Chapter 13: House Exchanges and Auctions
Suppose there were a way that you could buy an investment house and then leverage that house into providing you with living accommodations anywhere in the world? Consider this. People all over the world voluntarily exchange their home with another family whose home they’d like to use for a vacation of a week or a month. Perhaps you’ve obtained a house near Disneyland in California or Walt Disney World in Orlando, Florida. Would you imagine that maybe somewhere, there’s a family that would like to spend some time at a Disney facility without having to stay at a hotel? Or you own a condo on the south Kona coast of the big island of Hawaii, as I did. Could there be a market to exchange use of that condo for the use of a Chalet in Switzerland or a cottage in the Cotswold of England, or?
You’ve always wanted to travel around the world. Transportation costs have dropped dramatically but accommodation costs and restaurant costs have remained extremely high and are going higher. By staying at a private residence, you dramatically reduce your living costs while being able to enjoy a foreign country and living in a private residence. Probably, you’ve also been able to negotiate the use of that family’s automobile. You can now use the private residence as your headquarters from which to venture out into the surrounding areas for sightseeing or whatever. You always have a home to which you return.
This process is similar to using a time-share without the outrageous cost of first buying that time-share. You get to experience how normal people live in various countries, as opposed to the standard sterile Hilton Hotel room available throughout the world. You then get to meet the neighbors and observe their customs. You enjoy the local foods and entertainment. You have the time to thoroughly research the area to your heart’s content.
Not only is this possible, it exists in many formal, organized forms. I just typed in “home+exchange” on Google and found 460,000 web sites listed. The one with which I was familiar headed the list: www.homeexchange.com/. One close friend who has used this site to exchange homes has been to New Zealand as well as France, England, Germany and several locations within the USA including Pismo Beach. This probably won’t be your first investment property, but it doesn’t hurt to know of this possibility and to then take advantage of whatever opportunity arises.
House auctions aren’t related to house exchanges, so I’ve elected to discuss both in the same chapter in order to minimize the confusion between the two. You would consider using a public auction to sell one of your properties in order to establish a quick sale for all cash. Usually the high priced properties are the ones offered for sale at auction. One young investor I know has made auctions his speciality niche. When he was age 29, he obtained an option on a $12 million dollar estate (not a typo) for the total sum of $100 for that option and then netted $2.4 million in the space of three (3) weeks. Hopefully you’re starting to believe me and what I tell you now that you’re this far along in the book.
I have to tell you, I was impressed! The property was abandon so you can imagine the condition. As I recall, there was an inside-outside swimming pool in which he found a couple of dead deer. The smell was enough to drive any sane person away. There were broken windows and all sorts of clutter that had to be removed and repaired. There was no structural damage, however. The place was empty and didn’t show well. To make the place look lived-in, he contacted several of the up-scale furniture dealers in the area and arranged for them to furnish and decorate the house, all on consignment. Then he contacted the local Ferrari dealer and arranged to have a red Ferrari in the driveway, also on consignment. He virtually completed the house with consignment materials. Then he held a weekend auction with the house being the last item on the block. All of the furniture and furnishings were sold at auction along with the Ferrari. He got a cut of all the auction fees. Finally the house was sold for $8 million but he had an option for $5.6 million. His cut was $2.4 million. Not too shabby for three weeks work.
Still another way to auction a property is called a Round Robin Auction. Usually there is a minimum bid below which the property will not be sold (think eBay reserve). If a property fails to meet the minimum bid, the auctioneer can then hold a Round Robin during which he contacts all the registered bidders and tries to get each one to make a slightly higher bid. Once the minimum bid has been met, he tells the bidders that the property will then be sold to whomever makes the highest bid.
Probably the king of auction properties is Frank McKinney. Frank designs and builds spec houses – the kind that sell for $30 million each. Again, not a misprint. Frank is truly a high-end builder. It may take Frank 2 years to complete one project, so his paychecks are spaced rather far apart. When he gets a paycheck, however, it’s a keeper. If you’d like to know more about Frank, he’s published a book entitled Make It Big and it’s published by John Wiley & Sons. I’ve had the privilege of meeting and talking with Frank, and I’m most impressed with this young man. If you get a chance to hear him speak, I promise you it will be well worth your effort. URL: http://www.frank-mckinney.com/
There is a side note regarding auctions. Most of the properties sold at auctions are the higher priced properties. The higher the price tag, the more you stand to make. Throughout this book, I’ve discussed low- and modest priced properties. I didn’t want to scare you or cause you to think that only big-time-operators could play in this field. I suggest that as you become more comfortable with your real estate program, you will develop the confidence to work with higher priced properties. The more dollars involved, the more you stand to make on each transaction. Think about this. You’re doing the same thing that Donald Trump is doing. The main difference is that The Donald just works with more zeros in his numbers. You both are using the identical concepts.
NOTE: Stay tuned for Part 14 - Taxes