“I’m going to tell my clients to start buying real estate once things stabilize. It’s still too dangerous.” (Charlotte Investment Realtor)
“When a true genius appears in the world, you may know him by this sign, that the dunces are all in confederacy against him.” (Jonathan Swift from Thoughts on Various Subjects, Moral and Diverting)
Ken Lewis is the man. You might have read and heard things in the news during the past year saying he is not the man, but they were all wrong. He’s got an unbelievable instinct for investing creatively. And he’s got the guts to execute.
If you live in Charlotte, you must heart Big Ken; it’s required. He built the entire town, kept the headquarters here as he grew Bank of America (BOA), and made sure his bank was actively involved in the community. He should be given a great deal of thanks for the Panthers, Bobcats, Four Seasons Hotel, support for countless charities, etc, etc., etc.
If you’re a large shareholder, you may feel differently. BOA’s stock got hammered the past few years from the mid-$50 range down to a couple of bucks (then rebounded to around $16/share). The dividend went from $2.56/share/year to four cents/share/year. If you were depending on BOA stock to live off of, you did not heart Ken. You were one of the people who wrote Congress telling them that you knew who the Anti-Christ was.
In the short-term, Ken was the Devil. In the long-term, I think he will be considered an investment genius of epic proportions (seriously) and someone we should try to learn from. He bought Countrywide (the largest mortgage company in the country) and Merrill Lynch (one of the largest brokerages) at huge historical discounts. When everyone was running away from these “toxic asset”-laden institutions, Ken was stepping up and taking them down. He had chops.
He wasn’t just paying cash either; he did not have enough of it to close on these deals. No matter. Ken was working the government for guarantees, cheap financing, and taxpayer assistance. He knew the government had to find a way to steady the financial system and there weren’t many institutions willing to step up and take huge risks in catastrophic economic circumstances. Sure, when economic times are great and risk is completely known, other CEO’s have no problem paying top dollar to acquire other companies (even though the large majority of acquisitions actually destroy shareholder value for the acquiring company). But when there is risk and market values plummet (creating potentially unbelievable shareholder value creation), they will not step up.
Ken did. He has an investor’s heart and instincts to locate and take down undervalued assets. Let’s discuss:
I. Locates Undervalued Assets: For an entity the size of Bank of America, there are few companies (in terms of sheer size) whose acquisition would result in any meaningful impact on their earnings. BOA is huge. In the space of a year, he saw the opportunity to add two massive companies to the BOA fold, Countrywide and Merrill Lynch. Countrywide propelled BOA to the #1 mortgage company in the world. Merrill Lynch filled a huge gap that gave BOA 16,000 stock brokers (sorry, “wealth advisors”) working on Baby Boomer’s investment portfolios. Oh yeah, did you forget about the biggest segment of the population that every financial company in the world was competing for before the economy collapsed? Ken didn’t. BOA went from Baby Boomer “player-hater” to “top 2 player” overnight.
Let’s look at using this methodology for locating real estate deals. What attractive opportunities are available in your town? Are there any good fits for you or a client’s investment portfolio? Any great commercial locations at the main intersection that you didn’t think would be available for a million years? How about beach house you always wanted? I bet the banks (or struggling sellers) that have them muddling on their books would be willing to deal now- on your terms. If you handpicked a great property or two and the market came back, how would your nest egg look in the next 3, 5, or 10 years?
II. Takes Them Down: Ken used stock, cash, government guarantees, government grants, etc. to get the companies he wanted. He had the government over a barrel and used this to his advantage.
So, on the same token, how can you actually acquire the real estate you want? Like everyone, you say you don’t have much money to invest. How about you get creative like Ken? Do you think if the world economy wasn’t on the brink of disaster he could have gotten the price, terms, cooperation, and financial assistance he did to close these deals?
These are not normal times and you can use this to your advantage as well; the sellers will try to help you as much as they can! Maybe it’s time to start asking about and using:
1. Seller financing- let the seller act as the bank and get a good price and terms from them
2. Government financing- there are more state and government programs available than you know. The $8K tax credit is merely the tip of the iceberg.
3. Sandwich lease options: lock into a low price today (buy an option), pay a reduced rent to the owner, and then rent it out to someone else at a higher rate. As a great man once said, “Control is more important than ownership.”
Ken won’t be vindicated in the next year or two, just like making these deals now won’t turn you into Mr. Burns overnight. There is always short-term pain (heck, Ken got fired) required for long-term gain. Ask any athlete.
Or in two or three years, ask Ken. His BOA stock will be funding his retirement very nicely.
What do you think? Is it time to invest in real estate creatively?
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. You can contact him directly at Brett@BDFRealty.com. For a FREE subscription to “Charlotte Property Management Weekly” via RSS, click here. Or by e-mail, click here.
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