Six lessons from Sears’ bankruptcy …

Your reaction to the news of Sears’ bankruptcy would tell us a lot about your age and economic status growing up.

But whether you’re sad and nostalgic because there’s another nail in the coffin of an iconic piece of Americana …

… or you’re completely oblivious because the Sears brand has no meaning or relevance in your life …

… there are several important lessons for real estate investors to be gleaned from the slow, painful demise of this 125-year old retail institution.

We could do an entire series on this topic … as each lesson could be an article in its own right.

But with so many things to comment on, we’ll keep each lesson short …

Lesson #1:  Evolve or die

Sears revolutionized retailing when it pioneered catalog sales.  Sears was the Amazon.com of its day.

But Sears failed to evolve with technology … and with a shrinking middle-class.

So pay close attention to emerging trends in your niche and do your best to stay ahead of the curve.  Attend conferences.  Talk to other active investors.

Because the world is constantly changing.  For example, the services and amenities desired by today’s tenants are very different from even 10 years ago.

And as the Millennial demographic wave rolls through the seasons of life, don’t assume they’ll mirror the needs of the boomers before them.

Surveys are already indicating it’s a whole new ballgame.  So be prepared to evolve … or die.

Lesson #2:  Don’t let the fox guard the hen-house 

Maybe this is a little harsh … and we’ll admit we only have visibility into the situation from what we’ve read in the news …

… but it sure seems like the head guy at Sears had a huge conflict of interest.

We’re not here to accuse or defend.  Time will tell if he wins or loses, but it seems clear he’s on both ends of the deal … so at the very least, the temptation is there.

As your portfolio grows, and more people are involved in helping you operate it, be VERY aware of when someone may be tempted to enrich themselves at your expense.

And be EXTRA careful when you’re managing investor money.

Lesson #3:  Consuming equity to pay operating expenses is a cancer.

Because Sears failed to evolve, it managed to lose money for SEVEN YEARS in a row.  It made up the shortfall by going into debt and selling off assets.

We know this is a bad plan because we’ve done it. (See Lesson #4)

It’s one thing to see your net worth shrink as a result of fluctuating asset values.  This is par for the course when you denominate net worth in dollars instead of doors.

But as long as you’re playing the long game, fluctuating asset values is a side-show.

And if your cash-flows are solid and your holdings of real assets (doors, tenants, properties, ounces, etc.) is growing, you’re on the right path.

When the market gives you a temporary spike of paper equity, it can be smart to quickly convert it into more units of real value.  But that’s a lesson for another day.

Our point now is when you start using equity to debt-service or pay operating expenses, your portfolio has cancer.  And you better fix it FAST.

If you don’t, your negative cash-flow will eventually consume you … like it has Sears … even though it may take many years.

Lesson #4:  Don’t let a strong balance sheet make you lazy.

With lots of assets, including real estate, Sears’ management could handle the financial problems their business problems created.

It’s like a football team with a big lead that stops playing to win and just tries to protect the lead.

They use the scoreboard to make up for not scoring points on offense or giving them up on defense … hoping the game-clock will win the game.

When your P&L and cash-flow reports tell you that your properties are failing, don’t kick the can down the road with your balance sheet just because you can.

Because when your balance sheet is really strong, you might be able to avoid dealing with the real problems for years … sometimes decades.

But you risk losing the momentum, resourcefulness, and relationships you need to turn it around.

As Jim Collins says in Good to Great, you must “confront the brutal facts.”  And the sooner, the better.

Uncle Sam, are you listening?

Lesson #5:  You’re in the people business, not the numbers business.

Your brand (your reputation … how people feel about you) is your MOST important asset.

When you have lots of people who know you, like you, trust you … then even when you need to change what you sell because of market dynamics … your customers will buy.

Over-time, Sears … like MANY big companies … became more focused on the numbers than on the customers’ experience.

When this happens, you not only break trust with your customers … you forget how to innovate.

Innovation comes from looking at everything through the eyes of the customer and asking, “How can we make this better for the customer?”

When you do this, you grow revenue, retention, referrals, and profit. It’s an abundance mindset.  And it takes faith.

But when it’s only numbers, you ask, “How can we squeeze more profit out of what we’re already doing?”.  It’s lazy (see Lesson #4).

It’s also a reflection of scarcity thinking.  It’s rooted in fear, and asks the customer to conform to the company’s needs.  Bad plan.

Your tenants are customers. They have needs.  They aren’t just rent mules who exist to pull your financials to the next plateau.

When you take care of the people and your business model, your numbers take care of themselves.

Lesson #6:  It’s not over until it’s over.

We got hit HARD in 2008.  In many ways, we’re still recovering.  For Sears, Chapter 11 provides some relief while they work on re-inventing themselves.

Sometimes no one believes in you and you’re on your own to keep grinding it out to save things.

We don’t know anything about Sears’ team or relationships.  So we have no opinion on whether they have what it takes to make it or not.

But there are many companies who go into bankruptcy, re-organize, and get back on their feet.  American Airlines is a fairly recent example.

For Main Street real investors and entrepreneurs, it’s like Les Brown says …

“Any day you wake up and there’s not a white chalk line around your body … it’s going to be a good day!”

In other words, where’s there’s life, there’s hope.

So whether you’re crushing it now … or being crushed … it’s wise to never take anything for granted.  Just keep pushing forward because neither good times nor bad times last forever.

Until next time … good investing!


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2/5/12: Ask The Guys – Super Bowl Edition

Super Bowl Sunday is the biggest media event of the year – even bigger than The Real Estate Guys™ radio show (hard to believe, we know).  For perspective, consider that the projected 110 million Super Bowl viewing audience is 5 times bigger than American Idol’s nearly 20 million person audience!

And what does that have to do with you and your real estate investing?  Well, pretty much nothing.  Because unless you’re somehow connected to the business of football or lucky enough to place a winning bet (how ’bout those Giants?), the Super Bowl doesn’t really have any positive impact on your financial life.

So, being the ever faithful hosts that we are, for those who are more interested in how to score points on their financial statements, we’re in the studio for another educational edition of Ask The Guys!

Sitting all alone behind the silver microphones in The Real Estate Guys™ studio:

  • The quarterback of the show, your host Robert Helms
  • Running back (and forth to fetch Robert’s coffee), your co-host Russell Gray

As always, our Ask The Guys playbook has more questions than we can get to in one episode.  But keep ’em coming!  We love reading them, and when we see things that come up over and over, we know it’s something we should take time to address.  To submit your question, use our Ask The Guys page.

When we reached into the Ask The Guys e-mail  grab bag for this episode, here’s what we pulled out:

  • How can a young person, saddled with student debt and just starting out, get their dream of real estate financial independence started?
  • What can you do with a credit score of 800 (besides brag about it to your friends)?
  • Are low down payment deals still out there?  Where and how to find them?
  • Help! I’m a brand new landlord and my tenant just went Chapter 13!  What can I expect?
  •  I’m under 30 and have saved up $100,000.  Now what?
  •  I just got out of college and noticed you can get a lot more money each month by renting out 1 room at a time.  What do you think?
  • How do I get cash out of a property in an LLC to pay off a property I bought with my 0% interest credit card?
  • MORE!

Sometimes we know the answers because, after all, we are brilliant (and humble!).  Sometimes we need to use our powerful positioning as big time radio talk show hosts to call up subject matter experts for help.  In any case, we LOVE answering your questions because we always learn something, and it reminds us that there really are people out there in radio-land (and now podcast-lands) listening to us week in and week out.

So THANKS for keeping us company during the Super Bowl and keep your questions coming!

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

7/11/10: Ask The Guys – Bankrupcty, Tax Liens, Cheap Houses and More!

So we’re wandering around the radio show one day trying to think of something to talk about.  Then we trip over a big bag of email and say, “Hey! We haven’t answered listener questions for awhile. Let’s do that!”  So today’s episode is all about you and your questions.

Taking the stand and promising to answer each question to the best of our admittedly limited abilities:

  • Host and Professional Pontificator, Robert Helms
  • Co-Host and Head of The Real Estate Guys Research Institute, Russell Gray
  • The Man Who’s Forgotten More Real Estate than Most Will Ever Know, the Godfather of Real Estate, Bob Helms

One of our favorite things to do is show off how smart we are.  For obvious reasons, we don’t get to do that very often, but we always look forward to the opportunity.  Then again, if you subscribe to the idea that people learn by making mistakes, we’re REALLY smart!

Anyway, we get lots of questions from people and we love it.  So please keep ’em coming!  Go to Ask the Guys and ask away!  For this episode, we grabbed a handful from the email bag and here are some we found.

(For privacy purposes, we’ve omitted the names, phone numbers, social security numbers, birthdates, drivers license numbers, bank account information, picture, height, weight, race, religion, sexual orientation and favorite ice cream)

I just came out of a Chapter 7 bankruptcy.  How can I get a mortgage?

I found properties for $500 – $1000!  Seems like a no-brainer.  Am I missing something?

Is Dallas a dangerous place?

The Great Recession wiped me out.  How do I get going again?

What do you think of using retirement accounts to buy real estate?

Are tax liens a safe investment?

And our personal favorite:

Is it still possible to buy property for no money down?

Tune in for the answers to these and other exciting questions on this episode of The Real Estate Guys™ Radio Show! (theme music plays here).

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