked for it anyway knowing that I could negotiate it out of the deal later on. This provided us more power in the negotiations. Bottom line, in your offer, ask for something you know the seller would have trouble with including so you can negotiate it out later on.
Your offer is more than the price: People tend to fixate on price when buying a home (the same is true for investors as well.) The trouble with that is there is much more than price involved. For example, our realtor tells us now that buyers are demanding that closing costs are included in the offer more and more as well as personal possessions. Bottom line - while price is important, consider the whole deal and negotiate accordingly. Another tip - always make your offer subject to an independent appraisal. Our agent has told us that many offers now are coming in above the appraisals so this is an important thing to work into the contract now. As a buyer, it will allow you to renegotiate your original offer later on if the appraisal comes in lower, which is happening more and more.
Think long term: Sad to say, many Americans over the past few years saw real estate as the opportunity to make a living and secure their retirements. The truth is that real estate, while a good long-term investment, is a poor one on a short-term basis. What we’ve seen recently is not unusual, especially following prior booms. The old rule that you have to live in a home for more than 8 years just to break even is something that will come back in vogue.
Know your goals and limitations: Just like trading and investing, you have to know your goals and limitations. When we moved to Utah, we considered several options. One of which was to buy a foreclosure or short-sells (perhaps several) and then spend time repairing and getting them ready for eventual sale. There were dozens of properties in good locations here that just two years ago were selling for more than $300K and now can be had for $150K or less. However, we ultimately decided that while that would be fun, it would take valuable time away from things we love to do more (our family time, trading, my wife’s career, golf, friends, etc.) and so we knew our limitations. There are tremendous opportunities in real estate for those with plenty of cash and patience, but you have to know what is right for you and make decisions in agreement with that first and foremost.
Don’t time the housing market: When we purchased our last home in 2004, we knew and often commented that we were timing the absolute top of the market. While the top wasn’t really found for another couple of years, we made the transaction anyway because it was both right for that stage of our life and we could live with the worst case scenario. Just like successful investing, know the worst case scenario first. If you can live with that, then you’re well on your way to finding the right opportunity for you and your family. Also, don’t put off buying a home because you think you can time the bottom and get the best price. If your family needs a bigger home now and you can afford it, don’t get caught up in the race to find the bottom of the housing market. Instead, put your family first and consider your home your castle, not a way to produce investment income. In my opinion and experience, there are easier ways to make money than real estate!
This is why in the membership survey I first asked what members learned and then followed up with the question about what their new year’s resolution was (if any). I did this for two reasons. First, knowing what members’ lessons and goals are are helpful so I can plan future posts on those to help members meet those goals. Second, I also wanted to at least inspire members to think about what they’ve learned and to set a plan of action to making improvements if they hadn’t already done so. Resolutions, in many ways, are really plans of action to inspire change and improvement based on what we’ve already learned.
As I said a year ago, the very best way to make sure you stick to whatever resolutions we have set for ourselves is to 1) make sure someone holds you accountable for making that change and 2) that you set resolutions that are both specific and measurable. These two will go a long way to enable resolutions to inpsire true and lasting improvements in your trading and investing in 2009.
Let’s take a moment to review some resolutions members submitted in the annual survey and my comments to each have been provided within the parenthesis:
Keep things simple (simple is often better, but how will you accomplish this?)
Don’t be emotional (nice try, but you are human and when money is on the line, so will emotion. Unless you develop a auto-trade mechanical strategy that takes “you” completely out of the equation (and even that probably won’t work because you’ll want to tweak the system when it stops working the way you want), this resolution is going to be next to impossible to track & achieve. Sorry!)
Manage risk better (great, but how exactly do you plan to do that? What steps will you take to identify and manage your risk?)
To make some money this year (No kidding!)
Be patient (It is very difficult to measure patience and, in some markets, patience is not rewarded)
Always learn, learn, learn! (How are you going to learn? What’s your educational plan both for the short and long-term? What steps and activities will you undertake to learn more this year than in the past?)
Trade more options (Great, options trading has become mainstream (everybody is now doing it), but have you already proven to yourself that this is the right strategy for you for the right reasons?)
Increase my working capital (How exactly are you going to do that?)
To learn from my mistakes (What is the process you will go through to recognize the mistakes you make most often and how will you measure your progress?)
Learn more skills (What skills do you desire to learn & how do you plan to learn them? Many need to set up a business-plan like system so that they don’t get overwhelmed by the learning curve.)
To be better organized and prepared (Great - but what specific habits will you need to form to make any system work so it becomes routine?)
To let the market come to me (That’s good to a point, but opportunities aren’t just going to fall from the sky right to your screen.)
Don’t be influenced by those that make predictions (So, how will you do this? Turn off the TV? Stop reading websites? Identify the source and eliminate it)
Better timing on entries and exits (Everyone wants this, but how exactly do you plan to achieve it?)
Try harder (Working harder won’t necessarily translate into more profits for you. But, if you’re not doing the work that trading requires, figure out how much time and what activities you need to undertake to make up for the shortfall in 2009)
Look for great companies trading at low prices (don’t we all, but have you developed and track screens that do this for a period of time to assess their effectiveness? In addition, are you sure the market will also reward this particular strategy this year?)
Find only double digit gainers (good luck my friend!)
I resolve that my trading habit will feed me, not the other way around. (Yes, but what’s YOUR plan?)
Discipline (This concept is always stressed, but few know really what this means and have what it takes to do it. So, what are you going to do to develop the kind of discipline you think is required this year?)
Protect my principle (How?)
Trust myself more. (Great - but how are you going to develop the level of confidence this will require? Make a resolution based on action - not the end-goal and you’re likely to achieve what you desire.)
Be more conservative (There’s a time and place to be conservative, and not. What’s the process you plan to go through to know and recognize the difference?)
Be humble (Ok, but how do you plan to change your personality? What specific steps will you need to take and/or what activities will you engage in that will increase your humility in 2009?)
Follow my rules, all the time (Write down the rules & put into place a system that will monitor this (especially with an impartial observer if possible) and this can be a good one. Remember, be specific and detailed as much as possible!)
My resolution is to increase the value of my portfolio by 20% (That’s a goal - not a resolution. What’s the plan to increase the value? What steps are you going to take every day to hit that goal? How will you measure your progress?)
More due diligence, less guesses (Good, but how are you going to measure your “due diligence” and what specific steps or methods do you need to take to do more due diligence?)
Learn to enjoy trading again (this is very important, but how will you do this? Paper trade? Take more time off? Develop new strategies that are more in tune with your personality?)
Get back involved and over the depression for what I lost (great goal, but again, what’s the plan for you to move on and prevent past mistakes clouding your future potential?)
Don’t let me be my worst enemy. (Another good goal, but exactly how do you plan to achieve it?)
Keep doing what I’m doing (Come on - you have nothing to learn or improve in 2009?)
Now, compare and contrast these resolutions with others submitted:
Follow a daily checklist that varies for each day of the week, based on overall strategy and plan. Most of the checklist would be around building situational awareness and information processing, as well as setting entry/exit triggers and position sizing
Create a journal of all of my trades so I can review and learn from my mistakes
I will have entry, exit, and stops written down before making every trade
Read 2 books on your recommended list per month
I will learn and implement two new strategies involving currencies & single-stock futures in 2009
Risk no more than 5% to 10% per position
Take one topic use 15 minutes (or more) a day to study it until I have it under my belt
Commit to spending at 30 minutes on research everyday
More focus - at no time will I have more than 5 trading positions in play
Visulize one good trade for the day and details on how to execute the trade. After the market opens, focus on the setups and see if they have been touched
Proper diversification by holding no more than two stocks (or ETFs) for every sector
When filled with panic and fear, I will force myself to go long something that I think is too oversold
Trade my own view of the market by using screens and my research versus recommendations and opinions of others
I will find a mentor who can help me take my trading to the next level
Stop looking for the holy grail and quick short-cuts
I will focus my time and energy by unsubscribing to all newsletters & services
Continue to learn new styles of trading. One trading style cannot fit all markets
Trade on price and not opinions
Don’t buy anything until you see that it trades above its 50-day moving average
Never be affraid to sell at a small loss when the potential for a huge loss exists
Find new ways to obtain information on companies and go off the beaten path
Spend less time on-line reading opinions of others
Use more index investing and much less time trying to pick stocks
Be more selective about my investment/trading choices by applying more stringent guidelines
Never, ever, add to a losing position
Have a clear plan of what to do before the market opens
Eliminate personal distractions during trading hours by turning off the TV and the phone
To sit on my hands when I know I am out of sync with the market
I will learn to incorporate the use of Stochastics (overbought & oversold readings) into my analysis to improve my returns
Learn to use price & volume more effectively over many time frames
Trade from a properly back-tested system
Learn new patterns through paper trading. Then focus on those that work and which can be identified easily.
Take the time to further look into any security that I am interested in purchasing. Be better prepared before buying (and after) and have a good game plan.
Do not force trades when there isn’t one to make
I will no longer overtrade by narrowing the criteria I look for when looking for potential opportunities
Get financial house in order, then trade/invest without distraction
Create a safety net - I will always keep at least 10% of my portfolio in cash
Again, the key is to identify small, but actionable steps on the road for improvement. Many of the resolutions shared in the second group have these at least in concept, though most could certainly benefit by going a few steps further to identify specific steps that need to be taken to hit the goals you’ve set and to figure out to have someone else (spouse, friend, mentor) hold you accountable to the changes you’ve committed yourself to making this year.
Remember, we all want more success in 2009 and the way most of you will find it this year is by setting and writing down your goals, develop a plan of action to hit them that has small, but specific steps on the path to those goals, and create a system that will hold yourself accountable to making those changes. If you do this, you will be well on your way to making the changes you think you need to make to hit your goals in 2009.
Q: You sure do a lot of bragging. Between your “I’m grateful” Thanksgiving post to the new trading computer and fancy home, don’t you realize that people are suffering out there? I’m having a terrible year and I can’t possible stand one more post about how good your life is!
A: The website, as it has always been, is a reflection of my life both during the good and bad times. If you’ve read me long enough, you have already seen the other side as well.
Nevertheless, it is never my goal to brag and I feel terrible that was your interpretation of these posts. While the feedback I’ve received from those posts have been quite positive, I know that it can certainly be difficult to read anything positive when times are so tough for you and your family. It is my sincere hope that things improve for you and soon.
With that said, because you’re having such a tough time right now, you have to resist the urge to fill your life and attitude with more negativity. This is no time to wallow in misery or create a pity party for yourself.
Instead, put the year behind you, dust yourself off, and man up. All that matters now is that you make the best decisions for you and your portfolio and I’m here to help.
