Greetings!!

I was recently reminded of a very important concept that, ironically enough, I preach to others: The velocity of the money is often more important than the amount of the money.  A couple of weeks ago, I was completing a deal, and I realized at the last second that a fee was going to have to be paid to complete the transaction.  This fee was the responsibility of the buyer, but the buyer did not have the funds to pay the fee, which meant that the deal would not happen.  This put me into a bit of a dilemma: either I pay the fee and the deal is closed, but paying
the fee lowered my anticipated return on investment ("ROI"), or I refuse to pay the fee, which would result in the deal not closing and me looking for a new buyer who hopefully would pay my price and the fee.  This situation forced me to choose between the fast nickel (I pay the fee and close the deal now) or the slow dime (I don't pay the fee, the deal does not close now and I have to find a new end-buyer later).

I knew that I needed an outside perspective on this situation (isn't it interesting that often it is much easier to see clear answers to problems from 30,000 feet away than it is from 2 feet away?).  So, I called a fellow investor and mentor who had been helping me with this deal.  He told me that even if I have to pay the fee, that the deal is still really good and that I will be happy with my ROI.  Of course, I busted out my financial calculator and confirmed this:)  He then said that if I don't pay the fee and don't close the deal, I will likely be stuck “holding the bag” for 1-3 more months and racking up other fees waiting for the "perfect buyer."  As a result of this conversation, I followed my friend’s advice and closed the deal the next day and walked away very happy.

This idea that a “fast nickel” is often better than a “slow dime” is essential for us to remember, and is easy for us to forget.  We see it every day, whether it is with a home that is sitting on the market too long, a vacant rental that is well above market price, or a store that is overpricing a product that won’t move off the shelf.  To put this into concrete numbers, if you are "flipping" a home and buy it for $200,000, rehab it and sell it 3 months later for a net profit of $30,000, your ROI is 57%, but if you hold out for a net profit of $50,000 and have to wait 12 months, rather than 3 months, your ROI drops to 22%!!!!  So, even though the average person will think that they "made" $20,000 more by waiting the 12 months, they actually lost money as their ROI was cut in half because they lost the 9 months during which they could have had their original $30,000 profit working (and earning more than $20,000).

Because of the time value of money, it is often more important to get the product sold/the deal done now so that you can get that money back to work immediately, even if it means it is not at your "goal" price.  Is there anywhere in your life have you been passing over the “fast nickel” for a “slow dime”?

Best,

Buddy Broome
www.buddybroome.com

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