Bill Goacher

Asheville, NC Years Investing: 32

Number of Deals in 2004: Only one fix & flip because he's "still working a $1 million office rehab from previous year"

Career Deals: 175-200

Units Owned: 108

Areas of Expertise: Adaptive rehab of old commercial buildings (converts to art studios, work spaces, warehouses and live-work units); has also rehabbed single-family homes

Real Estate License: No

As in the old saying about beauty, disaster is also in the eye of the beholder. At least that's what Bill Goacher believes. He likes to tell a story about some rehabbers in Asheville, North Carolina, who had jacked up an old house on a steep hill to fix its foundation. That was simple enough until the house started to shift a little, and then a little more. And then the whole house rolled off its foundation and down the hill, ending up as a big pile of rubble.

Disaster? Sure. But as Goacher points out, the investors still ended up with a nice clear lot in a very desirable neighborhood.

"They sold the lot for $30,000 and ended up making $5,000," he says. "They had anticipated making $35,000 or $40,000, but they still made five grand! So I'd say that in real estate the real disasters are few and far between."

The former industrial engineer started investing in real estate more than 30 years ago to avoid the potential disaster of becoming an "odd lotter." After five years of investing in the stock market and getting poor returns, Goacher attended a stock-buying seminar in hopes of turning his investments around.

"The guy teaching the seminar told us that an odd lotter is somebody who buys fewer than 100 shares," Goacher recalls. "A savvy investor watches what the odd lotters are doing, the small guys, and he does just the opposite because the odd lotters are always wrong. So I said, 'Hey! I'm one of those. I'm always wrong!' I only had a $6,000 nest egg at that time, so I started looking to buy real estate."

Where Goacher fell short as a wizard of Wall Street, he more than made up for it as a guru of Main Street, snatching up more than $5 million worth of properties during his career. Even with that volume of deals Goacher's only "disaster" was a multifamily property where he only broke even for nine years.

Of course, most of his deals were not even close to that "disaster." The key, Goacher says, is learning to see what others might miss, and that means knowing your market. The best way to do this, Goacher tells new investors, is to look at 50 or 100 houses before making an offer on a single one. That way, when the right property comes along, you can write an offer immediately. However, he likes to put it a bit more colorfully.

"You can't steal in slow motion," he says.

Part of finding the deal, Goacher says, is making the deal by ignoring the asking price and instead offering only what the house is worth based on capitalized rent.

It also means thinking creatively and seeing a deal where someone else might see an eyesore. One of Goacher's biggest successes was an old brick building in a mostly abandoned industrial section of Asheville. At that time, the mid-1980s, no one saw value in large, vacant urban property, and lenders laughed at him when he applied for a loan.

"I can tell you, nobody's going to lend you money for that building," one banker said to him. "That area is full of vandals. And the building is terrible! It's got no windows."

"Yes, it does," Goacher shot back. "I've counted them; there's 82 windows in it. There's just not very much glass."

In the end Goacher's eye for a deal proved the skeptical banker wrong. He owner-financed the $130,000 mortgage on the 26,000-square-foot building and rented out its 14 units to entrepreneurs and artists. His bold purchase marked the beginning of the neighborhood's revitalization. Soon the rest of the old warehouses and factories were snatched up, and when Goacher finally sold that first building in 2002, it fetched a tidy $535,000.

Like just about anyone who does anything for 30 years, Goacher has evolved over time. Now he pursues industrial and commercial projects rather than residential. But he still says residential is the way to start, with a combination of rehabs and long-term holds to both create income and build wealth.

"You might do a dance that would be 'Flip, flip, keep. Flip, flip, flip, keep. Then flip, keep, keep. Then flip, flip, keep, keep,'" Goacher says. "And eventually you get to the point where you build up your portfolio to where you have some of those that will build wealth, which are the buy, fix up, and keeps."

Goacher has reached—and exceeded—that point. But whether it's residential, industrial, or commercial properties, he's ready to keep dancing.

Rob Harrington, Jr.

Framingham, MA

Years Investing: Over 25

Number of Deals in 2004: 6 commercial buildings Career Deals: Over 200 Units Owned: Hundreds

Areas of Expertise: Takes problem properties and converts use; improves properties through efficient property management (increases the NOI); and commercial real estate

Real Estate License: Yes

Everyone's heard the old saying that the three most important things in real estate are "location, location, location." Rob Harrington echoes this saying when he explains the top reasons why he invests.

"I love real estate. I love real estate. I love real estate," he says.

The Massachusetts-based investor found his true love early. He was just 19 years old when he used savings, including money earned delivering papers, to buy his first property. It was a single-family house he converted into apartments and rented to fellow college students. Although the property generated cash flow, it also emptied his savings account, and so Harrington teamed up with other investors to buy more. By the time he graduated he owned 11 properties, all purchased in the high-interest-rate environment of the early 1980s. Contrary to many investors' thinking, Harrington believes it's best to buy when rates are high because that's when prices most accurately reflect the true value of a property.

"When rates are high, the property can't hold as much debt and therefore doesn't hold a lot of value," he says. "But when interest rates increase, the property can hold more debt and therefore is more valuable."

That kind of big-picture thinking saved Harrington from the tragedy that thinned the ranks of real estate investors in the 1980s: the Tax Act of 1986. As apartment complexes became the favored tax shelter of the wealthy, Harrington realized that prices were being driven upward artificially by people who didn't care about a property's ability to generate cash flow.

"People were falsely creating value in the depreciation," he says. "People were making investment decisions based on tax advantages."

As prices rose and people seemed to be buying high on the assumption that they could always sell higher, Harrington realized it was time to act. He sold all 35 of his units at the peak of the market and then bought more when the market crashed after the tax laws took away the value of depreciation.

But while big-picture thinking has been an important part of his strategy, Harrington says careful attention to details—maintenance, vacancies, taxes—is what makes him successful today. Every month he evaluates all his properties on the basis of one line item—for example, taxes in February, electric bills in March, heating bills in April— and figures out ways to reduce his costs in that area of expenses. In other words, he works line item by line item, not building by building, to shave costs.

"The key in real estate is to watch your nickels and dimes," Harrington says. "If you watch your nickels and dimes, the dollars will follow."

These days Harrington has his formula down: he does his numbers based on a 15-year mortgage and looks for properties he can improve just a little to charge more rent. He encourages new investors to find their own niche but says the key to becoming as much of a raving real estate fan as he is is to get off on the right foot.

"Make sure the first property you buy is a winner," he says. "Make sure you look at everything. Ask yourself if you can reduce expenses to increase the net operating income or what you can do to make someone want to live in your building rather than someone else's. If you make it on the first deal, you'll make it on the next ones."

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