The money is in the meter drop
How would you like to make $10,000?
Now, before you blurt out an answer, I’d like for you to consider a story that my good friend and mentor Gary Harper tells about a cabby he encountered. The title of his story is “The money is in the meter drop.” And it goes like this:
Gary was in the big city of Chicago where he lives. He and his father-in-law were on their way to the airport when they stepped out on the busy street, hailed a cab and jumped into the first one that pulled up.
As they settled into their seats, the cabby asked them, “Where to?” Gary responded that they’d like to go to the airport. The cabby exclaimed, “Then, you’ll have to get out. I don’t go to the airport.”
Gary thought the guy was joking and he questioned him about it. The cabby let him know that he was serious and responded again that they needed to get out. Perplexed, Gary told the cabby, “Ok, we’ll get out. But I’m curious. Why would you not want to go the airport? That’s easily a 45-minute fare.”
The cabby, seeing Gary’s genuine interest, told him that even though the fare would be longer, the airport was across town and down busy streets. He would run into traffic and deal with all kinds of delays.
He said, “Every time someone gets into my cab, I hit the meter, and they have to pay the minimum ride fare. We only make a certain percentage on mileage, but the meter drop is a flat fee. So even if someone only goes a few blocks, they’re still going to pay that flat fee.
What you’re thinking is that going across town would give me bigger fare because of the mileage. But you’re not considering that that’s more gas and wear and tear on my cab. Once you factor that in, it’s better to stay on this side of town.
The other thing to consider is that by the time I drove to the airport and back, I would have made double or even triple that amount in minimum fares just driving people short distances.
So, for me, the money is not in the long hauls. The money is in the meter drop.”
Now, let’s revisit my question. How would you like to make $10,000?
Most people would respond with an emphatic “Yes!” But a savvy investor would respond with, “Maybe. It depends. How long will it take?” You see, making $10,000 in a month’s time is way different than making it in 50 years. So, time is something you must consider.
With that in mind, let’s examine three different exit strategies on a deal, and you tell me what you think is best.
Suppose you bought an older mobile home on half an acre for $15,000. The house needs a back deck, most of its subfloor replaced, a new HVAC, and, of course, paint and floor coverings. That will be about a $20,000 rehab. Because of the age of the home, you figure you could sell it for $50,000, which would make you $15,000 in about six months.
Out of curiosity, you go ahead and list it for sale as-is and immediately get two offers. One is for you to sale it with owner financing at $15,000 down and payments of $250 a month for six years. The other offer is $25,000 cash and could close by weeks’ end.
The fix and flip will make you $15,000, while the owner finance deal will make you $18,000 in profit. But there are risks to consider with these offers that could happen the longer you keep the house. Things like, “Could the rehab cost more and the sales price be less than what you thought when you started? Could the owner financing people live there for a few years and then file bankruptcy on you?”
Just like the wear and tear on the cab, these are things you need to consider when evaluating any deal.
So, if the money is in the meter drop, and the cash deal makes you $10,000 in eight days, which would you do?
We took the cash.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.