Episode 3: The Big Picture vs The Details – Transcript
Hi, Folks, Welcome to Episode Three of the Wealth On Any Income Podcast. This episode is about creating wealth by first focusing on the big picture versus the details. This is less than three minutes.
Let's say you're planning to cross the street and you focused on the details like how high the curb was, if there was any open sewers or dog mess, or uneven pavement, would this be a safe way to cross the street? Of course not. Most parents teach their children to look both ways before they cross the street. That's the big picture. And as you know, it's far more important than the details.
If you were looking to make an investment, like in real estate, and you found a house that could be a good candidate, but you notice the carpet was in horrible shape, the paint on the walls was peeling and the faucets were all dripping - you're looking at all the details. If those details keep you from buying this house, you could be making a mistake. The big picture items need to be the location of the house and the price. In the big picture if the house was in a great neighborhood, and it was priced under market because of the condition, this could be a great investment.
That's what the wealthy do. They look at the big picture first, and the details second.
Several years ago, my wife and I were searching for an apartment building to purchase. We found one on loop net, that might be a good deal based on the location and price. We drove out to see it and it was absolutely in a great area and it had a lot of deferred maintenance. We later found out it was very poorly managed. This turned out to be one of our best purchases. We purchased it for just over 1.2 million, and based on the rent of $81,600 per year, it had a gross rent multiplier - also known as GRM - of 13.75. Making it a great price for the area. 10 years after our remodeling using the same grm of 13.75. It has a value of almost 2.9 million based on an income of 210,000 a year. Just the increase in value alone is 10% annually compounded rate of return, without even considering the income increase of 257%.
Listen to yourself talk and see if you're looking at the big picture first, and the details second. It applies to more than real estate investing. And here's your opportunity to grow. Go to Google and read how the value of a building is calculated using the gross rent multiplier. Learning money terms is valuable if you intend to become wealthy. Bye bye for now.