Ep: 004 July 24, 2020
Cash-Terms-Margin-Velocity in Vacant Land Investing
They say that the goal of business is to maximize shareholder value. In the typical land business, we are the shareholders. So the question is, should we seek the maximum price we can get when selling a property? What about cash deals versus terms deals? What's the right mix?
The best way to get the results that we want out of our business is to set the right goals and to set the right plan in place to achieve it. Otherwise, we're just the little rowboat on the ocean letting the ocean take us wherever it wants to take us. That’s where margin versus velocity comes in.
The question is, do you want to hold out for the maximum price? But low and sell high means selling at the highest margin possible. But what if you want to turn your money around quickly? Then buy very low and sell low. That’s velocity. There can be more work in velocity. And it depends on the size of the deals you're doing. And it really depends on your preferences. Do you want to hold out for more money or do you want to keep turning that money around quickly while building your war chest?
Time equals money. If it takes longer than your money is not working as hard for you as it can. I had a property a couple years ago. I think I paid about 30 for it. I tried to hold out to get 60-70 for it. And I ended up having it on the market for nine months. And I eventually sold it, I think for like 49. Well, if I had just not been greedy and dropped my price initially it would have sold much more quickly. Had I been more aggressive on my pricing, I would have ended up actually making a lot more money at the end of the year.
By going with the lower price, but selling it faster, we could potentially increase our profits. Sometimes by as much as 40%. That's a pretty substantial increase by selling low. And when you look at the math, it's pretty standard.
There's nothing more risky than just depending on a single source of income from an employer. You got to have another income stream. I don't care whether it's investing in land or it's some sort of e commerce business. How can you really feel confident in your ability to always be able to support your family, knowing with one income stream from a single company. There's no loyalty. You got to have that side hustle.
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