We all need to find a place where we can feel safe. The same goes with cats. Will you be able to get rid of them so you can sell the property when the cats have already imprinted? That’s their home. But nobody wants to buy a house with live cats. Tom shares a funny and a great bonding experience where he and his daughter tried to get rid of the cats in the house.
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Cats, And Other Responsibilities
The title of the show is Cats and Other Responsibilities. We’d heard that cats were in the wall, like kittens or something like that. We own this house down in Alvin. It’s a property that we bought. One of the things unusual about it is that there was a lady living in it. She had bought almost all of the materials, if not all the materials. They’re stored in the garage, probably $10,000, $15,000, $20,000 worth of materials. All somebody has to do is come in and do the labor. It’s a little far for us. That’s the reason why we’re not doing it. It’s an interesting play as a real estate investment. The word we got was that there are three cats in the house. Because this property is listed on MLS, some realtor decided, “I’ve got a good idea. These cats look hungry. They’re stuck inside the house.” She had a plate full of leftover food from apparently her lunch or whatever. I saw the plate. It was steak Fajita burrito with flour tortillas in a clam style type of storage. She puts that in the house with the cats with no litter box, no nothing. Cats are pooping in the house. I got a whisk broom and a dustpan. I bought that at the feed store. I bought also a cat trap, the humane type of cat trap. It’s designed for feral cats.
My daughter and I, we show up at the house. I’d never been there before. You can buy real estate as a real estate investor that you’ve never seen when you have a good team. I got a good team. We acquired this property. We decided we’re going to wholesale this property. Some people think that you wholesale the bad ones, you keep the good ones. The reality is we buy every property if it’s a good deal. We don’t change our entrance strategy. We change our exit strategy based on our sales meetings. We buy every house in the same way. We decide on the sales meeting, are we going to flip this property? Are we going to keep it as a rental or are we going to wholesale it?
I get it all the time on the disposition side of what we do. I get the buyer to go, “I see everything was blasting out. Send me some of the good deals that you’re not sharing with everybody else.” Two things are wrong with that. One, you’re assuming that I’m only sending out bad deals. Two, you want me to put myself and my company in a position to not get the highest and best offer by sharing it with as many people as possible. I don’t line up with either one of those situations.
You’re doing your own marketing. We teach that at Right Path Real Estate. We teach you how to do your own marketing and you can find 70% minus repair deals provided that you have good marketing skills and good sales skills. You can even do better than that when you have superior sales skills, which we do. However, that person that bought the deal at 70% minus repairs, if it’s in the buy and hold space, they’re typically going to be able to sell that to someone that would pay 80% and this property would make a great rental.
It’s a great rental. It’s in a great neighborhood.
In fact, what’s interesting is it’s right on the dividing line between an unrestricted area because there are some mobile homes. This is an HOA-protected neighborhood. I met the HOA person driving in the neighborhood. What’s fascinating is that if a buy and hold investor is going to buy a property right now, they’re paying 85%, 90% even 95% minus repairs. The reason why is because you have to understand when you’re buying at 95% of ARV, you’re buying compared to a retail buyer. You want to buy at a discount to retail. What if there is very little to no retail activity? You’re buying at the same price that another investor is, which I want you all to understand that for a minute because if a retail buyer is going in by buying $150,000 house, we as investors are not typically buying retail ready houses. We’re buying a property that needs some work. We can get that property at a discount.
A lot of people, they don’t understand. Even people in this industry, I see people all the time advertising a house, “This house is ready to go. It doesn’t need any repairs.” There’s no situation where we bring value.The more you do something, the better you get. Click To Tweet
This house needs flooring in every single room. There’s no flooring in the house at all. It needs the master bathroom finished out. The brand-new cabinets are there. It’s a Home Depot cabinet where it’s a cabinet and then the countertop came with it. There’s a chip in the right front corner of the countertop. The countertop needs to be replaced. It’s got a nice Jacuzzi tub, but everything is exposed below the tub. The entire master bathroom needs to be finished out. Master closet is nice. There’s some sheetrock stuff that needs to be done. There are some light fixture things that need to be done. On the foundation, I don’t know if you noticed it because you’ve been out there, I see some concrete patches.
The foundation was repaired at some point.
That means that the foundation is done. The HVAC looks like it’s in good shape. The roof is in good shape. The plumbing is in good shape. It’s primarily a brick house. All in all, the big four ticket items, the foundation, roof, plumbing, HVAC, all four of those are taken care of. What people don’t realize is that in a healthy market, I would submit that out of every ten transactions that happen in a buy-sell situation that in a healthy market, eight or nine of those transactions should be end-user owner occupant buying a house at retail, getting a Fannie Mae or Freddie Mac mortgage, conventional mortgage, whatever it is, putting in below $200,000. What you typically find is people were putting maybe 1% down or as little as possible. In fact, sometimes what you’ll find is if you’re selling $180,000 house and you’re asking $180,000, people will offer $184,000. They want $4,000 seller’s contribution.
It’s a closing cost so they can bring nothing to close it.
As little as possible. On more expensive houses, $400,000, $500,000 houses, it’s the same thing, eight or nine or ten, out of every ten transactions should be retail. The rest are going to investors. That’s in a healthy market. We had something happen when Dodd-Frank got passed. It shifted the entire marketplace as it relates to mortgage financing. It got a little bit harder for people that had $300,000, $400,000, $500,000 houses that they wanted to buy. In that price range, there’s plenty of money for the mortgage companies, for the realtors, the title companies. Everybody is making money on a $300,000, $400,000 house.
Somebody who’s trying to buy a $400,000 housing, normally you have a household income of at least $200,000, a reasonably good credit. That part of the market didn’t shift very much. The lower spectrum of the marketplace that price range below $200,000, those folks. What I see is that space below $180,000 is it’s been one or two out of every ten transactions has been a retail buyer. Eight or nine out of every ten transactions has been an investor. Prices fell a little bit after Dodd-Frank in that price base. What happened is that’s when a guy like Warren Buffett stepped in and said, “The single best asset class in America is the single-family house.” He said, “If I could figure out a way to manage it, I’d go buy 100,000 houses tomorrow.” What that did is it woke up some hedge funds and some REITs. There was only one REIT that got in and started trying to do that. It got institutional money involved to say, “If Buffet thinks this is a good investment, then maybe it’s a good investment,” because apparently, he knows one or two things about good investments. Deployment of capital is difficult in the single-family space.
He said it with any kind of speed.
I told my daughter, “We’ve got to go down to Alvin,” because apparently there are three cats down there. We’ve got to get them out. We walk in the front door and these three cats are chowing on this plate of food. Why the realtor didn’t decide to like, “Kitty, kitty, kitty.”
At least let them start eating, then grab the plate and walk it outside.
Pull it out slowly.
She called me. I said, “Thank you for letting me know. Is there any way for you to get the cats out of the house?” “No, there’s not.” Another realtor called me and told me about the cats, but she told me that the cats could get in and out as they pleased. I was like, “There’s not a whole lot I can do about that right now as long as they’re not trapped in the house.” The realtor on Saturday was very sure that they were trapped in the house. There was no way to get them out. I asked her if she could get them out. She said, “No, they won’t let me get near them. I gave them a plate of food and they came right up.” I’m like, “Okay.”
All you’ve got to do is like while they’re eating, like pull it a little bit, they’re going to walk towards it. Pull a little bit more. That would have been smart if I had done that. I grab a black one. My daughter grabs a gray one. She gets the gray one out. The black one turns to scratch and bite. It didn’t bite me but it did scratch. These two black cats scampered off. We see which direction they go. We’re looking at direction. We can’t see them anywhere. The gray cat is out. We got two black cats in the house. Apparently, there’s a slit in the sheetrock about this high going all the way down to the baseboard to the right of the toilet to the left to the bathtub. The cat can go in that little hole. There’s a two by four that’s right there. It allows it to go in underneath the bathtub. I can’t get to it. I jumped on that bathtub. The cat goes scurrying out, goes into the other side of the house.
Now we got a cat race going on. We stuck around there until about 6:40 PM. I’m like, “What we need to do is go get a cat trap.” There are feed stores down in Alvin. I’m not going to Home Depot or anything like that. We arrive at the feed store at 7:01 PM. They closed at 7 PM. We go to Walmart and get a water gun because the gray cat keeps trying to get back in. I want to squirt the cat because they don’t like water. My daughter starts, she wants to score but doesn’t want to hit the cat because she loves cats. She’s squirting near it as if like she’s putting off stink bombs. It doesn’t work that way. It’s not like you’re squirting like that.Do things that are worth your time. Click To Tweet
It’s not an imaginary barrier.
She’s squirting this water. Those cats are not going to cross the water on the ground.
You’re not digging a moat.
We’re not digging them because she’s spraying on concrete. They’re on the front porch. We basically win back worked on the couch for a couple of hours until about 8:30 PM. We called it a night. We came back the next day, afternoon, picked up a cat trap, picked up some cat food and started getting a little bit more strategic. I’ve got this little mini sledgehammer. It’s hammer size. I’m not banging the cat’s head. I broke out a piece about two-foot-tall and as wide as the bathtub at the front and the back of the bathtub. We’re able to squirt it. Chloe is hitting it from one end. I’m on the other end. Finally, I reached in and grabbed this cat again. It turns around and gets me again. We decided to set up the trap where the cat’s going to run and we get the cat in the trap, one of the cats. At this point, we’re starting to doubt that there are two other cats.
You thought maybe you were seeing the same black cat. He’s just quick.
This cat, sure enough, hits the door to the trap hard and pops out somehow. I’m not impressed with that cat trap. About an hour later, we finally got it all together at one point in time. We got them closed out of the way from that bathroom and into the master bedroom area. They left a table there that’s about seven foot long. We use that to block because there is no door to the master bedroom. It’s in the garage. We use that table as a doorway to block. The cat goes running in and freaks out that it can’t get out. We’ve got it at least in this confined area. As Chloe’s going one direction, I literally trapped this cat and put it in the trap. That’s how we got one of them.
The other one ran behind the cabinets for the master bathroom because it pulled away from the wall a little bit and that made a little tunnel where this cat had to run into the trap unless it leaped over, which it did the first time. Finally, I’m not saying I’m the best cat trapper in the world, but I’ve got a little bit more experience. On a scale of one to ten, I was probably a four before. I’d give myself a seven or an eight because sometimes the more you do something, the better you get. We got all three of the cats out, cleaned up the cat poop, all that kind of stuff. The experience with my daughter and what I realized is that I’m a leader by nature but so is my daughter.
To lead a leader is interesting because she’s got great ideas. She doesn’t want to do what you tell her. I’m like, “Come here and do this.” She’s like, “No.” She feels like she’s got her own idea that’s going to work. She asked me some questions along the way. She said, “Dad, you own the company. Why are you going?” It’s a legitimate question. I’m like, “There are certain things that as the owner of the business that falls into your lap as a responsibility although you have employees and you pay them, I don’t have somebody that’s assigned to that task.” I don’t because it hadn’t come up very much. Could I have waited until Monday and gotten somebody to go out there? Yes, I could have but I thought this would be a good experience with my daughter and me. It turns out it was. I started thinking all the people that work for me, who would I have called. I know you would have gone. I know that lots of other people that work for me would have gone if I had to ask. I felt like this is something that she and I can do together that would be a fun experience. One of the things we teach about it at the weekend retreat is are you doing things that are worth your time? I’ll say this, “That will be an experience that my daughter and I will remember when she’s 40.” When she’s 40, I’ll be a lot older. I’ll be in my 80s.
It was such a great bonding experience. It was so much fun. We get finished. This is how my daughter is. I’m trying to get rid of the cats, get them away from the house. The cats have imprinted, that’s their home. We had bought some cat food for the trap and all that. We’d only use one of the cans of cat foods. We’ve got three cans. My daughter dumps out the cat food at the house on the driveway. I’m like, “I think you’re missing the point.” She’s so sweet because she’s an animal lover, “The cats are hungry.” I’m like, “Yes, but I don’t want them feeding here. I don’t want to train them that this is the place to get food.” They’ll hang out in the same general area. “I want to squirt them with water.” “Don’t squirt them with the water. They don’t like that.” I’m like, “It’s not hurting them.” We had that experience. When you own your own business, sometimes responsibilities do fall on you. You can hire a management team. You can have employees. You can do all of that. Sometimes the buck has to stop with you as the owner. Are you taking responsibility? It’s not for that. It’s also for are you taking responsibility? Setting your goals and then working towards those goals. In fact, you and I, we meet with probably close to 100 people a week. It might be a little bit less than that.
Some weeks, it’s a lot more.
I would say that the number one reason why people are struggling with where they are is they don’t have a clearly defined goal in terms of where they’re trying to get to. That’s number one. What do you think the number to struggle is that you see?
The number two struggle is if both sides is not having a goal, I would say is probably not doing a real assessment and being honest about where they are.
I feel like every successful person I’ve ever met is clear on two things. One is where they are now and number two where they’re trying to get to. Once you define those two things where you are now and where you’re trying to get to, then it’s relatively easy to start working on a strategy because where you are now, that’s Point A. Where you’re trying to get to is Point B. Once you understand Point A and Point B.Nobody wants to buy a house with live cats. Click To Tweet
Because it’s a straight line at that point. What I find is through any most personal development, any other real estate training, and training in general, what I’ve always found is they are either geared towards one or the other. They want to get you in touch with where you are or they want to get you in touch with your goals. Neither one of those going to work not without the other. You’ve got to have both. Otherwise, you’re never going to be able to define the road to get where you’re trying to go to. Because one, if you don’t know where you’re trying to get to, obviously you know the fork in the road, which way do I go? Where are you going? It doesn’t matter. Either way, it goes there. If you set a goal in mind but you don’t know where you are now, how do you deploy the resources and time and come up with a plan? You can’t.
I’d say the third thing that typically is it’s the mindset that I need to know everything about something. I need to be an expert in it before I take action on. I’m still in the research phase. I’m figuring it out. What I see is there are so many things that when people are figuring it out on their own, that is not intuitive. In fact, some of the things that seem intuitive are counterintuitive to real success in doing this. We had three kitties that bit the dust.
They did not bite the dust, don’t say that.
My daughter would have allowed that to have happened. You don’t take your thirteen-year-old daughter to go slaughter some kitty cats. Not that I would have done that anyway. If people say, “Tom, how do you do a radio show talking about real estate investing five days a week?” Talk about what we did.
The end of that story is the realtor calls me back. I think we had sat down for dinner. She calls, it was like 6:45 PM, almost 7 PM. She says, “I’m back here at the house. I’ve got somebody with me that’s going to get the cats. They’re not here. Where are the cats?” It’s like, “I told you I would take care of it.”
We’re not going to leave cats in the house for three days.
I’m trying to sell this thing. One, they’re still using the restroom. Two, they’re going to die in there. Three, nobody wants to buy a house with live cats in. She seemed surprised. She was like, “You didn’t call the county, did you?” I’m like, “I didn’t call any agencies. I got somebody to get them outside of the house. That’s it.” “Did they go to good homes?” I’m not quite sure. We got them out of this home.
Rumor has it that cats can survive outside. Those cats are not inside the house anymore assuming that there’s not an agent that’s going to let them into the house. I thought about leaving a note on the door.
You need appointments. I’ll probably say, “Don’t let any.” Here’s what I think happened because I was there for almost three hours, I never saw a cat.
They could have been sleeping underneath the bathtub though.
Which is possible or somebody let them in or one or the other.
I talked to the HOA person and they said that she had nine cats. The previous owner had nine feral cats inside the house.
The acquisitions guy on that, I spoke to him about it. He said she took all the cats with her, but I don’t think she moved very far away. He thinks that the cats came back from wherever she is.Time is money in a real estate deal. Click To Tweet
As Paul Harvey would say, “You know the rest of the story.” Getting back to wholesaling because we decided to wholesale this house. It’s for cashflow, not for profits. There’s plenty of meat on the bone for this as a buy and hold deal. We were talking again. When you look at that, there are five different ways to make money on buy and hold. People were talking for a while when the hedge funds first came into town and started buying properties, people could not believe what they were paying for these properties. What they’re missing out on and a lot of times people thought that the hedge funds are going to come in. They’re going to eventually leave. They couldn’t believe what people were paying for the properties. What they were paying on is based on the amount of rent that can be produced on a particular property. They weren’t buying off of the cap rate or anything like that. What they were recognizing is their prices had fallen like $160,000 house had fallen to like $145,000. Now if you buy a house for $150,000. It’s appraised at $180,000. Maybe it needs $5,000 in repairs. What I would say is that’s what a lot of people were looking for that shouldn’t exist.
It’s not a unicorn. It’s a rhino in disguise.
Let’s say that that’s the case. Now you’re all in for $155,000, but it’s worth $180,000. If I come by the next door to it, you’re now at comp at $155,000. Now I buy the same house next door for $160,000 and it doesn’t need any work. I’ve paid a little bit more than you. Yours need $5,000 in works. You’re all in for $160,000. I’m all in at $160,000. We’ve paid the same amount. The problem is people typically want to buy at a discount to previous sales. If you’re an investor, you buy at a discount to the $180,000. You pay $160,000 or $155,000. Now I want to buy a discount to your $155,000. I want to $140,000. Now you want to buy the next house at a discount to buy $140,000.
When does that stop? Where it stops is when people can raise $500 million at a time or $100 million or whatever the amount is when the hedge funds that can raise money cheaply, step in and go, “At that price, that’s a good deal even if I paid retail.” Because that retail is a discount, so I would argue that anything that’s ever bought or sold on the marketplace like in stock is always bought at retail because you’re always buying it the market price. You can’t buy at a discount to the market. We buy at a discount to the market because we technically don’t, but we do.
In the macro, technically we always buy right at the market but looking at it on a paper.
The problem is when you buy a property that doesn’t say it’s worth $150,000 if it’s all fixed up. Let’s say it needs $30,000 of the work. The marketplace says that they’re not willing to pay. No one is typically willing to pay $120,000 for a house that needs $30,000 of the works.
You just go get the $150,000 that was already ready.
Because it takes work. It takes time, money, energy and effort. We have to be rewarded for doing that extra labor. Who gets the deal? It’s whoever is willing to get paid the least amount of money for doing that amount of work. The good news is the more the work needs to be done, the bigger that discount to be.
There are fewer people that are willing to buy it. It’s like when people say, “I’m looking for more of a make ready rehab. I don’t want any major, roofs, foundations.” You’re competing with so many people.
I’ve talked with a lady last week that she and her husband are the flippers. They had a house right now. They bought a relatively small house years ago. They got a good deal on it. They moved into it. They’ve been doing a lot of the work themselves. Her husband is a master plumber. He doesn’t still do that. He’s in a job. They’re having some babies and they need more space. They were looking at the house in Alvin as a do-it-yourself project. I’m like, “First off, it’s not a flip play,” although this is not what we teach. If you’re going to live there, could you buy it and pay a little bit more than a buy and hold guy? Is still equity there? Yes, there is. There absolutely is.
I’ve met some people that they move into a house and fix it up themselves. There are some great stories that come from that thing. It’s a long-term process because it takes you so long to get so many done. Those folks that you’re talking about, I was in the room when you were on the phone with them. That was their first one. They were still in it. They hadn’t sold it yet. They were already claiming to be an investor in flipping. It doesn’t count as a flip until you’ve flipped out of it. You got to sell it. Otherwise, it’s still a single-family home. Even if you buy it with some captured equity and live in it, that doesn’t make you an investor. That makes you a home buyer that got a good deal.
When we’re looking at buying whole properties, if we’re able to go out and get a property at 70% minus repairs and we turn around and sell it at 85% or 90% minus repairs, then we’re making that 15% or 20% spread because we’re the ones doing the work. What people don’t realize is there’s a marketing expense that we have. It’s between $5,000 and $7,000 per house. There’s also an acquisition cost that’s involved there. You’ve got to have skilled salespeople. There’s the time that’s involved as well in terms of analyzing. Right now, we’ve got holding cost. We had closing costs when we bought the property because we closed on this. We own it now. You’re not going to be able to get a buy and hold property from a wholesaler at 70% minus repairs.
I wouldn’t even argue that you shouldn’t be looking for flip properties at 70% from a wholesaler because to me that devalues what the wholesaler brings to the market. If you are doing your own marketing sales and you can be good enough at that to get a deal at 70% minus repairs, you have all kinds of costs that go into that: overhead, sales costs, marketing costs. All these things that go into you acquiring that property so you can get it at 70%.If you set a goal in mind but don't know where you are now, you can’t deploy the resources and time and come up with a plan. Click To Tweet
It’s not just the cost. It’s the skill set as well.
The worst the skill set, the more it costs because it’s going to take you that much longer to get that deal at 70% and that’s why you’re in the market going, “There are no deals,” because you’re waiting for that 70% deal. Where does the wholesale get their value if you’re not willing to transfer the money in time that you would’ve spent acquiring the deal yourself at 70%, and given the spread to the wholesaler? You should not be expecting to buy a deal from a wholesaler at 70%.
Even when you do buy, if you’re doing it all yourself, if you count for all your costs, if you’re buying at 70% minus repairs and you calculate your marketing costs and your time for acquiring it, you’re above 70% minus repairs yourself, which is fine. Most people don’t understand where 70% minus repairs comes from. Where do we teach where 70% minus repairs comes from? It’s a lending rule. We teach it at the Wealth Through Real Estate Workshop. We also teach it even longer, we go into more detail at the Wealth Through Real Estate Academy. Why Right Path teaches this is to help people become wealthy through real estate. That’s why we call it Wealth Through Real Estate Workshop and the Wealth Through Real Estate Academy. Most people would have to tell you is they’re stuck not getting the results that they want moving towards retirement. We help people get unstuck. We see a lot of people that will do buy and hold investing and because of the way they do it, they get 15%, 16%, 70% rates of return.
We see people that will do real estate the way that seems intuitive. They’ll buy a piece of property. They’ll typically buy the wrong price range because there’s a good price range, there’s an okay price range and then a not so good price range for buying buy and hold. That’s number one. In my opinion, you’ve got to buy the best price range if you want to maximize your returns. When you look at it is if you’re doing things to get 15%, 16%, 17% rates of returns, that’s good. If you could do the exact same thing, make 25%, 30%, 35%, 40% rates of return or more. It reminds me of that comedian is like, “That’ 17% seems more. How do I sign up?” We can teach people. If you want to make a 17% rate of return, we can teach that.
We can also show you how to, small changes, 25%, 30%, 35%, 40% and more. What people don’t realize is that most people are making decisions about their real estate investing not based on what rate of return can they get. What they have is a lack of capital. In other words, they want to make $1 million a year, but they’re starting with $50,000. That’s challenging to do. I’m not saying it’s not impossible, but it’s challenging to do. Imagine that you can take somebody that has $300,000 in their 401(k) or $400,000 in their 401(k). How long would it take for that through the 401(k) process to get to $1 million? If you stay using a 401(k), like you’ve got $300,000 or $400,000 in a 401(k), and you want that to become $1 million, how many years does it typically take for $300,000 or $400,000 to turn into $1 million in the current 401(k)?
If you can maintain 7%?
I would argue it’s fifteen to twenty years.
At least barring nothing happens, if North Korea doesn’t get out of line.
I would say we could show you a plan of how you could cut that down into seven years or less. I feel like I’m being ultra conservative. How do we do that? Where we start talking about this is our Wealth Through Real Estate Workshop. We cover a huge chunk of what we’re talking about in only an hour. Do I teach you everything that I know about real estate in an hour? No, I can’t possibly do that. Can I teach you all the things about how to estimate rehabs, how to find deals, how to fund deals, how to analyze deals? I can’t teach you all of that, but I can teach you whether you’re experienced or you’re a brand-new beginner, way more than you would dream possible in an hour’s time.
In fact, one of the things that we talk about in the Wealth Through Real Estate Workshop is to start dreaming again. In fact, it’s interesting. I went out on an appointment. It’s fascinating because I didn’t make an offer because what I realize is part of the conversation is she wasn’t ready to receive an offer yet. When I said, “Assume that we get to a number that we both agree on, what happens next?” She goes, “I need to think it over.” I got a little bit deeper in it and what I realized is that she doesn’t know what she’s going to do next once she sells the house.” She didn’t have another place to live. She doesn’t know where she wants to live.
She’s got some other issues. She’s close to retiring from her job, but she’s not going to be done working. She’s being forced based on her age and years of service into retiring. She’s got a good income. She’ll have a good pension. She’ll go out and get a second job. She’ll have a chunk from this house. She’s got a lot of things going for her. I started inviting her to dream again. I gave her a homework assignment, “I want you to dream about what you want a year from now to look like.” She goes, “I haven’t done that in so long.” I go, “It’s going to be painful at first because it’s like flexing a muscle.” If you want to register for free for our Wealth Through Real Estate workshops, go to RightPathRealEstate.com. Go free of charge to the Wealth Through Real Estate events tab and register for the event.