American Idol Real Estate Investing

For the last 12 years or 14 seasons American Idol has captivated millions of viewers around the world and jump started genuine music careers. The concept is simple: throw a nationwide singing audition, tens of thousands of people show up, producers and judges hold progressive cuts to discover the newest American Idol. Drama ensues.

Something interesting occurs every season. The show actually finds talent.Carrie Underwood, Kelly Clarkson talent. Since Carrie Underwood's 2005 win on the show she has sold 16 million albums, 30 million singles and made $100 million in tour revenue. Before her American Idol audition, Carrie was attending Northeastern State University in Oklahoma, waiting tables, working at a zoo and vet clinic.

Good for Carrie Underwood. What does this have to do with Real Estate Investing?

The Show American Idol is a numbers game. Every wannabe singer with a dream and the inclination to show up to audition displays talent. Producers get to pick and choose.

Here are some American Idol lessons that can make you money in Commercial Real Estate investing:

1)  Define Your Criteria.

• American Idol producers don't let just anybody audition. They restrict their auditions to contestants ages 15 - 28, and have general rules regarding representation, and criminal backgrounds. This ensures that the show is focusing on the most marketable talent.
• If an investor focuses on single tenant retail investments ranging from $1,000,000 to $1,500,000 with at least 7 years of lease term and investment grade credit, suddenly patterns emerge and genuine deals stand out. 

2)  Look at a Lot of Deals.

• Tens of thousands of people audition for American Idol. The best talent rises to the top. 
• Warren Buffet once said that "The stock market is a no called strike game. You don't have to swing at everything--you can wait for the right pitch." Wait for the right pitch. If you look at a lot a pitches you will know when to swing.
  

Don't Forget About the SBA 504 Program: A Buyer's Reminder

Last month I had a meeting with a successful Sioux Falls business owner. Business is booming, he's hiring and in danger of outgrowing his space before his lease ends in the near future. 

We had the classic lease vs. purchase conversation and discussed the merits and drawbacks of each approach. As we were discussing down payment percentages for purchasing, he was using 25% to 30% in his calculations. I applauded his conservative approach as its harder to get foreclosed on with a smaller principal and interest payment to make every month. 

I reminded my client about the SBA 504 program that is available to small business owners in some situations as they purchase real estate for their business to occupy. His eyes lit up and we made some changes to his assumptions. 

Why did my client not know about this program? He was too busy focusing on his clients and growing his own business to search out advantageous financing programs. If he would have lunch with his commercial banker, I'm sure this would have come up. However he was making assumptions based on traditional financing and this limited his options. One dollar invested in his business returns much more than a traditional commercial real estate investment. However in 30 years if he continues to rent, he will be missing out on a variety of opportunities ranging from tax advantages, equity build up, and asset appreciation. 

Here are some great links to check out if the SBA 504 Program is right for you.  

http://www.sba.gov/category/navigation-structure/loans-grants/small-business-loans/sba-loan-programs/real-estate-and-eq

http://en.wikipedia.org/wiki/SBA_504_Loan

http://www.entrepreneur.com/article/52736