Dave Lukas - Lessons for Hannah
370: Lessons For Hannah - 6 Great Lessons from A Recent Business Deal
Hello Misfit Nation! Welcome to another edition of "Lessons for Hannah!"
Many years ago, I introduced a new format that alongside our regular episodes called “Lessons for Hannah.” Hannah is my daughter and one of the main inspirations for the Misfit Entrepreneur. I wanted to have a place where she could go and learn from her daddy and his Misfit friends throughout her life….even after I am gone. If you haven’t listened to the first episode of "Lessons for Hannah," I urge you to as it gives some more background and tells the amazing story of how Hannah came to be in our lives.
Lessons for Hannah are short, very useful, and sometimes comical lessons, that I want to share with you and give to Hannah to help in your lives. Because I want Hannah to have these for her life, I’m going to speak as though I am talking directly to her. These episodes are a lot of fun and if you think there is a lesson that we should include in these episodes, please don’t hesitate to send it over to us at firstname.lastname@example.org. We’d love to share it.
This week’s Lesson for Hannah
Recently, a great example came up in a business situation that offered several great lessons I want to share with you.
As you know, we own a number of properties, mainly resort property in different places around the world. Recently, you mother and I made a decision to sell one of them that you are particularly fond of and love going to. The property had decent cashflow paying for itself and was a lot of fun when we visited it and used it. You asked me, “Dad, why did you sell that property. I really liked it.”
I thought I would take this episode to answer your question and share some lessons that I hope help you in life and business. I think the first thing to understand about buying real estate is that you can get some of the best advantages of the property when and how you buy. It’s often said, you make your money when you buy. So, what does that mean? Well, it means that you want to buy a property when you can get it at a below historical market price. These opportunities often present themselves in times of economic distress or downturns. This current property was purchased during our last downturn and it was purchased for about 25% below the historical value of these properties. In other words, we got a good deal on it. This is a great lesson for life in that you must be ready for opportunities when they come and be decisive to act when they present themselves. I was watching the properties in this market for 5 years before the opportunity presented itself to buy it at such a low price and as soon as I saw it, I moved fast to secure as there was a small window of just a few months where prices were that low.
In the last few years, as economies have turned around and we have had a lot of appreciation in real estate, the property has gained tremendous value. One thing you will learn about business and investing is that markets will swing from lows to highs and back again. I knew that the real estate market would increase in value coming out of the pandemic years and I had a price level that was above the previous highs as a threshold to sell the property. That threshold was hit earlier this year. I priced the property for sale higher than that threshold basically saying, “If someone is willing to pay that much for it, then I will let it go.” Well, someone was willing.
I also think we are in the later stages of this real estate cycle and property values are going to come down over the next few years. This is already starting to happen.
So, again, when someone offered to buy the property at the higher price I was asking, I did not hesitate to lock in the deal because we have swung from a low to a high in the market over the last few years. You’ve probably heard me say, “Buy low, sell high” many times and this instance is truly a great example of that. It is very hard to get that right so the best thing you can do is set your levels at which you will act. I had set the levels at which I would buy and then set the level at which I would sell. And yes, there are times where you could probably get a little better deal or sell for a little bit more, but I’ve learned to not care when I get the overall result I am looking for. In this case, we are making a tremendous profit on the property after just a few years. I can now take that profit and the original invested dollars and put them to work in another way I’ve identified that will generate more cashflow than the property did…and will wait until the next opportunity presents itself over the next few years. Who knows, it may be buying a similar property in the same area and doing it over again. The lesson here is not just buying low and selling high and being able to act when the opportunity presents itself, but it is also having patience.
Remember, it took 5 years before I bought the property and a few more before I sold it. But for most people, if they can do this just a few times during their life, they can create life-changing wealth.
Now, another lesson and surprise for you is that when you do a real estate deal, you can get creative with the contract and add almost anything into it. I’ve heard of real estate deals that involved buying the seller a brand-new car as part of it. So, as a little surprise for you, I negotiated something unique into the contract. When you sell or buy real estate, you rarely end at the starting price. That is one of the reasons I priced this property higher than the current elevated market pricing, The buyer and I went back and forth 3 times before settling on a price that was about $15,000 below my original asking price, but still above market. I used this concession to ask for a special item in the contract and that concession is that we get to use the property for a week each year for the next few years at no cost! So, it is just like how we use it now. I did this because I know you liked going to the property and thought it would be a nice surprise that we get to continue to use it like we did as owners. This brings up another set of lessons that are important for negotiating when it comes to business. First, if it makes sense, when you give something in a deal, you should get something of value in return for you. Second, ask for what you want. I originally asked for 5 years of use of the property and we settled on a few, which is what I expected. But, if I did not ask, I would not have gotten it, and never would have known if it was possible. It never hurts to ask because if you don’t ask, you don’t know.
Hannah, to wrap it up. Throughout life, there will be all kinds of opportunities available to you. The key is to be prepared and ready to act when they present themselves. You can be ready by knowing ahead of time what you are looking for and what your criteria is to take advantage of the opportunity. It’s important that when you identify a potential opportunity that you want, you develop this criteria. This goes for business situations and life situations alike. Then you must be patient and wait for the opportunity to present itself per the criteria. This is hardest in the world we live where, more and more, we are conditioned to expect everything instantly and patience is lacking. But, if you can stay true and delay gratification until you get the opportunity the way you want it, you will reap the benefits and rewards. Once you have taken advantage of the opportunity, like a piece of property, you must be careful not to become emotionally involved with it to a point where you miss the opportunity maximize the investment. This goes for business as well. Again, this is where your criteria or threshold for exiting the investment comes in. And when that happens, you must be decisive and move forward.
But, always remember, that many times you can “have your cake and eat it too” by the way you negotiate the deal around it, so you can have the best of both worlds. In this case, we were fortunate to do that. We sold the property for an awesome profit and get to continue to use it in the future. That won’t always happen, but remember, if you don’t ask, you don’t know, so ask for what you want. Honey, I hope you can use this example and these lessons to make the most of opportunities in your life and I hope this gives you a better understanding and answer to your question.
I love you,