I’m astounded when I hear other real estate investors tell me that they don’t read their local, daily paper.
You don’t read your local, daily paper?
Don’t you realize what’s in there?
Information about your local market! Stories on your local economy. Trends in your marketplace. Important real estate data and statistics. Not to mention the classified ads, loaded with people who want to sell their homes (“homes for sale”) and people who want to buy houses, i.e. other investors (“wanted to buy” section).
I know an extremely successful, fulltime investor (30+ years) who shared with me once one of his secrets for finding deals. He admitted that one of his best buying avenues was the classified section of his local paper.
“Hal,” he said, “they all want to sell their house. All in one spot. Cheap. With their phone numbers to boot!”
Now, as this investor would admit, they aren’t all motivated sellers. But, in his 30+ years of experience, there was always at least one motivated seller hidden in the sections, and, usually, there was more than one. When he wasn’t getting deals from other sources, he picked up the phone and, starting from the top to the bottom, made the calls to unearth the motivated sellers.
If these deals are there, right under all our noses, why don’t more folks pursue this approach?
Because it’s hard. It’s not easy. It involves cold-calling. It involves hearing 99 “Nos” before you hear one “Yes”. And most of us don’t want to take the time, or the abuse, to get to that one lead.
But it works. And it’s all right there, for pennies a day, in your local paper.
The second publication I think everyone should read weekly is the magazine Businessweek. I love Businessweek. It will help you to see the larger movements and the big picture of our national, and international, economies. This is highly relevant.
If my local market is trending in one direction, it’s incredibly important (and helpful) to know how this trend relates to our larger economy. Is my market bucking the trend? Ahead of the trend? Behind the trend?
If I’m in a seller’s market, for example, is most of the country experiencing that, too? If the rest of the country is in a buyer’s market, is my market heading there too? If so, should I switch my current investing strategies? Is this a good time to sell, and prepare for a buyer’s market? Etc.
Business week will help you understand the national context of your local market (which you will learn about from your local, daily paper).
Businessweek is invaluable in another respect, too. It focuses on well and poorly performing businesses.
All of us, no matter what the investing strategies we employ, should seek to run our real estate investing activities like a business (as opposed to a sloppy hobby, an experiment, or a “wing and a prayer” get-rich-quick scheme). One way to learn how to do that is by reading about other businesses, and other managers, who seek to do the same with their own enterprises. You can learn a lot by their mistakes and successes.
Personally, I curl up with my Businessweek with a pen in hand and mark the heck out of every page. I read the articles with these questions in mind:
How can this information help me in my businesses?
What can I learn from these trends, successes, and mistakes, and apply to my businesses?
Take notes. Make connections. Jot down ideas. You’ll be surprised how a story on Intel and semi-conductors can be highly relevant to your landlording activities, for example.
Read your local paper daily for the local knowledge it can give you, in addition to the other benefits. Read Businessweek to stay on top of the national trends, and to learn about the successes and failures of other businesses. They are two cheap, quick ways to keep your finger on the pulse of your local and national economy. Any real CEO would have it no other way.
Sunday, June 21, 2009
Triple Your Income in the Next 12 Months
We all have choices in life. We can spend our lives making a living or we can choose to make some real money. Unfortunately, most people choose to make a living. They don't take time and spend their lives walking over the dollars to get to the dimes. Most real estate investors are no different.
Oh sure, you've decided to either increase your income on a part-time basis or you've quit your job and taken the full-time plunge. So what! All that means is you've decided to take control of your own financial future and make things happen. I'm proud of you if you have made that choice. But wait! Before you pat yourself on the back and your head swells up like a basketball, answer this question: Are you running your business with blinders on?
I mean are you so narrowly focused on one little piece of the business that you're letting the real money fly right on by? Most people get started in real estate and learn one or two ways to make money. Then they spend ten or twenty years doing the same stupid things over and over. Oh sure, most make good money and others do exceptionally well. But what saddens me the most is, in all my years of training in this business, I've only seen a handful of sharp entrepreneurs really grasp the big picture. Most are so content making a good living that they miss the most profitable part of the business.
Let's look at the big picture and what you can do to triple your income in the next twelve months.
Four Ways to Profit
There are four basic ways to profit as an investor. The way to make the most money the fastest is to use all four. Don't get so narrowly focused on one that you miss out on the real money.
* Wholesaling
* Retailing
* Lease Options
* Creating No-Qualifying Financing
Of course, these ways have several offspring and variations, but these are the big four (assuming you're not holding for the long term). Even if you are, your exit strategy will fall into one of the big four unless you exchange or die.
Wholesaling
Wholesaling is finding bargains and quickly passing them on to bargain hunters. The house usually needs to be rehabbed and the buyer is willing to do the rehab. The buyer then retails to the consumer or lives in it. The plan is to find the bargain, tie it up with a purchase contract, then quickly sell. The profit comes from doing a simultaneous closing with the buyer who brings to the closing a few thousand dollars more than you agreed to pay the seller. Many of my students make over $20,000 per month doing nothing but wholesaling.
Retailing
Retailing is getting these same houses fixed up and sold to owner/occupants through new financing. Most beginners look at investing through this window. Conventional wisdom says the way to make money is to either buy, fix, and resell or to keep and rent. If you've ever heard me speak, you know how I feel about conventional wisdom. It's almost always wrong. However, in this case I agree, there is real money in retailing and renting. But you see, here is something you'll never learn from conventional wisdom that can only come from a battle-scarred warrior who's learned the hard way. This one lesson alone could make the difference between success and failure. Do not do any repairs or become a long-term landlord your first year in business. How does that stack up to conventional wisdom? You've been told by all your real estate courses and investor buddies that the best thing to do is rush out and buy a rental property or a fixer-upper. You know what? Even though that's the last thing I want you to do, I'd still prefer it to doing nothing.
However, before you do, let me briefly make my case and see if you agree with me. First, let's look at why you want to do either. Your reason for buying and selling a fixer-upper is to make some cash within the next few months. If that's your objective, why on earth would you want to begin with the hardest way? And believe me, it is. Retailing is a lot of work and takes time. A lot can go wrong, especially for a beginner. You have to buy the house, raise the money, hire a contractor, and then the hard part--find a qualified buyer. If you attempt this without the proper training, I assure you you'll get those battle scars I mentioned earlier. What's my problem with rental property in the first year? The answer is simple: you're not ready yet. The only real reason to own rental property is to build wealth. The real money is in the equity. But what's your rush? The first lesson I learned in my early days was:
Take care of today's cash flow needs before worrying about getting rich. Let's get the bills paid and get out of debt before we start building an empire. "I'll create a cash flow I can live on in my early days as a landlord." If you think this is the case, take a current landlord to lunch and ask him/her where all the money goes from rentals. You won't like the answer. I suggest you wait. Learn the ropes before you take an ugly seminar. Give yourself a year to learn the which components make a good "keeper." Find out how and where to buy properly. Get a feel for the business. If you don't, your education will come from all those investors who bought incorrectly and are trying to sell you their stupid mistakes. You'll learn the ropes all right. Unfortunately, one might be tightening around your neck. This lesson holds true whether you retail a house or rent it. Both are good reasons for getting in the business, but neither is a good place to start.
Back to the big picture. I would like to see you in the business, not just the junker or rental side. You must expand your horizons; take off the blinders. There's more to life than cheap, ugly houses.
Lease Options
Lease options deal with pretty houses in lovely neighborhoods in all price ranges. They have nothing to do with contractors, raising money, and taking big risks. They're fast, relatively easy, and produce just as much money, or more, as retailing houses. Most investors let these go by because junkers are all they can see.
No-Qualifying Financing
Another solution is creating no-qualifying financing. Between these two you can literally do many times the deals you're currently doing and probably not need to generate any more leads. Most of your income should come from pretty houses. The big money is in the art of creating Multiple Offer Strategies, not fixing houses. That's why you're shooting yourself in the foot every time you let a potential pretty house deal go by because you never learned how to capitalize on it. Your job is to take information you get from the seller and create as many solutions as possible to solve his/her problems and create a profit center for you.
When you do this, you'll be in the top 1/2% of those who qualify as "transaction engineers." In the process you'll eliminate your competition. In fact, you could easily make $250,000 per year from their leftovers. So, get out of the box and see yourself as an entrepreneur who truly understands the business, not just a rehabber or a landlord. I don't care how hard you work at the wholesale and retail business, you can never reach your full potential. You must expand your horizons to learn and practice the pretty side--the profitable side.
You Won't Get Rich with Junkers
No matter how good you get with junkers, you'll never make more than 30% of your potential. There are three reasons. The junker business revolves around low-price properties, while the pretty house business has no upper price cap. In fact, I prefer the higher prices. It just stands to reason when you deal in bigger dollars, more of them will be left over for you. When you get paid from wholesaling or retailing, you get one check and you're out. Not true for lease options and no-qualifying financing deals. They create multiple streams of income that keep coming in, whether you're still out there working or not. You do the job once and get paid over and over. There are more pretty houses than ugly ones. Obviously, the part of the market that provides the biggest supply of houses warrants the most attention. When you learn to capitalize on the big supply, not just the uglies, your income will skyrocket. Yes, I know it sounds like I have something against the junker business. But that's not true. I love to make something pretty from something ugly. I began and prospered in junkers and still work them to this day. But I grew up...
Taking Off the Blinders
Several years ago I discovered the rest of the story and took off my blinders. I'm only suggesting you do the same. It's just a marginal shift from what you may be doing now. If all you want is a good income and you're happy in your comfort zone, then please don't let me disturb you. I'll allow you to settle with whatever failure rate you want. It's your life, your family, and the income you're willing to accept. At least you have the freedom of running your own business and you're the boss, right?
What the heck, you're making more than you did in your old job. When you get out of bed in the morning you're already at the office. No traffic hassles, no time clocks and no lay-offs. Look, you can convince yourself you're doing great. Maybe even your family and friends are fooled, but not this old war horse. I have too many students making too much money to accept anything less. If you're not growing, you're dying. Is it time to get to the next level and start treating this as the extremely profitable business it is? If you've been dealing in junkers for a while, the answer is yes. Become a transaction engineer now. It will take a while to learn the business, but it's worth it.
Oh sure, you've decided to either increase your income on a part-time basis or you've quit your job and taken the full-time plunge. So what! All that means is you've decided to take control of your own financial future and make things happen. I'm proud of you if you have made that choice. But wait! Before you pat yourself on the back and your head swells up like a basketball, answer this question: Are you running your business with blinders on?
I mean are you so narrowly focused on one little piece of the business that you're letting the real money fly right on by? Most people get started in real estate and learn one or two ways to make money. Then they spend ten or twenty years doing the same stupid things over and over. Oh sure, most make good money and others do exceptionally well. But what saddens me the most is, in all my years of training in this business, I've only seen a handful of sharp entrepreneurs really grasp the big picture. Most are so content making a good living that they miss the most profitable part of the business.
Let's look at the big picture and what you can do to triple your income in the next twelve months.
Four Ways to Profit
There are four basic ways to profit as an investor. The way to make the most money the fastest is to use all four. Don't get so narrowly focused on one that you miss out on the real money.
* Wholesaling
* Retailing
* Lease Options
* Creating No-Qualifying Financing
Of course, these ways have several offspring and variations, but these are the big four (assuming you're not holding for the long term). Even if you are, your exit strategy will fall into one of the big four unless you exchange or die.
Wholesaling
Wholesaling is finding bargains and quickly passing them on to bargain hunters. The house usually needs to be rehabbed and the buyer is willing to do the rehab. The buyer then retails to the consumer or lives in it. The plan is to find the bargain, tie it up with a purchase contract, then quickly sell. The profit comes from doing a simultaneous closing with the buyer who brings to the closing a few thousand dollars more than you agreed to pay the seller. Many of my students make over $20,000 per month doing nothing but wholesaling.
Retailing
Retailing is getting these same houses fixed up and sold to owner/occupants through new financing. Most beginners look at investing through this window. Conventional wisdom says the way to make money is to either buy, fix, and resell or to keep and rent. If you've ever heard me speak, you know how I feel about conventional wisdom. It's almost always wrong. However, in this case I agree, there is real money in retailing and renting. But you see, here is something you'll never learn from conventional wisdom that can only come from a battle-scarred warrior who's learned the hard way. This one lesson alone could make the difference between success and failure. Do not do any repairs or become a long-term landlord your first year in business. How does that stack up to conventional wisdom? You've been told by all your real estate courses and investor buddies that the best thing to do is rush out and buy a rental property or a fixer-upper. You know what? Even though that's the last thing I want you to do, I'd still prefer it to doing nothing.
However, before you do, let me briefly make my case and see if you agree with me. First, let's look at why you want to do either. Your reason for buying and selling a fixer-upper is to make some cash within the next few months. If that's your objective, why on earth would you want to begin with the hardest way? And believe me, it is. Retailing is a lot of work and takes time. A lot can go wrong, especially for a beginner. You have to buy the house, raise the money, hire a contractor, and then the hard part--find a qualified buyer. If you attempt this without the proper training, I assure you you'll get those battle scars I mentioned earlier. What's my problem with rental property in the first year? The answer is simple: you're not ready yet. The only real reason to own rental property is to build wealth. The real money is in the equity. But what's your rush? The first lesson I learned in my early days was:
Take care of today's cash flow needs before worrying about getting rich. Let's get the bills paid and get out of debt before we start building an empire. "I'll create a cash flow I can live on in my early days as a landlord." If you think this is the case, take a current landlord to lunch and ask him/her where all the money goes from rentals. You won't like the answer. I suggest you wait. Learn the ropes before you take an ugly seminar. Give yourself a year to learn the which components make a good "keeper." Find out how and where to buy properly. Get a feel for the business. If you don't, your education will come from all those investors who bought incorrectly and are trying to sell you their stupid mistakes. You'll learn the ropes all right. Unfortunately, one might be tightening around your neck. This lesson holds true whether you retail a house or rent it. Both are good reasons for getting in the business, but neither is a good place to start.
Back to the big picture. I would like to see you in the business, not just the junker or rental side. You must expand your horizons; take off the blinders. There's more to life than cheap, ugly houses.
Lease Options
Lease options deal with pretty houses in lovely neighborhoods in all price ranges. They have nothing to do with contractors, raising money, and taking big risks. They're fast, relatively easy, and produce just as much money, or more, as retailing houses. Most investors let these go by because junkers are all they can see.
No-Qualifying Financing
Another solution is creating no-qualifying financing. Between these two you can literally do many times the deals you're currently doing and probably not need to generate any more leads. Most of your income should come from pretty houses. The big money is in the art of creating Multiple Offer Strategies, not fixing houses. That's why you're shooting yourself in the foot every time you let a potential pretty house deal go by because you never learned how to capitalize on it. Your job is to take information you get from the seller and create as many solutions as possible to solve his/her problems and create a profit center for you.
When you do this, you'll be in the top 1/2% of those who qualify as "transaction engineers." In the process you'll eliminate your competition. In fact, you could easily make $250,000 per year from their leftovers. So, get out of the box and see yourself as an entrepreneur who truly understands the business, not just a rehabber or a landlord. I don't care how hard you work at the wholesale and retail business, you can never reach your full potential. You must expand your horizons to learn and practice the pretty side--the profitable side.
You Won't Get Rich with Junkers
No matter how good you get with junkers, you'll never make more than 30% of your potential. There are three reasons. The junker business revolves around low-price properties, while the pretty house business has no upper price cap. In fact, I prefer the higher prices. It just stands to reason when you deal in bigger dollars, more of them will be left over for you. When you get paid from wholesaling or retailing, you get one check and you're out. Not true for lease options and no-qualifying financing deals. They create multiple streams of income that keep coming in, whether you're still out there working or not. You do the job once and get paid over and over. There are more pretty houses than ugly ones. Obviously, the part of the market that provides the biggest supply of houses warrants the most attention. When you learn to capitalize on the big supply, not just the uglies, your income will skyrocket. Yes, I know it sounds like I have something against the junker business. But that's not true. I love to make something pretty from something ugly. I began and prospered in junkers and still work them to this day. But I grew up...
Taking Off the Blinders
Several years ago I discovered the rest of the story and took off my blinders. I'm only suggesting you do the same. It's just a marginal shift from what you may be doing now. If all you want is a good income and you're happy in your comfort zone, then please don't let me disturb you. I'll allow you to settle with whatever failure rate you want. It's your life, your family, and the income you're willing to accept. At least you have the freedom of running your own business and you're the boss, right?
What the heck, you're making more than you did in your old job. When you get out of bed in the morning you're already at the office. No traffic hassles, no time clocks and no lay-offs. Look, you can convince yourself you're doing great. Maybe even your family and friends are fooled, but not this old war horse. I have too many students making too much money to accept anything less. If you're not growing, you're dying. Is it time to get to the next level and start treating this as the extremely profitable business it is? If you've been dealing in junkers for a while, the answer is yes. Become a transaction engineer now. It will take a while to learn the business, but it's worth it.
Tips For Developing Real Estate Technician Skills
If you're a serious real estate investor, one of the best things you can do is work towards becoming knowledgeable in what we call Real Estate Technician skills. To review, a real estate technician is someone who understands the legal documents and flow of paperwork that accompanies a real estate transfer, or more technically, a conveyance.
There are many types of transfers: Legal title, equitable title, a real estate interest like an option, a leasehold transfer, assignment (transfer) of note or some other contractual interest. A real estate technician also has the knowledge to draft basic real estate documents like deeds, notes, assignments, options, and a host of other documents. The technician will use his own research and the aid of various legal form software to handle his documents, but he always is smart enough to have a knowledgeable lawyers or title company professional to review his work, especially in the early phases of his experience.
The Power of This Skill
You may wonder why learning this stuff matters. Here's why: You are in a much better position to understand distressed real estate opportunities when they appear. You'll be much better at sizing up the deal, like pronto quick. Many distress deals involve time deadlines. I've done deals in as quickly as 2 days. Also, there's a very hidden profit center in the fact that many on the low-end properties you come across have old liens that can be negotiated away or left on the property to see what happens. This game is not for amateurs or the uninitiated. There truly are hidden secrets.
Title Searching
Another skill a technician should be able to employ is title searching. When buying and selling distressed properties, being able to quickly and thoroughly check out a title is critical. If you come upon a fantastic deal, you should have the knowledge and checklist for checking to make sure the title is as the seller has represented it. Of all the different phases of being a technician, this area is the one that probably requires the most knowledge and double-checking. If you misinterpret the title search or just plain miss a lien, it can get ugly. I make it a point to use this on the little junker houses, and not for the big money deals like buying a large piece of ground or apartment complex. In these cases, definitely hire someone who has experience and an insurance policy if they screw the deal up. In any case, if money is involved and your not comfortable with the process, get a pro to research your title and make sure his or her results match yours. I have already done a quick search to make sure the deal really is as the seller said, then I sometimes hire out a second search to confirm my search.
Form File
My first tip is to start collecting forms and real estate documents. Set up a small form file in a file drawer. Have one for each of these categories: Deeds, notes, options, leases, assignments, mortgages and trust deeds, and miscellaneous forms. These forms can be filled out or blanks.
Start Asking Questions
Make a list of all the real estate legal type questions you don't understand and start asking more questions at your real estate closings. Ask the title agent or lawyer how such and such works, so that you begin understanding the process. Ask what if questions. Be careful when asking other investors or even governmental employees who don't know what they're talking about. Recently I spoke with one investor who bought a house at a state sheriff sale; one of the deputies gave him wrong information on lien property and it probably is going to cost him about $40,000. Dumb. Don't play in the major leagues if you're still learning the rules of the game. Investors are notorious for not knowing what's going on too! Be doubly careful when one of the old-timers from the investment club or barber shop says it can't be done!
Small Book Collection
Invest a few dollars in the next couple of years buying real estate law books for your state. Also, purchase a Black's Law Dictionary. This is almost a must. The dictionary will help you translate the hidden code in the legal garble. Our book, The Hidden Secrets of a Real Estate Technician is another book you should consider having since it is the only book on the market for real estate investors that explains the conveyancing and legal documents around real estate. This book is truly one of a kind. Very detailed compared to much of the rubbish on the market.
Learn Basic Legal Research
This is an important skill that you can master. I wouldn't ask you to get into reading a lot of court citations, but there are numerous shortcut methods to quickly and easily learn your state's law on a matter. In a very brief nutshell, there are state bar practice manuals that in many cases provide a nice review of the topics in questions. Typically, they have one on judgements and liens that should get you started along with using your Legal Dictionary. Tip: if you're not ready or can't afford to buy a legal dictionary yet, a good quality (large and comprehensive) dictionary will typically provide the legal meaning for a work. Some legal words have a non-legal meaning; therefore, the dictionary will give you both meanings, regular, and legal.
In summary, this isn't an arena for amateurs or simple-minded folk. Get started by getting a small file started. Ask other investors for forms. Attend meeting at investment clubs. Ask lots of questions even if you think there dumb or basic. Invest some money in some books (Avoid the overpriced, rip-off course that costs thousands). Visit the courthouse and ask the clerks to show you the basics of finding who owns a property and check out how much they paid from the deed. Check out a prospective deal you are buying by trying your own search, and then get your title company to research the title again. Compare results. I decided many years ago to learn this information and it's some of the best time and money I spent. I've saved several thousand in document prep fees and when I have used a lawyer I was able to clearly understand him and supervise to boot!
There are many types of transfers: Legal title, equitable title, a real estate interest like an option, a leasehold transfer, assignment (transfer) of note or some other contractual interest. A real estate technician also has the knowledge to draft basic real estate documents like deeds, notes, assignments, options, and a host of other documents. The technician will use his own research and the aid of various legal form software to handle his documents, but he always is smart enough to have a knowledgeable lawyers or title company professional to review his work, especially in the early phases of his experience.
The Power of This Skill
You may wonder why learning this stuff matters. Here's why: You are in a much better position to understand distressed real estate opportunities when they appear. You'll be much better at sizing up the deal, like pronto quick. Many distress deals involve time deadlines. I've done deals in as quickly as 2 days. Also, there's a very hidden profit center in the fact that many on the low-end properties you come across have old liens that can be negotiated away or left on the property to see what happens. This game is not for amateurs or the uninitiated. There truly are hidden secrets.
Title Searching
Another skill a technician should be able to employ is title searching. When buying and selling distressed properties, being able to quickly and thoroughly check out a title is critical. If you come upon a fantastic deal, you should have the knowledge and checklist for checking to make sure the title is as the seller has represented it. Of all the different phases of being a technician, this area is the one that probably requires the most knowledge and double-checking. If you misinterpret the title search or just plain miss a lien, it can get ugly. I make it a point to use this on the little junker houses, and not for the big money deals like buying a large piece of ground or apartment complex. In these cases, definitely hire someone who has experience and an insurance policy if they screw the deal up. In any case, if money is involved and your not comfortable with the process, get a pro to research your title and make sure his or her results match yours. I have already done a quick search to make sure the deal really is as the seller said, then I sometimes hire out a second search to confirm my search.
Form File
My first tip is to start collecting forms and real estate documents. Set up a small form file in a file drawer. Have one for each of these categories: Deeds, notes, options, leases, assignments, mortgages and trust deeds, and miscellaneous forms. These forms can be filled out or blanks.
Start Asking Questions
Make a list of all the real estate legal type questions you don't understand and start asking more questions at your real estate closings. Ask the title agent or lawyer how such and such works, so that you begin understanding the process. Ask what if questions. Be careful when asking other investors or even governmental employees who don't know what they're talking about. Recently I spoke with one investor who bought a house at a state sheriff sale; one of the deputies gave him wrong information on lien property and it probably is going to cost him about $40,000. Dumb. Don't play in the major leagues if you're still learning the rules of the game. Investors are notorious for not knowing what's going on too! Be doubly careful when one of the old-timers from the investment club or barber shop says it can't be done!
Small Book Collection
Invest a few dollars in the next couple of years buying real estate law books for your state. Also, purchase a Black's Law Dictionary. This is almost a must. The dictionary will help you translate the hidden code in the legal garble. Our book, The Hidden Secrets of a Real Estate Technician is another book you should consider having since it is the only book on the market for real estate investors that explains the conveyancing and legal documents around real estate. This book is truly one of a kind. Very detailed compared to much of the rubbish on the market.
Learn Basic Legal Research
This is an important skill that you can master. I wouldn't ask you to get into reading a lot of court citations, but there are numerous shortcut methods to quickly and easily learn your state's law on a matter. In a very brief nutshell, there are state bar practice manuals that in many cases provide a nice review of the topics in questions. Typically, they have one on judgements and liens that should get you started along with using your Legal Dictionary. Tip: if you're not ready or can't afford to buy a legal dictionary yet, a good quality (large and comprehensive) dictionary will typically provide the legal meaning for a work. Some legal words have a non-legal meaning; therefore, the dictionary will give you both meanings, regular, and legal.
In summary, this isn't an arena for amateurs or simple-minded folk. Get started by getting a small file started. Ask other investors for forms. Attend meeting at investment clubs. Ask lots of questions even if you think there dumb or basic. Invest some money in some books (Avoid the overpriced, rip-off course that costs thousands). Visit the courthouse and ask the clerks to show you the basics of finding who owns a property and check out how much they paid from the deed. Check out a prospective deal you are buying by trying your own search, and then get your title company to research the title again. Compare results. I decided many years ago to learn this information and it's some of the best time and money I spent. I've saved several thousand in document prep fees and when I have used a lawyer I was able to clearly understand him and supervise to boot!
Three Essential Ingredients
Over my twenty-plus years of investing, teaching and writing in the field of real estate and discounted mortgage investment, I've come to some conclusions as to what is required for success. Countless times I have wondered why two seemingly capable individuals have totally different experiences. One is very successful and one is caught in the "paralysis of analysis." One approaches investment like a pitbull on acid and another is frozen by fear. One is enjoying prosperity and sipping on exotic wine and the other just "whines."
What is the difference? Why do some get so caught up in the education drug that they fill their garage with home study courses, but can't fill their car with gas? Over the years I've watched the "winners" and what makes them successful. I've struggled trying to please and educate the "whiners" encountering primarily frustration - until I found the key about 12 years ago.
As I've incorporated the three elements I identified into my seminar trainings, the success ratio of my students has skyrocketed. Most of the world and seminars focus on the least important element only. A few make some attempts to address the second element. You are fighting a forest fire with a squirt gun if you don't deal with the most important third element.
"If you think education is expensive, try ignorance"
Education is the first element and 10% of what is needed for success. I would never underplay education and I don't regret the 30-40 thousand I have spent in cold hard cash on education. Proper education gives you the tools and can help with confidence and creative options and solutions. Education is not enough. You can take every seminar or home study course on discounted mortgages and not make a cent.
A Team and Resources
This second element is at least twice as important as your education (20%). At first you will need a team to cover your weaknesses and inadequacies. Once you have the knowledge and experience, you need a team to multiply your efforts and use your talents to their best and most profitable abilities. When a proper team is in place, your liabilities are covered and you will not be as likely to be paralyzed by fear. (Who should be on your team and how to build it, is a topic for another article.)
"I see only the objective, the obstacle must give way"
Napoleon had an attitude of success. He had "Intention." Any great leader or business person has this essential ingredient. It goes way beyond listening to PMA (positive mental attitude) tapes and motivational seminars. No doubt, there is some value there. For many, they can also be frustrating, self-defeating and counter productive because it is only a part of what is needed.
You have to address several factors in addition to thinking more positively. Your conscious mind and attitude are only the tip of the iceberg. Try to move or steer an iceberg by grabbing a hold of the tip. Not possible, but exactly what people try to do mentally and emotionally.
Other elements are far more important. These are "limiting beliefs", "emotional blocks" and "self-defeating behaviors." Deal with these and life will change. Prosperity can flow, relationships will be abundant and you will realize your dreams.
Limiting Beliefs
"Argue your limitations and they are yours forever."
Limiting beliefs are beliefs imposed by your "un-conscious" mind. You don't have a lot of control here, they just are. Some are easier to spot like "I'm not a good singer" or "I'm no good at public speaking" or "Big dogs want to eat me... and little ones will try too." Other limiting beliefs affect all areas of your life, especially financially. Finances reflect all your beliefs about self-worth and scarcity in your life and the world. You can choose to believe in "Economic alchemy" or in "allocation of scarce resources."
You won't make a penny over what you feel you are worth or deserve. You may not be conscious of these types of beliefs but there is a way to learn what they are, where they came from and how to alter them.
Emotional Blocks
Stephen Covey made a couple statements that summarize this area well:
* All sin is outward manifestation of inner turmoil.
* Unexpressed emotions never die, they just manifest themselves in uglier and uglier ways.
* If you try to strangle an emotion, it struggles for life. If you let it live, it dies in the birth process.
The emotions, both the ones you term good as well as the ones you would consider bad that are in a sense stuck inside you influence your every action and all aspects of your life.
Self-Defeating Behaviors
Actually, self-defeating behaviors are just a manifestation of the other two factors. Becoming aware of and dealing with these behaviors can aid you in identifying beliefs and blocks that stand between you and success. You can fight the behavior or identify the root. Fighting the behavior will not in the long run make much of a difference. The roots are the simple key and easy to deal with.
Goals Can be Extremely Self-Defeating and Useless
Once you deal with the areas we just talked about, then the "iceberg" is easy to steer and success can be yours. You can learn to set goals properly. Very, very few know how to do this.
Most "goal" educators set you up to fail. There is a powerful way to look at goals and in particular "INTENTION" that makes a major difference and works. Never set a goal again that you are not absolutely certain you can and will achieve. Just don't do it. Don't set it if you aren't willing to do what it takes.
By the way, if you aren't aware of your purpose and values, it is nearly impossible to set proper goals. You are fighting an incredible battle if you set a goal in conflict with these inner beliefs that you do have.
What is the difference? Why do some get so caught up in the education drug that they fill their garage with home study courses, but can't fill their car with gas? Over the years I've watched the "winners" and what makes them successful. I've struggled trying to please and educate the "whiners" encountering primarily frustration - until I found the key about 12 years ago.
As I've incorporated the three elements I identified into my seminar trainings, the success ratio of my students has skyrocketed. Most of the world and seminars focus on the least important element only. A few make some attempts to address the second element. You are fighting a forest fire with a squirt gun if you don't deal with the most important third element.
"If you think education is expensive, try ignorance"
Education is the first element and 10% of what is needed for success. I would never underplay education and I don't regret the 30-40 thousand I have spent in cold hard cash on education. Proper education gives you the tools and can help with confidence and creative options and solutions. Education is not enough. You can take every seminar or home study course on discounted mortgages and not make a cent.
A Team and Resources
This second element is at least twice as important as your education (20%). At first you will need a team to cover your weaknesses and inadequacies. Once you have the knowledge and experience, you need a team to multiply your efforts and use your talents to their best and most profitable abilities. When a proper team is in place, your liabilities are covered and you will not be as likely to be paralyzed by fear. (Who should be on your team and how to build it, is a topic for another article.)
"I see only the objective, the obstacle must give way"
Napoleon had an attitude of success. He had "Intention." Any great leader or business person has this essential ingredient. It goes way beyond listening to PMA (positive mental attitude) tapes and motivational seminars. No doubt, there is some value there. For many, they can also be frustrating, self-defeating and counter productive because it is only a part of what is needed.
You have to address several factors in addition to thinking more positively. Your conscious mind and attitude are only the tip of the iceberg. Try to move or steer an iceberg by grabbing a hold of the tip. Not possible, but exactly what people try to do mentally and emotionally.
Other elements are far more important. These are "limiting beliefs", "emotional blocks" and "self-defeating behaviors." Deal with these and life will change. Prosperity can flow, relationships will be abundant and you will realize your dreams.
Limiting Beliefs
"Argue your limitations and they are yours forever."
Limiting beliefs are beliefs imposed by your "un-conscious" mind. You don't have a lot of control here, they just are. Some are easier to spot like "I'm not a good singer" or "I'm no good at public speaking" or "Big dogs want to eat me... and little ones will try too." Other limiting beliefs affect all areas of your life, especially financially. Finances reflect all your beliefs about self-worth and scarcity in your life and the world. You can choose to believe in "Economic alchemy" or in "allocation of scarce resources."
You won't make a penny over what you feel you are worth or deserve. You may not be conscious of these types of beliefs but there is a way to learn what they are, where they came from and how to alter them.
Emotional Blocks
Stephen Covey made a couple statements that summarize this area well:
* All sin is outward manifestation of inner turmoil.
* Unexpressed emotions never die, they just manifest themselves in uglier and uglier ways.
* If you try to strangle an emotion, it struggles for life. If you let it live, it dies in the birth process.
The emotions, both the ones you term good as well as the ones you would consider bad that are in a sense stuck inside you influence your every action and all aspects of your life.
Self-Defeating Behaviors
Actually, self-defeating behaviors are just a manifestation of the other two factors. Becoming aware of and dealing with these behaviors can aid you in identifying beliefs and blocks that stand between you and success. You can fight the behavior or identify the root. Fighting the behavior will not in the long run make much of a difference. The roots are the simple key and easy to deal with.
Goals Can be Extremely Self-Defeating and Useless
Once you deal with the areas we just talked about, then the "iceberg" is easy to steer and success can be yours. You can learn to set goals properly. Very, very few know how to do this.
Most "goal" educators set you up to fail. There is a powerful way to look at goals and in particular "INTENTION" that makes a major difference and works. Never set a goal again that you are not absolutely certain you can and will achieve. Just don't do it. Don't set it if you aren't willing to do what it takes.
By the way, if you aren't aware of your purpose and values, it is nearly impossible to set proper goals. You are fighting an incredible battle if you set a goal in conflict with these inner beliefs that you do have.
There’s More to Building Wealth than Clipping Coupons
We talked recently about the wealth formula: Spend less than you earn and save the difference. Initially, you may have to cut back to “find” the money to save. Start there if you must. The next step is to learn how to invest your money powerfully. Recently, I took my stepdaughter to the bank to open her first savings account. We agreed that every week; for so long as she was living under our roof, she would take 50% of her pay check and deposit it into a savings account. Then I explained the power of compound interest to her and how her principle would grow each and every month.
Have you seen interest rates, lately? It’s sad. The bank was offering 1% interest on her savings. Of course, at that rate, no one is going to get wealthy. What kind of rates of return do you get on your investments? Mutual funds pay about 5%. A little better, but not very impressive. The stock market yields about 12% over time. That’s a little better. But there are much faster ways to grow your wealth than that.
Tax liens, for example yield 16% - 24% and are fully secured by the U.S. Government. Active trading can return 30%-50% - so can real estate investing. I’ve done pre-construction deals that brought 50%-100% rates of return. And of course, if you leverage yourself by using OPM (other people’s money) your rates of return go through the roof. You’ve got to start learning about what’s available “outside the box” in terms of investments. High returns don’t have to mean high risk. Like most things in life, a little bit of prudence greatly increases the safety factor. There is no way to build wealth that is 100% risk –free. But you can learn to effectively manage your risks and keep them to an acceptable level.
Have you seen interest rates, lately? It’s sad. The bank was offering 1% interest on her savings. Of course, at that rate, no one is going to get wealthy. What kind of rates of return do you get on your investments? Mutual funds pay about 5%. A little better, but not very impressive. The stock market yields about 12% over time. That’s a little better. But there are much faster ways to grow your wealth than that.
Tax liens, for example yield 16% - 24% and are fully secured by the U.S. Government. Active trading can return 30%-50% - so can real estate investing. I’ve done pre-construction deals that brought 50%-100% rates of return. And of course, if you leverage yourself by using OPM (other people’s money) your rates of return go through the roof. You’ve got to start learning about what’s available “outside the box” in terms of investments. High returns don’t have to mean high risk. Like most things in life, a little bit of prudence greatly increases the safety factor. There is no way to build wealth that is 100% risk –free. But you can learn to effectively manage your risks and keep them to an acceptable level.
The Very Last Resort: Bankruptcy
Over the last ten years, consumer debt has doubled in the United States prompting 1.6 million Americans to file for bankruptcy in 2004 (USA Today). President George W. Bush has signed the biggest rewrite of US bankruptcy law in a quarter of a century, making it harder for debt-ridden Americans to wipe out their obligations. Bankruptcy is at an all-time high right now because people see it as an easy way out. I know first-hand the appeal of this "easy way out." In Rich Dad’s Prophecy, I explain how in 1979, I was thirty-two years old and struggling to keep my business above water. My rich dad taught me a valuable lesson about taking responsibility for my actions and fulfilling my obligations.
My rich dad said, "Take responsibility for your actions. Avoid bankruptcy at all costs." My nylon and Velcro surfer wallet business had taken off faster than expected. In only a few years, we were a big company with a sales force of over 380 independent sales reps in the United States alone. The problem was that we had a world-wide product, but we were a small-time company with a young, incompetent management team. When success and incompetence meet, disaster is not far away. I was up to my ears in mistakes, buried by my own personal incompetence.
I had always thought of myself as a good, honest person... yet under pressure, the character that emerged was the person who betrayed those that trusted me. I was about to default on paying my employees and their payroll taxes. I was using my employees’ money to keep the company afloat. My rich dad had been my teacher since I was nine years old. He was a very loving and caring man, but when he was angry... he was not a polite man...
"Why don’t you face the truth? You and the three clowns you call partners have mismanaged your business... you don’t know what you’re doing... you’re incompetent... and worst of all, you don’t have the guts to admit any of this. You guys are pretending to look like businesspeople... but when I look at your financials, you boys are either crooks or clowns. I hope you’re clowns... but if you don’t make some changes, you clowns will become crooks."
"There is nothing wrong with admitting you’re incompetent. But there is plenty wrong with lying and pretending you know what you’re doing. Lying and pretending you know what you are doing is a bad habit. If you want to be rich and successful, you need to learn to tell the truth quicker, ask for help quicker, and be more humble. The world is filled with arrogant poor people, educated and uneducated… people who cannot admit they do not know something. The world is filled with people who go through life pretending they are smart… and that makes them stupid. If you want to learn quickly, the first step is to admit quickly you do not know something."
I was over a million dollars in debt. I had two choices. My rich dad often said to me that inside each of us is a cast of characters. Inside each of us is a kind person, a mean person, a greedy person, a rich person, a poor person, a coward, a crook, a hero, a liar, a cheapskate, a loser, and more. He constantly reminded me that growing up was a process of choosing which person we wanted to become... which person we wanted to draw out of all the cast of characters available. To Rich Dad, a person’s choice of character was far more important than a person’s choice of profession.
"When it comes to money, the world is filled with cowards. Money has a way of bringing out the coward... more than the hero... and that may be why there are so few truly rich people. Money also has a way of bringing out the cheat and the crook in some people... and that is why our jails keep filling up. Money also has a way of bringing out the betrayer... the person who will steal from those that love and thrust them... and when you 'borrowed' from your employees, that is the character you were choosing to become. Crooks and cowards are one thing... but becoming a person who betrays those that trust you is one of the most despicable of all characters available to all of us."
Truth and honesty are not always pleasant and this dose of truth and honesty was very unpleasant... yet necessary. I realized that in my desperation to save my company, I had chosen to betray those that trusted me. This was a deeply painful lesson, a lesson I would always remember. I had two choices. I could continue to be a coward, crook, and betrayer and eventually file bankruptcy, or I could step up to my responsibilities and obligations. I shut the business down and liquidated the remaining assets. I paid all the money I owed to our suppliers, our investors, the government and our employees. It wasn’t easy.
My rich dad later told me, "Although painful, because of the way you chose to handle this business failure, this painful short period of time will someday become the basis of your long-term financial wealth. If you had run and lied, your financial future would probably be a coward’s future... because if you had run, you would have been letting the coward in you determine your future."
My rich dad was right.
If you have gotten yourself into debt...
Take Responsibility
If you have gotten yourself into debt, you need to take responsibility to get yourself out of debt. Get the counseling you need, look at ways to reduce your debt and increase your revenue to be able to pay off the debt that you incurred. Simply put, it’s an act of responsibility.
Determine How You Got There
Take a long look at where you are and how you got there. Be willing and humble enough to learn from your mistakes. Each failure will show you what you don’t know and what you need to learn... and that learning experience will lead to your next success.
Bounce Back
It took you a while to get where you are (in debt/ in deep debt), and it will take you a while to bounce back. Remember that the painful short-term will someday become the basis of your long-term financial wealth.
My rich dad said, "Take responsibility for your actions. Avoid bankruptcy at all costs." My nylon and Velcro surfer wallet business had taken off faster than expected. In only a few years, we were a big company with a sales force of over 380 independent sales reps in the United States alone. The problem was that we had a world-wide product, but we were a small-time company with a young, incompetent management team. When success and incompetence meet, disaster is not far away. I was up to my ears in mistakes, buried by my own personal incompetence.
I had always thought of myself as a good, honest person... yet under pressure, the character that emerged was the person who betrayed those that trusted me. I was about to default on paying my employees and their payroll taxes. I was using my employees’ money to keep the company afloat. My rich dad had been my teacher since I was nine years old. He was a very loving and caring man, but when he was angry... he was not a polite man...
"Why don’t you face the truth? You and the three clowns you call partners have mismanaged your business... you don’t know what you’re doing... you’re incompetent... and worst of all, you don’t have the guts to admit any of this. You guys are pretending to look like businesspeople... but when I look at your financials, you boys are either crooks or clowns. I hope you’re clowns... but if you don’t make some changes, you clowns will become crooks."
"There is nothing wrong with admitting you’re incompetent. But there is plenty wrong with lying and pretending you know what you’re doing. Lying and pretending you know what you are doing is a bad habit. If you want to be rich and successful, you need to learn to tell the truth quicker, ask for help quicker, and be more humble. The world is filled with arrogant poor people, educated and uneducated… people who cannot admit they do not know something. The world is filled with people who go through life pretending they are smart… and that makes them stupid. If you want to learn quickly, the first step is to admit quickly you do not know something."
I was over a million dollars in debt. I had two choices. My rich dad often said to me that inside each of us is a cast of characters. Inside each of us is a kind person, a mean person, a greedy person, a rich person, a poor person, a coward, a crook, a hero, a liar, a cheapskate, a loser, and more. He constantly reminded me that growing up was a process of choosing which person we wanted to become... which person we wanted to draw out of all the cast of characters available. To Rich Dad, a person’s choice of character was far more important than a person’s choice of profession.
"When it comes to money, the world is filled with cowards. Money has a way of bringing out the coward... more than the hero... and that may be why there are so few truly rich people. Money also has a way of bringing out the cheat and the crook in some people... and that is why our jails keep filling up. Money also has a way of bringing out the betrayer... the person who will steal from those that love and thrust them... and when you 'borrowed' from your employees, that is the character you were choosing to become. Crooks and cowards are one thing... but becoming a person who betrays those that trust you is one of the most despicable of all characters available to all of us."
Truth and honesty are not always pleasant and this dose of truth and honesty was very unpleasant... yet necessary. I realized that in my desperation to save my company, I had chosen to betray those that trusted me. This was a deeply painful lesson, a lesson I would always remember. I had two choices. I could continue to be a coward, crook, and betrayer and eventually file bankruptcy, or I could step up to my responsibilities and obligations. I shut the business down and liquidated the remaining assets. I paid all the money I owed to our suppliers, our investors, the government and our employees. It wasn’t easy.
My rich dad later told me, "Although painful, because of the way you chose to handle this business failure, this painful short period of time will someday become the basis of your long-term financial wealth. If you had run and lied, your financial future would probably be a coward’s future... because if you had run, you would have been letting the coward in you determine your future."
My rich dad was right.
If you have gotten yourself into debt...
Take Responsibility
If you have gotten yourself into debt, you need to take responsibility to get yourself out of debt. Get the counseling you need, look at ways to reduce your debt and increase your revenue to be able to pay off the debt that you incurred. Simply put, it’s an act of responsibility.
Determine How You Got There
Take a long look at where you are and how you got there. Be willing and humble enough to learn from your mistakes. Each failure will show you what you don’t know and what you need to learn... and that learning experience will lead to your next success.
Bounce Back
It took you a while to get where you are (in debt/ in deep debt), and it will take you a while to bounce back. Remember that the painful short-term will someday become the basis of your long-term financial wealth.
The Salesman Who Doesn't Believe in His Product
Many years ago I worked for one of those large national real estate brokerage firms selling real estate. This was not my introduction to the real estate business, since I had been investing in buildings and property since 1984. My trainer was an older but highly successful real estate agent. One of the things he shared with me and the other trainee was the fact he had consistently earned over $10,000 per month for the past ten years. He drove a Corvette, was divorced, and owned one property--his residence. If my math is correct, he grossed somewhere in the area of $1,200,000 in ten years. That is right, somewhere in the area of one to one and a half million dollars had gone through his business hands in those working years.
While this individual was a talented agent who had built a nice customer following, I had to ask myself--Why hadn't he ever invested in the great product of real estate? It certainly could not have been an income problem. Even if that excuse were used, we all know 90-100% of a deal can be leveraged. I didn't know for sure, but this skilled agent gave me the impression he didn't have much money. He had income, but very little capital. It could have been that his divorce cleaned him out, financially speaking. Divorce is a major estate and wealth destroyer. (It is worth noting, the author of the book, The Millionaire's Mind, shows most millionaires have been married only once.)
With all of the benefits that accrue to real estate ownership, I am surprised by folks involved in the buying and selling of property on a daily basis who own no real estate. It is an enigma. Let's count some of the benefits:
1. Discounts andinstant equity earned when buying
2. Principle pay down on mortgage, monthly
3. Appreciation--unknown upside potential
4. Rehab and fix-up profits in terms of new equities
5. Forced savings plan (can't sell or tap equity as easy as more liquid investments)
6. Special capital gains and write-off advantages
7. Ability to pyramid gains with 1031 tax free exchanges
8. INCOME: RENTS
9. Ability to grow net worth with no tax unless you sell
10. Easy to purchase with leverage
I recently got an email from a company selling some real estate course. The main selling feature seemed to be his rant against being a landlord. It was almost like landlords are dumb because there are much smarter ways to make money. Again, this seems odd to me. Real estate is one of the greatest investments in the world. Why wouldn't I want to actually OWN it?
Buying and selling definitely has its place. But owning real estate is where you grow equity for the future. Contrary to all of the myths out there--owning real estate is where large estates are created. I am not ashamed to own property. Ownership, i.e., rental income is where freedom comes into being. It won't happen overnight, but give it 5-10 years with hard work, and you will launch yourself into a newfound freedom. I know it's hard for impetuous North Americans to think long term.
Back when I was fresh out of high school, I helped a friend and his family move. They had been renters all of their life. In fact, I estimate they had been renting for at least 25-years when I helped them move from one rental house to the next. The thing I remember is the totality of their life was in that moving truck that day. You see they didn't own any property; other than some worn out furniture and clothing--they had no equity. The sad thing was being long-term renters guaranteed them a life of virtual poverty. The bottom line: When you don't OWN real estate, it is extremely difficult to accumulate any net worth.
I will conclude with this. Years ago at our family business, there was a salesman who worked for one of our suppliers. He serviced our account (sold us Gibson appliances wholesale). He was one of the most honorable and decent guys you could ever meet. He was about 60-years old--about the same age as the real estate salesman mentioned above. He dressed very modestly, drove an average (boring) car. He looked like a regular, middle-class guy. His regular life was being a farmer. He did the sales job just for some spending money and to keep busy. As I got to know him, he disclosed that he owned 48 acres of farmland in a very up and coming area about 30 minutes from our business. THE POINT: The guy is a multi-millionaire--about 2 million. WHY? BECAUSE HE OWNED REAL ESTATE OVER A LONG TERM OF TIME! Real estate salesman who looks rich and who doesn't own his product, or a "poor" farmer? I'll take the farmer.
While this individual was a talented agent who had built a nice customer following, I had to ask myself--Why hadn't he ever invested in the great product of real estate? It certainly could not have been an income problem. Even if that excuse were used, we all know 90-100% of a deal can be leveraged. I didn't know for sure, but this skilled agent gave me the impression he didn't have much money. He had income, but very little capital. It could have been that his divorce cleaned him out, financially speaking. Divorce is a major estate and wealth destroyer. (It is worth noting, the author of the book, The Millionaire's Mind, shows most millionaires have been married only once.)
With all of the benefits that accrue to real estate ownership, I am surprised by folks involved in the buying and selling of property on a daily basis who own no real estate. It is an enigma. Let's count some of the benefits:
1. Discounts andinstant equity earned when buying
2. Principle pay down on mortgage, monthly
3. Appreciation--unknown upside potential
4. Rehab and fix-up profits in terms of new equities
5. Forced savings plan (can't sell or tap equity as easy as more liquid investments)
6. Special capital gains and write-off advantages
7. Ability to pyramid gains with 1031 tax free exchanges
8. INCOME: RENTS
9. Ability to grow net worth with no tax unless you sell
10. Easy to purchase with leverage
I recently got an email from a company selling some real estate course. The main selling feature seemed to be his rant against being a landlord. It was almost like landlords are dumb because there are much smarter ways to make money. Again, this seems odd to me. Real estate is one of the greatest investments in the world. Why wouldn't I want to actually OWN it?
Buying and selling definitely has its place. But owning real estate is where you grow equity for the future. Contrary to all of the myths out there--owning real estate is where large estates are created. I am not ashamed to own property. Ownership, i.e., rental income is where freedom comes into being. It won't happen overnight, but give it 5-10 years with hard work, and you will launch yourself into a newfound freedom. I know it's hard for impetuous North Americans to think long term.
Back when I was fresh out of high school, I helped a friend and his family move. They had been renters all of their life. In fact, I estimate they had been renting for at least 25-years when I helped them move from one rental house to the next. The thing I remember is the totality of their life was in that moving truck that day. You see they didn't own any property; other than some worn out furniture and clothing--they had no equity. The sad thing was being long-term renters guaranteed them a life of virtual poverty. The bottom line: When you don't OWN real estate, it is extremely difficult to accumulate any net worth.
I will conclude with this. Years ago at our family business, there was a salesman who worked for one of our suppliers. He serviced our account (sold us Gibson appliances wholesale). He was one of the most honorable and decent guys you could ever meet. He was about 60-years old--about the same age as the real estate salesman mentioned above. He dressed very modestly, drove an average (boring) car. He looked like a regular, middle-class guy. His regular life was being a farmer. He did the sales job just for some spending money and to keep busy. As I got to know him, he disclosed that he owned 48 acres of farmland in a very up and coming area about 30 minutes from our business. THE POINT: The guy is a multi-millionaire--about 2 million. WHY? BECAUSE HE OWNED REAL ESTATE OVER A LONG TERM OF TIME! Real estate salesman who looks rich and who doesn't own his product, or a "poor" farmer? I'll take the farmer.
The Power Of Appreciation
As we enter this holiday season, and this time of giving Thanks, we are reminded of the “power of appreciation”. If you truly want to bring into your life everything that you desire, then start with appreciating all that you have now. Here’s how it works – you bring into your life whatever it is that you focus your thoughts upon. So, if you focus on all the lack in your life, you get more lack. But if you focus appreciation on all that you have, you get more of what you want.
We’re often asked: "But how can I appreciate not having something?" Our response is that your desires are the life-blood running through your veins. You always have new desires. You’ll never fulfill them all, because no sooner is one fulfilled that ten more are born. It’s what keeps you alive. Can you imagine living each day with the thought that you have already fulfilled every desire? That there is nothing else to achieve? Of course not. There would be no purpose to life. So desires are not the lack of something; they are the promise of what is yet to come. How exciting! All that you want - you’ll have.
Knowing that there is no lack – only desires yet to be fulfilled, you can relax, appreciate, and enjoy all that is already in your life. If you want to be happier, and fulfill your desires even quicker, try this exercise: take a few moments several times a every day to notice and appreciate some of the things in your life that you would miss if they were no longer in your experience. For instance, you might appreciate the home in which you live, the electricity which powers your house, the softness of your bed, the laugh of your loved ones, the sounds around you, the multitude of colors, the smell of Thanksgiving and Christmas dinner cooking, the PC on which you’re working. When you realize the importance these experiences play in your life, and the void their absence would make, it is easy to feel appreciative of all that you have.
Don’t mistake that we’re saying settle for what you have. To the contrary, we’re saying enjoy what you have, while fully anticipating the fulfillment of all you desire. The point is to fully appreciate everything you have, which will lead to experiencing everything you want.
We’re often asked: "But how can I appreciate not having something?" Our response is that your desires are the life-blood running through your veins. You always have new desires. You’ll never fulfill them all, because no sooner is one fulfilled that ten more are born. It’s what keeps you alive. Can you imagine living each day with the thought that you have already fulfilled every desire? That there is nothing else to achieve? Of course not. There would be no purpose to life. So desires are not the lack of something; they are the promise of what is yet to come. How exciting! All that you want - you’ll have.
Knowing that there is no lack – only desires yet to be fulfilled, you can relax, appreciate, and enjoy all that is already in your life. If you want to be happier, and fulfill your desires even quicker, try this exercise: take a few moments several times a every day to notice and appreciate some of the things in your life that you would miss if they were no longer in your experience. For instance, you might appreciate the home in which you live, the electricity which powers your house, the softness of your bed, the laugh of your loved ones, the sounds around you, the multitude of colors, the smell of Thanksgiving and Christmas dinner cooking, the PC on which you’re working. When you realize the importance these experiences play in your life, and the void their absence would make, it is easy to feel appreciative of all that you have.
Don’t mistake that we’re saying settle for what you have. To the contrary, we’re saying enjoy what you have, while fully anticipating the fulfillment of all you desire. The point is to fully appreciate everything you have, which will lead to experiencing everything you want.
Sunday, June 14, 2009
The Power Of Appreciation
As we enter this holiday season, and this time of giving Thanks, we are reminded of the “power of appreciation”. If you truly want to bring into your life everything that you desire, then start with appreciating all that you have now. Here’s how it works – you bring into your life whatever it is that you focus your thoughts upon. So, if you focus on all the lack in your life, you get more lack. But if you focus appreciation on all that you have, you get more of what you want.
We’re often asked: "But how can I appreciate not having something?" Our response is that your desires are the life-blood running through your veins. You always have new desires. You’ll never fulfill them all, because no sooner is one fulfilled that ten more are born. It’s what keeps you alive. Can you imagine living each day with the thought that you have already fulfilled every desire? That there is nothing else to achieve? Of course not. There would be no purpose to life. So desires are not the lack of something; they are the promise of what is yet to come. How exciting! All that you want - you’ll have.
Knowing that there is no lack – only desires yet to be fulfilled, you can relax, appreciate, and enjoy all that is already in your life. If you want to be happier, and fulfill your desires even quicker, try this exercise: take a few moments several times a every day to notice and appreciate some of the things in your life that you would miss if they were no longer in your experience. For instance, you might appreciate the home in which you live, the electricity which powers your house, the softness of your bed, the laugh of your loved ones, the sounds around you, the multitude of colors, the smell of Thanksgiving and Christmas dinner cooking, the PC on which you’re working. When you realize the importance these experiences play in your life, and the void their absence would make, it is easy to feel appreciative of all that you have.
Don’t mistake that we’re saying settle for what you have. To the contrary, we’re saying enjoy what you have, while fully anticipating the fulfillment of all you desire. The point is to fully appreciate everything you have, which will lead to experiencing everything you want.
We’re often asked: "But how can I appreciate not having something?" Our response is that your desires are the life-blood running through your veins. You always have new desires. You’ll never fulfill them all, because no sooner is one fulfilled that ten more are born. It’s what keeps you alive. Can you imagine living each day with the thought that you have already fulfilled every desire? That there is nothing else to achieve? Of course not. There would be no purpose to life. So desires are not the lack of something; they are the promise of what is yet to come. How exciting! All that you want - you’ll have.
Knowing that there is no lack – only desires yet to be fulfilled, you can relax, appreciate, and enjoy all that is already in your life. If you want to be happier, and fulfill your desires even quicker, try this exercise: take a few moments several times a every day to notice and appreciate some of the things in your life that you would miss if they were no longer in your experience. For instance, you might appreciate the home in which you live, the electricity which powers your house, the softness of your bed, the laugh of your loved ones, the sounds around you, the multitude of colors, the smell of Thanksgiving and Christmas dinner cooking, the PC on which you’re working. When you realize the importance these experiences play in your life, and the void their absence would make, it is easy to feel appreciative of all that you have.
Don’t mistake that we’re saying settle for what you have. To the contrary, we’re saying enjoy what you have, while fully anticipating the fulfillment of all you desire. The point is to fully appreciate everything you have, which will lead to experiencing everything you want.
The Only Three Reasons To Be In Real Estate
There are only three reasons to be in Real Estate. If any one tells you any differently, then they don’t understand real estate investing.
The three reasons to be in real estate are Cash Now, Cash Monthly and Cash Later. Let’s take a closer look at each one of them.
Cash Now. Let’s face it, we need money to live and pay the bills. With out this cash we would have to go back and work for “the man”. If you’re not a full time investor, this is a reason why a lot of people are afraid to quit their job and work for themselves.
Cash now is the money that you get from “Flipping” properties. Whether it be from Wholesaling, Rehabbing, Subject To, Lease Option or Pre-Foreclosures we need the cash from each of these investing models to put food on our tables and clothes on ours (and our children’s) backs.
Cash Now is good. Having rehabbed over 450 properties in just a seven year period, (I use each of the above methods to acquire my properties) I’m used to those big checks coming in. But then I realized that if I didn’t continue to get Cash Now through flipping properties, then I would not have any cash coming in at all. Which meant I was not as free as I thought I was.
So I changed my strategy. While those big rehab checks were coming in, I put some of money in my account so that I could live, and then I started to put the rest of the money in Apartment Houses.
Owning smaller Apartment Houses is virtually the same as investing in single family houses. If you’re doing your marketing, you run across Apartment Houses all the time. If you are like most investors, you probably just ignore them and continue to search for the next single family deal.
Apartment houses will give you greater Cash Monthly. In just a short time, you can build yourself a substantial passive monthly income just from your apartment houses. That’s how Robert Kyosaki does it in Rich Dad/Poor Dad.
Cash monthly will give you freedom. Freedoms to do what ever you want when you want. I’m not telling you to stop buying and flipping single family houses, that’s Cash Now. I’m saying to get Cash Monthly (apartment houses), use some of your Cash Now (single family flips) and buy yourself some freedom!
Pretty soon you will be building an empire. You’ll have enough Cash Monthly to be able to take a month off in the summer or what ever else your freedom desires! If you were only flipping single family houses and you took a month off in the summer, you wouldn’t have any income coming in.
Do You See How Cash Monthly Will Give You Freedom?
You can get some Cash Monthly from owning single family houses long term but not as much and not as fast as owning smaller apartment houses. And it’s a lot riskier to have all of your money in single family houses.
What happens if you lose your tenant in your single family house? You loose all of your income. You’re going to have to dip into your own savings to pay the mortgage until you get a new tenant. That hurts!
If you loose a tenant in a three family house, you’ve only lost one third of your income. The other two floors will cover your mortgage until you get another tenant. That’s just one of many reasons that owning small apartment houses is smarter that owning single family houses, but that’s another article all together.
Now that you have Cash Now and Cash Monthly, Cash Later takes care of itself. It comes when you sell, exchange or refinance those apartment houses somewhere in the future.
You see, with apartment houses you have an appreciating asset. No only is it appreciating every month but your tenants are paying off your mortgage. So between the appreciation and the mortgage pay down, your equity just gets bigger and bigger!
You can sell your property and get a boat load of cash. If it’s creating a lot of Cash Monthly, you may want to keep those checks coming in. If so then you will want refinance to get you cash out.
Not 100% of your cash, which will only get you in trouble. You should take out about 75% of your cash leaving 25% equity in the building, that way if there is a down turn in the market, your protected. Not only that, at 75%, you should still have a decent positive cash flow. Did you know that you do not pay tax on any of the money that you take out during a refinance?
Now take that money and go buy some more apartment houses and get some more Cash Monthly! In doing so, these apartment houses will start appreciating and the tenants will begin to pay down your mortgage for you. You’ve just increased your net worth because you have increasing equity in one or two more buildings instead of the building that you started with.
Can you see how your empire is being created? Can you see how it can be created in a short time? Holding single family houses will make you money. Holding apartment houses will make filthy stinking rich! Which do you prefer?
The three reasons to be in real estate are Cash Now, Cash Monthly and Cash Later. Let’s take a closer look at each one of them.
Cash Now. Let’s face it, we need money to live and pay the bills. With out this cash we would have to go back and work for “the man”. If you’re not a full time investor, this is a reason why a lot of people are afraid to quit their job and work for themselves.
Cash now is the money that you get from “Flipping” properties. Whether it be from Wholesaling, Rehabbing, Subject To, Lease Option or Pre-Foreclosures we need the cash from each of these investing models to put food on our tables and clothes on ours (and our children’s) backs.
Cash Now is good. Having rehabbed over 450 properties in just a seven year period, (I use each of the above methods to acquire my properties) I’m used to those big checks coming in. But then I realized that if I didn’t continue to get Cash Now through flipping properties, then I would not have any cash coming in at all. Which meant I was not as free as I thought I was.
So I changed my strategy. While those big rehab checks were coming in, I put some of money in my account so that I could live, and then I started to put the rest of the money in Apartment Houses.
Owning smaller Apartment Houses is virtually the same as investing in single family houses. If you’re doing your marketing, you run across Apartment Houses all the time. If you are like most investors, you probably just ignore them and continue to search for the next single family deal.
Apartment houses will give you greater Cash Monthly. In just a short time, you can build yourself a substantial passive monthly income just from your apartment houses. That’s how Robert Kyosaki does it in Rich Dad/Poor Dad.
Cash monthly will give you freedom. Freedoms to do what ever you want when you want. I’m not telling you to stop buying and flipping single family houses, that’s Cash Now. I’m saying to get Cash Monthly (apartment houses), use some of your Cash Now (single family flips) and buy yourself some freedom!
Pretty soon you will be building an empire. You’ll have enough Cash Monthly to be able to take a month off in the summer or what ever else your freedom desires! If you were only flipping single family houses and you took a month off in the summer, you wouldn’t have any income coming in.
Do You See How Cash Monthly Will Give You Freedom?
You can get some Cash Monthly from owning single family houses long term but not as much and not as fast as owning smaller apartment houses. And it’s a lot riskier to have all of your money in single family houses.
What happens if you lose your tenant in your single family house? You loose all of your income. You’re going to have to dip into your own savings to pay the mortgage until you get a new tenant. That hurts!
If you loose a tenant in a three family house, you’ve only lost one third of your income. The other two floors will cover your mortgage until you get another tenant. That’s just one of many reasons that owning small apartment houses is smarter that owning single family houses, but that’s another article all together.
Now that you have Cash Now and Cash Monthly, Cash Later takes care of itself. It comes when you sell, exchange or refinance those apartment houses somewhere in the future.
You see, with apartment houses you have an appreciating asset. No only is it appreciating every month but your tenants are paying off your mortgage. So between the appreciation and the mortgage pay down, your equity just gets bigger and bigger!
You can sell your property and get a boat load of cash. If it’s creating a lot of Cash Monthly, you may want to keep those checks coming in. If so then you will want refinance to get you cash out.
Not 100% of your cash, which will only get you in trouble. You should take out about 75% of your cash leaving 25% equity in the building, that way if there is a down turn in the market, your protected. Not only that, at 75%, you should still have a decent positive cash flow. Did you know that you do not pay tax on any of the money that you take out during a refinance?
Now take that money and go buy some more apartment houses and get some more Cash Monthly! In doing so, these apartment houses will start appreciating and the tenants will begin to pay down your mortgage for you. You’ve just increased your net worth because you have increasing equity in one or two more buildings instead of the building that you started with.
Can you see how your empire is being created? Can you see how it can be created in a short time? Holding single family houses will make you money. Holding apartment houses will make filthy stinking rich! Which do you prefer?
The Importance of Knowing Your Local Real Estate Investing Market
How well do you know your local real estate market? The answer to that question will have a lot to do with whether real estate investing provides a lucrative future for you and your family or rueful memories of what might have been.
By knowing your local real estate investing market, you’re able to keep your finger on the pulse of your local community and to stay abreast of changes in trends, sales prices and rental rates. Knowing immediately about these changes is critical to your investing future. Here’s how each of these three areas will affect your future:
Trends – National media outlets report gloom and doom outlooks for real estate, but even in the most depressed real estate market there are isolated pockets and neighborhoods with property values that are increasing. If you don't know your local real estate market, you're simply taking a wild guess as to value. When negotiating with a homeowner, it's imperative that you know what the property is worth. Otherwise, you run the risk of overpaying or offering too little, which could offend the property owner and get you kicked to the curb with your hat in your hand.
Another reason you want to know your local real estate market is because certain areas within a given community make better investments than others. If you invest your hard-earned dollars in an area that is declining, property values could fall and some or all of your investment could be at risk. By keeping an eye on trends within your local real estate market, you can more readily take advantage of opportunities to get in on the ground floor of an investment and ride the wave of property appreciation, which will have a positive impact on your bank account.
Sales prices - How much is property worth in your local real estate market? Do you have a clue? You need to be cognizant of local sales prices -- especially now -- because property values can change very rapidly. In today's volatile investing environment, it's not unusual for the value of a property to fluctuate by $10,000-$15,000 in a given month. If you have a property that you're considering selling, you can gain or lose a tremendous amount of money in no time.
Rental rates - Current knowledge of your local investing climate is imperative when determining what rental rates are in a particular neighborhood. If you do a cash flow analysis on a property and you assume that it will rent for $1,500 per month and in reality it will only generate $1,100, you could have a problem, especially if you were anticipating a positive monthly cash flow of $200. If the rent a property can command is $400 less than you anticipated, you would have a monthly loss of $200. Negative cash flow sets the stage for a constant drain on your financial resources, and could eventually cause you to rethink your commitment to real estate investing.
Today's real estate investing climate makes accurate and timely information critical to your success. If you don't know your local real estate market, you could be in serious trouble. An excellent way of developing a proper and accurate knowledge of your local market is by trailing an experienced mentor who knows what he or she is doing. In addition to teaching you how to analyze current market conditions, you'll also be able to better understand what to look for in your local real estate market.
Real estate investing is a great way to expand your financial opportunity, but a failure to know and understand all of the variables within your local market can very quickly erode opportunity. Learn your local real estate market and make this your best year ever!
By knowing your local real estate investing market, you’re able to keep your finger on the pulse of your local community and to stay abreast of changes in trends, sales prices and rental rates. Knowing immediately about these changes is critical to your investing future. Here’s how each of these three areas will affect your future:
Trends – National media outlets report gloom and doom outlooks for real estate, but even in the most depressed real estate market there are isolated pockets and neighborhoods with property values that are increasing. If you don't know your local real estate market, you're simply taking a wild guess as to value. When negotiating with a homeowner, it's imperative that you know what the property is worth. Otherwise, you run the risk of overpaying or offering too little, which could offend the property owner and get you kicked to the curb with your hat in your hand.
Another reason you want to know your local real estate market is because certain areas within a given community make better investments than others. If you invest your hard-earned dollars in an area that is declining, property values could fall and some or all of your investment could be at risk. By keeping an eye on trends within your local real estate market, you can more readily take advantage of opportunities to get in on the ground floor of an investment and ride the wave of property appreciation, which will have a positive impact on your bank account.
Sales prices - How much is property worth in your local real estate market? Do you have a clue? You need to be cognizant of local sales prices -- especially now -- because property values can change very rapidly. In today's volatile investing environment, it's not unusual for the value of a property to fluctuate by $10,000-$15,000 in a given month. If you have a property that you're considering selling, you can gain or lose a tremendous amount of money in no time.
Rental rates - Current knowledge of your local investing climate is imperative when determining what rental rates are in a particular neighborhood. If you do a cash flow analysis on a property and you assume that it will rent for $1,500 per month and in reality it will only generate $1,100, you could have a problem, especially if you were anticipating a positive monthly cash flow of $200. If the rent a property can command is $400 less than you anticipated, you would have a monthly loss of $200. Negative cash flow sets the stage for a constant drain on your financial resources, and could eventually cause you to rethink your commitment to real estate investing.
Today's real estate investing climate makes accurate and timely information critical to your success. If you don't know your local real estate market, you could be in serious trouble. An excellent way of developing a proper and accurate knowledge of your local market is by trailing an experienced mentor who knows what he or she is doing. In addition to teaching you how to analyze current market conditions, you'll also be able to better understand what to look for in your local real estate market.
Real estate investing is a great way to expand your financial opportunity, but a failure to know and understand all of the variables within your local market can very quickly erode opportunity. Learn your local real estate market and make this your best year ever!
The Ethical Real Estate Investor
Many people have a very 19th century view of real estate investors. They think that we are modern-day "robber barons" who prey upon distressed or ignorant people, take advantage of them, and laugh all the way to the bank. The truly sad thing is that some real estate investors think this of themselves, and think that in order to get ahead, they must behave unethically. The truth is that, in the long run, it pays to be a scrupulous investor. Do you really expect referrals if you "take advantage" of people? Of course not. Envision yourself as a problem solver and your business will be much more successful - and you'll be able to sleep at night.
Help People With Their Problems
PT Barnum said, "There's a sucker born every minute". But in today's world, "suckers" are a little harder to find. The Internet makes knowledge much more widely available, and people are generally more savvy then they're given credit for. In fact, ignorance is much more likely to err on the side of overpricing a home than underpricing it, and besides, do you really want to make your living by taking advantage of people? Doing so will likely come back to haunt you. Instead, you should focus on finding people with problems. It's your job to help them.
There are thousands of properties across the United States that people desperately want - need - to unload, and they're willing to do so at a discount and with favorable terms. Perhaps the owners have been involved in a divorce, received a job transfer, or they're under a tremendous amount of financial distress. Don't think of yourself as "taking advantage" of the situation. Think of yourself as extending a helping hand. The sellers will be able to detect the difference in your attitude and will respond differently to you. And after all, they need to sell. It's hurting them each day that their home is on the market. If you come along and are able to negotiate mutually agreeable terms, then it is a win-win situation.
Be a Full-Time Problem Solver
The surest path to real estate investment success is to focus solely on helping troubled people solve their problems. Many distressed sellers are embarrassed about their situation, or don't want to tip their hand for fear that you'll take advantage of them. So simply ask the following questions of anyone you find through a classified real estate ad. Why are you selling? When do you need to sell by? What are your plans after you sell? What is the minimum amount of cash you need in your pocket as a result of this deal? What do you plan to do with the proceeds from the sale of your home? If we were to close within a week and I paid cash for the full purchase price, what's the best deal you could give me?
Do not act like an interrogator. Strike up a conversational tone. Truly desperate sellers will be anxious to talk to you. Keep the conversation moving and get all of the information you need. Casually ask the same question in different forms more than once to make sure their story remains consistent. As previously stated, many distressed sellers are embarrassed of their situation. Do your best to make them feel at ease.
You Can't Solve Everyone's'S Problems
There's two requirements for every deal I do with a motivated seller:
1. I make money
2. I solve the seller's problem
If I can't do both, I won't do the deal. This is a good rule to live by, since doing one without the other is not good for your business. If you help the seller and don't make money, you are working for charity (which is fine, but keep it separate from your business). If you make money and don't help the seller, you are a slimeball! Don't waste time on the phone with people who don't need your help. Unmotivated sellers take time away from your real vocation - lending a hand to those who need it. Stick to your principles and you will not only be conducting yourself like a Good Samaritan, you will be building a real estate investment empire in the process.
Help People With Their Problems
PT Barnum said, "There's a sucker born every minute". But in today's world, "suckers" are a little harder to find. The Internet makes knowledge much more widely available, and people are generally more savvy then they're given credit for. In fact, ignorance is much more likely to err on the side of overpricing a home than underpricing it, and besides, do you really want to make your living by taking advantage of people? Doing so will likely come back to haunt you. Instead, you should focus on finding people with problems. It's your job to help them.
There are thousands of properties across the United States that people desperately want - need - to unload, and they're willing to do so at a discount and with favorable terms. Perhaps the owners have been involved in a divorce, received a job transfer, or they're under a tremendous amount of financial distress. Don't think of yourself as "taking advantage" of the situation. Think of yourself as extending a helping hand. The sellers will be able to detect the difference in your attitude and will respond differently to you. And after all, they need to sell. It's hurting them each day that their home is on the market. If you come along and are able to negotiate mutually agreeable terms, then it is a win-win situation.
Be a Full-Time Problem Solver
The surest path to real estate investment success is to focus solely on helping troubled people solve their problems. Many distressed sellers are embarrassed about their situation, or don't want to tip their hand for fear that you'll take advantage of them. So simply ask the following questions of anyone you find through a classified real estate ad. Why are you selling? When do you need to sell by? What are your plans after you sell? What is the minimum amount of cash you need in your pocket as a result of this deal? What do you plan to do with the proceeds from the sale of your home? If we were to close within a week and I paid cash for the full purchase price, what's the best deal you could give me?
Do not act like an interrogator. Strike up a conversational tone. Truly desperate sellers will be anxious to talk to you. Keep the conversation moving and get all of the information you need. Casually ask the same question in different forms more than once to make sure their story remains consistent. As previously stated, many distressed sellers are embarrassed of their situation. Do your best to make them feel at ease.
You Can't Solve Everyone's'S Problems
There's two requirements for every deal I do with a motivated seller:
1. I make money
2. I solve the seller's problem
If I can't do both, I won't do the deal. This is a good rule to live by, since doing one without the other is not good for your business. If you help the seller and don't make money, you are working for charity (which is fine, but keep it separate from your business). If you make money and don't help the seller, you are a slimeball! Don't waste time on the phone with people who don't need your help. Unmotivated sellers take time away from your real vocation - lending a hand to those who need it. Stick to your principles and you will not only be conducting yourself like a Good Samaritan, you will be building a real estate investment empire in the process.
The Choice Is Yours
I came across some interesting figures put out by the Bureau of Statistics and the IRS. Thought maybe some of you would find them interesting, too. Twelve percent of Americans over sixty-five are living, or trying to live, on incomes of less than $5,000. Only four percent of people over sixty-five have annual incomes of $30,000 or more, and only three percent have incomes over $50,000. The average annual salary of a full-time worker with a high school education, is $24,180 ($11.63 hr). For a full-time worker without a high school education, it's $16,848 ($8.10 hr.) It goes on to say that fifty-eight of the working people have taxable incomes of less than $25,000, and only two percent have taxable incomes of $100,000 or more. How could only two percent be making $100,000 or more, while the vast majority is making only $24,000?
It's All in the Choices We Make
The only logical explanation has to be education and knowledge (or maybe I should say the lack of education and lack of knowledge), and the choices we make as we go through life. If you choose to be "average" (and it's your choice), then you will get average results. If "average" is your comfort zone and you're happy living in that zone, good luck. If you're happy working your job, and you're earning all the money you need, congratulations. If your job will provide you with the kind of retirement income and security you want, congratulations again. If not, then you obviously have to get out of your comfort zone, make the necessary effort and commitment and do something the average person doesn't do. Approximately one million workers are being "downsized" (a polite way of saying, "You're fired") each year. For years, many of these people were happy in their comfort zone and failed to learn how to do anymore than what their jobs required. Their choice was to continue doing the same thing they had always done, even though they had the choice and the chance to learn to do better.
Recently, on the evening news, there was a story about a woman being "downsized" after twenty-seven years on the same job. Her job was inspecting TV's coming off the assembly line. For twenty-seven years she was in her comfort zone and did nothing to improve her knowledge or education and learn to do anything different. Is there a lesson to be learned here? As the saying goes "If you continue doing the same thing you've always done, you will continue getting the same thing you've always gotten." (Unless you're "downsized.")
Education and Knowledge
Over the years, Joanne and I have spent thousands and thousands of dollars going to many seminars. Not that we could always afford to go, but rather because we couldn't afford not to go. We had a choice, and our choice was to spend the money to get an education. Being in the two percent bracket is much better than being "average" and in the fifty-eight percent bracket. And we don't have to worry about being "downsized." Education and knowledge doesn't get downsized. (But according to some of our friends, we just got "lucky.") I've heard it said many times that you will pay for your education at some point in your life. And you get to make the choice when you will pay. You can pay when you are young, healthy, and able to work, or you can pay when you are old, sick, broke, and unable to work. The choice is yours. When do you choose to pay for yours?
How Much Does it Cost to Remain Ignorant?
I gave a seminar several years ago, and whenever I think of that seminar, two men instantly come to mind. One was a plumber that called saying he wouldn't be able to attend the seminar, but would like to stop by and buy my books, which he did. He said he sure would like to attend, but he had a plumbing job he just had to do that day. (I never heard from him again.) The other man was about ready to retire from the Marines after twenty-eight years service. He called me about two months after the seminar saying he had done two mobile home deals. He "thought" he did okay, but he didn't really know because he didn't know how to use a calculator. He wanted me to give him a crash course in using one.
After thirty minutes or so on the phone, he got the hang of it and punched in the numbers on one of his deals. In fact, he punched the numbers in several times; he didn't believe the answer he kept getting. After I agreed with his numbers, there was a long pause. Finally he said, "My God, Lonnie. This stuff is scary." The Marine paid $295 to attend that seminar to learn how to make his money do the work, so he wouldn't have to. He learned how to make more money on one deal than he got from a month's pay being a Marine. Now, can you tell me how much it cost that plumber for not attending the seminar? Let's suppose he made $500 on that plumbing job that he just had to do; but how much did he lose by not learning what the Marine learned--making his money do the work? The next day, and probably every day after, he has to do another plumbing job to get a check. The Marine can do a simple mobile home deal and obligate somebody else (maybe a plumber) to send him a check for years.
What's Your Choice?
The records show that ninety-five of the people who reach retirement age will need some kind of help or a part time job in order to live a decent life. Those people had the same opportunities and the same choices to make as we did. They just made the wrong choices. They chose to be "average" all their life. I may be getting old and lazy, but I'm still learning. You might finish school, but you never finish your education. Also, we'll get the chance to spend time with some very good friends and meet some nice people we've never met. You can't put a price on that. So, what will your choice be...the two percent bracket or the fifty-eight percent bracket? When do you chose to pay for your education, now or later? Are you willing to settle for being "average"? The choice is yours, and I hope you make the right one because you will have to live with the results of your choice. The best investment you can make is in yourself.
It's All in the Choices We Make
The only logical explanation has to be education and knowledge (or maybe I should say the lack of education and lack of knowledge), and the choices we make as we go through life. If you choose to be "average" (and it's your choice), then you will get average results. If "average" is your comfort zone and you're happy living in that zone, good luck. If you're happy working your job, and you're earning all the money you need, congratulations. If your job will provide you with the kind of retirement income and security you want, congratulations again. If not, then you obviously have to get out of your comfort zone, make the necessary effort and commitment and do something the average person doesn't do. Approximately one million workers are being "downsized" (a polite way of saying, "You're fired") each year. For years, many of these people were happy in their comfort zone and failed to learn how to do anymore than what their jobs required. Their choice was to continue doing the same thing they had always done, even though they had the choice and the chance to learn to do better.
Recently, on the evening news, there was a story about a woman being "downsized" after twenty-seven years on the same job. Her job was inspecting TV's coming off the assembly line. For twenty-seven years she was in her comfort zone and did nothing to improve her knowledge or education and learn to do anything different. Is there a lesson to be learned here? As the saying goes "If you continue doing the same thing you've always done, you will continue getting the same thing you've always gotten." (Unless you're "downsized.")
Education and Knowledge
Over the years, Joanne and I have spent thousands and thousands of dollars going to many seminars. Not that we could always afford to go, but rather because we couldn't afford not to go. We had a choice, and our choice was to spend the money to get an education. Being in the two percent bracket is much better than being "average" and in the fifty-eight percent bracket. And we don't have to worry about being "downsized." Education and knowledge doesn't get downsized. (But according to some of our friends, we just got "lucky.") I've heard it said many times that you will pay for your education at some point in your life. And you get to make the choice when you will pay. You can pay when you are young, healthy, and able to work, or you can pay when you are old, sick, broke, and unable to work. The choice is yours. When do you choose to pay for yours?
How Much Does it Cost to Remain Ignorant?
I gave a seminar several years ago, and whenever I think of that seminar, two men instantly come to mind. One was a plumber that called saying he wouldn't be able to attend the seminar, but would like to stop by and buy my books, which he did. He said he sure would like to attend, but he had a plumbing job he just had to do that day. (I never heard from him again.) The other man was about ready to retire from the Marines after twenty-eight years service. He called me about two months after the seminar saying he had done two mobile home deals. He "thought" he did okay, but he didn't really know because he didn't know how to use a calculator. He wanted me to give him a crash course in using one.
After thirty minutes or so on the phone, he got the hang of it and punched in the numbers on one of his deals. In fact, he punched the numbers in several times; he didn't believe the answer he kept getting. After I agreed with his numbers, there was a long pause. Finally he said, "My God, Lonnie. This stuff is scary." The Marine paid $295 to attend that seminar to learn how to make his money do the work, so he wouldn't have to. He learned how to make more money on one deal than he got from a month's pay being a Marine. Now, can you tell me how much it cost that plumber for not attending the seminar? Let's suppose he made $500 on that plumbing job that he just had to do; but how much did he lose by not learning what the Marine learned--making his money do the work? The next day, and probably every day after, he has to do another plumbing job to get a check. The Marine can do a simple mobile home deal and obligate somebody else (maybe a plumber) to send him a check for years.
What's Your Choice?
The records show that ninety-five of the people who reach retirement age will need some kind of help or a part time job in order to live a decent life. Those people had the same opportunities and the same choices to make as we did. They just made the wrong choices. They chose to be "average" all their life. I may be getting old and lazy, but I'm still learning. You might finish school, but you never finish your education. Also, we'll get the chance to spend time with some very good friends and meet some nice people we've never met. You can't put a price on that. So, what will your choice be...the two percent bracket or the fifty-eight percent bracket? When do you chose to pay for your education, now or later? Are you willing to settle for being "average"? The choice is yours, and I hope you make the right one because you will have to live with the results of your choice. The best investment you can make is in yourself.
The Bona Fide Purchaser
You get a deed from a seller in foreclosure. Before you can record the deed, the seller gives a second deed to your competitor. The competitor records his deed at the country first. Who wins? This is an interesting issue that most investors don't seem to grasp. First, understand there are two issues here: one is ownership, the other is notice. The recording of a deed is NOT necessary to transfer ownership of real estate. The simple act of executing a deed and delivering it to the buyer passes ownership.
The recording system gives constructive notice to the world of the transfer of title to property. Recording simply involves bringing the original deed to the local county courthouse or clerk and recorder’s office. The original deed is copied onto computer or microfiche, then returned to the new owner. In addition, the county tax assessor usually requires the filing of a “real property transfer declaration,” which contains some basic information about the sale.
There is a filing fee for the deed, which runs about $10 per page. In addition, the county, city and/or state may assess a transfer tax based on the value of the property or the selling price. This makes recording a deed an expensive proposition in states that charge 2% or more of the purchase price. If you are taking a deed in anticipation of doing a short sale or other deal that has a small chance of success, keeping a deed in your file cabinet until the last minute may be the only option. Just understand that if you don't record, you run the risk of another investor beating you to the punch.
Every state has a recording statute which dictates who wins in a battle over ownership in the case of a "double deed" scenario as described above. Most states follow a “race-notice” rule, which means that the first person to record his document, wins, so long as he is a bona fide purchaser. A bona fide purchaser is one who:
• Received title and recorded in good faith, and
• Paid value, and
• Had no notice of a prior transfer
In a foreclosure situation, an investor often gets a quitclaim deed for free. So, if a subsequent purchaser gets a deed for nothing, then records first, he is NOT a bona fide purchaser. Also, if he had notice of a prior transfer, even unrecorded, he is not a bona fide purchaser. If he acted in bad faith, he is not a bona fide purchaser. In short, the BFP rule protects an innocent buyer who really did lay out money and get a deed in good faith. Foreclosure investors often act in bad faith, convincing a seller to give a deed to a property that was already transferred.
The practical side of the issue, however, is proving your case. If you get a deed from a seller, then your competitor gets a deed and records it and is not a bona fide purchaser, what do you do? The bad news is that you have to hire a lawyer to commence a lawsuit to contest his title. This may not be worth the effort if there isn't much profit in the deal. It may make sense to simply record a lis pendens to hold up the re-sale of the property by the other investor, then settle out of court. Of course, you should consult with an attorney before proceeding if you are in a situation where you are uncertain of your legal rights.
The recording system gives constructive notice to the world of the transfer of title to property. Recording simply involves bringing the original deed to the local county courthouse or clerk and recorder’s office. The original deed is copied onto computer or microfiche, then returned to the new owner. In addition, the county tax assessor usually requires the filing of a “real property transfer declaration,” which contains some basic information about the sale.
There is a filing fee for the deed, which runs about $10 per page. In addition, the county, city and/or state may assess a transfer tax based on the value of the property or the selling price. This makes recording a deed an expensive proposition in states that charge 2% or more of the purchase price. If you are taking a deed in anticipation of doing a short sale or other deal that has a small chance of success, keeping a deed in your file cabinet until the last minute may be the only option. Just understand that if you don't record, you run the risk of another investor beating you to the punch.
Every state has a recording statute which dictates who wins in a battle over ownership in the case of a "double deed" scenario as described above. Most states follow a “race-notice” rule, which means that the first person to record his document, wins, so long as he is a bona fide purchaser. A bona fide purchaser is one who:
• Received title and recorded in good faith, and
• Paid value, and
• Had no notice of a prior transfer
In a foreclosure situation, an investor often gets a quitclaim deed for free. So, if a subsequent purchaser gets a deed for nothing, then records first, he is NOT a bona fide purchaser. Also, if he had notice of a prior transfer, even unrecorded, he is not a bona fide purchaser. If he acted in bad faith, he is not a bona fide purchaser. In short, the BFP rule protects an innocent buyer who really did lay out money and get a deed in good faith. Foreclosure investors often act in bad faith, convincing a seller to give a deed to a property that was already transferred.
The practical side of the issue, however, is proving your case. If you get a deed from a seller, then your competitor gets a deed and records it and is not a bona fide purchaser, what do you do? The bad news is that you have to hire a lawyer to commence a lawsuit to contest his title. This may not be worth the effort if there isn't much profit in the deal. It may make sense to simply record a lis pendens to hold up the re-sale of the property by the other investor, then settle out of court. Of course, you should consult with an attorney before proceeding if you are in a situation where you are uncertain of your legal rights.
The 3 Easiest Ways to Make Money In Real Estate
I once asked my handyman what was the easiest money he had ever made in his life. His answer was that although he had been in many small businesses and had done countless handyman/contracting jobs over the years, the easiest money he made was in roofing. He explained how that roofing work is higher risk work that many folks dislike and fear doing, therefore the mark-up is tremendous.
He especially likes smaller flat or semi-pitched roofs. For about $250 in materials he could charge $1,000 for a roof which he could install in a day. Larger, shingled roofs have even better mark-ups, although more time consuming.
I then began asking myself the same question. What was the easiest money I had ever made in business or investing?
There are 3 ways or modes (versus tools and techniques) that came to my mind quickly.
1. By far the easiest money I have ever made was from real estate appreciation. I have been fortunate to have been in the game long enough to ride two giant waves of appreciation and inflation. The price runup that occurred in the mid to late '80s, and the current bubble we have going now. Any dummy can make money in real estate during strong seller's markets. It makes you feel smart, but the main smart thing you really did to achieve it was to be smart enough to buy it.
2. Next, buying discounted property through patient tracking and buying of properties is the next easiest money I have made. Like when I bought a $20,000 house for $2,800. Nuts, but true. Or, like the $20,000 purchase with 100% owner financing which was resold via lease option for $39,000.
Thoughtful and determined deal making is the second easiest way to make money in real estate. The cliche is true - you make your money when you buy. One caveat: Lower-income grade deals must be outrageously benefically-priced to be worth the risk. Solid, middle-grade properties need not be "steals" to be good buys. A few years ago, I bought 2 houses from my attorney at decent to fair prices, but they were in excellent areas and have ALL brick exteriors with new roofs. They weren't steals, but they have appreciated by $20,000 each since acquisition.
3. Lastly. Rents. This takes time as I mention over and over, but once properties become seasoned and rents rise and debt drop off - rents are easy money. The problem - few have the future sight to maintain their hand in the game. It is a wonderful business to learn. Most landlords don't work very hard.
4. Rehabs and Interest Profits. Yes, these could be debated as easier than rents, but without rents you can't get number 1 - Appreciation and Price Inflation from governmental debt-driven inflation. And, you pay a lot more taxes, therefore limiting your net worth growth.
He especially likes smaller flat or semi-pitched roofs. For about $250 in materials he could charge $1,000 for a roof which he could install in a day. Larger, shingled roofs have even better mark-ups, although more time consuming.
I then began asking myself the same question. What was the easiest money I had ever made in business or investing?
There are 3 ways or modes (versus tools and techniques) that came to my mind quickly.
1. By far the easiest money I have ever made was from real estate appreciation. I have been fortunate to have been in the game long enough to ride two giant waves of appreciation and inflation. The price runup that occurred in the mid to late '80s, and the current bubble we have going now. Any dummy can make money in real estate during strong seller's markets. It makes you feel smart, but the main smart thing you really did to achieve it was to be smart enough to buy it.
2. Next, buying discounted property through patient tracking and buying of properties is the next easiest money I have made. Like when I bought a $20,000 house for $2,800. Nuts, but true. Or, like the $20,000 purchase with 100% owner financing which was resold via lease option for $39,000.
Thoughtful and determined deal making is the second easiest way to make money in real estate. The cliche is true - you make your money when you buy. One caveat: Lower-income grade deals must be outrageously benefically-priced to be worth the risk. Solid, middle-grade properties need not be "steals" to be good buys. A few years ago, I bought 2 houses from my attorney at decent to fair prices, but they were in excellent areas and have ALL brick exteriors with new roofs. They weren't steals, but they have appreciated by $20,000 each since acquisition.
3. Lastly. Rents. This takes time as I mention over and over, but once properties become seasoned and rents rise and debt drop off - rents are easy money. The problem - few have the future sight to maintain their hand in the game. It is a wonderful business to learn. Most landlords don't work very hard.
4. Rehabs and Interest Profits. Yes, these could be debated as easier than rents, but without rents you can't get number 1 - Appreciation and Price Inflation from governmental debt-driven inflation. And, you pay a lot more taxes, therefore limiting your net worth growth.
Sunday, May 31, 2009
That Condominium Will be the Perfect Rental Property
Condominiums may appear to be the ideal way to purchase rental property, as their price is often lower than the price for a single family home. You may find a condominium unit which is in an ideal location, located near schools, work, and public transportation. The unit may be in "move-in" condition with terrific views. There is one important safeguard you will need to watch for when buying a condominium for investment and rental purposes.
Condominiums are governed by a set of Condominium Documents or CC & R's, and a Homeowners Association sees that the rules set down in these documents are followed. Contained in these homeowner rules may be a stipulation that rentals are permitted only one time per year. This may not be a problem, as you may find a tenant for an annual rental, but be careful that you feel confident that you would not want to rent the unit out more often than once per year.
When you initially make your offer to purchase a condominium unit, you will normally be given a limited amount of time in which to review and approve the condominium documents. Be sure to ask for these well in advance of your closing date. If you are represented by a REALTOR®, your agent will normally get these documents for you. If you are represented by an attorney, be sure to show the documents to your legal counsel as soon as possible.
The condominium documents are often lengthy and cumbersome to read. You would want to find any objectionable details as soon as possible, before you have incurred expenses such as a title search, loan application fees, or home inspection. Besides looking for the rental provision in these "condo docs", there are other safeguards which are important to look for.
The two most important details to look at are the budget and the amount set aside for reserves by the homeowner's association. Ask if any special assessments are planned for the near future. A well-run homeowners association should be run like any good company or corporation, with a balanced budget and adequate allowances for reserves for repairs, such as roof, air-conditioning, paving, painting, or pool upkeep.
You wouldn't want to purchase a condominium for rental purposes, set a rental amount, only to find you will be assessed a large amount for a new roof. Most condominium budgets spell out the useful remaining life of the major systems in the building or property. You can look at this and determine how many years are left before the building needs to be painted, the roof replaced, the air-conditioning or generator repaired or replaced, the driveway resealed, or the pool heater replaced.
You may think that these concerns can be dealt with later, when they come up, but taking a close look now could prepare you for unexpected expenses and you can then determine the amount you will need to charge for renting out your investment unit to cover all your costs. Condominium units can be great investment rental properties, as they are often located in resort areas. Properties located in popular resort areas may be better rented out as a "seasonal rental," when the rents charged are typically higher than other times of the year. If this is the case, you would then want to look carefully at the rental restriction rules outlined in the condominium documents.
Be sure to let your Realtor, attorney, or escrow officer know that you would like to review the condominium documents as soon as possible after escrow is opened. Being well prepared when purchasing a condominium for rental investment purposes will save you money and help the closing go smoothly and quickly.
Condominiums are governed by a set of Condominium Documents or CC & R's, and a Homeowners Association sees that the rules set down in these documents are followed. Contained in these homeowner rules may be a stipulation that rentals are permitted only one time per year. This may not be a problem, as you may find a tenant for an annual rental, but be careful that you feel confident that you would not want to rent the unit out more often than once per year.
When you initially make your offer to purchase a condominium unit, you will normally be given a limited amount of time in which to review and approve the condominium documents. Be sure to ask for these well in advance of your closing date. If you are represented by a REALTOR®, your agent will normally get these documents for you. If you are represented by an attorney, be sure to show the documents to your legal counsel as soon as possible.
The condominium documents are often lengthy and cumbersome to read. You would want to find any objectionable details as soon as possible, before you have incurred expenses such as a title search, loan application fees, or home inspection. Besides looking for the rental provision in these "condo docs", there are other safeguards which are important to look for.
The two most important details to look at are the budget and the amount set aside for reserves by the homeowner's association. Ask if any special assessments are planned for the near future. A well-run homeowners association should be run like any good company or corporation, with a balanced budget and adequate allowances for reserves for repairs, such as roof, air-conditioning, paving, painting, or pool upkeep.
You wouldn't want to purchase a condominium for rental purposes, set a rental amount, only to find you will be assessed a large amount for a new roof. Most condominium budgets spell out the useful remaining life of the major systems in the building or property. You can look at this and determine how many years are left before the building needs to be painted, the roof replaced, the air-conditioning or generator repaired or replaced, the driveway resealed, or the pool heater replaced.
You may think that these concerns can be dealt with later, when they come up, but taking a close look now could prepare you for unexpected expenses and you can then determine the amount you will need to charge for renting out your investment unit to cover all your costs. Condominium units can be great investment rental properties, as they are often located in resort areas. Properties located in popular resort areas may be better rented out as a "seasonal rental," when the rents charged are typically higher than other times of the year. If this is the case, you would then want to look carefully at the rental restriction rules outlined in the condominium documents.
Be sure to let your Realtor, attorney, or escrow officer know that you would like to review the condominium documents as soon as possible after escrow is opened. Being well prepared when purchasing a condominium for rental investment purposes will save you money and help the closing go smoothly and quickly.
Ten Myths Preventing People from Succeeding in Real Estate Investing
The following are the top 10 reasons people use for not succeeding in real estate investing. If I offend anyone with this list, it probably means I'm right on track!
Reason #1: No Cash
The Myth: "You need money to make money."
The Truth: Find a good real estate deal, and the money will find you. Ask any seasoned investor and they will tell you that lack of funds is never an issue; lack of good deals is! If you can negotiate a good price on a house, you will find plenty of partners willing to put up the money.
Reason #2: No Time
The Myth: "I've got a job, a spouse, kids and little time on my hands."
The Truth: Throw out your television and you'll have all the time you need. People spend an average 3 hours per day in front of the tube. They spend even more time on weekends. Want to do something fun this Saturday? Load the kids in the mini van and go driving around looking for ugly houses. Make a game out of it giving a dollar to each of your kids that spots an ugly house. Tell them that each ugly house your buy means enough money to take them all to Disney World.
Reason #3: Everyone Says This Stuff Doesn't Work
The Myth: "That late night TV stuff doesn't work."
The Truth: You can convince yourself that anything won't work. Henry Ford once said, "Whether you think you can or think you can't, you are right."
Every real estate transaction has risks; some risks are realistic, while others are remote. If you listen to the critics, the naysayers and other pessimists, you'll convince yourself it doesn't work. Most people that criticize money-making ideas need to do so for their own ego. After all, if it were true, what's their excuse for not being successful? Make it a point of not taking financial advice from anyone who makes less than you do.
Reason #4: Too Much Competition
The Myth: "There's too many people buying houses to find a deal."
The Truth: There are more than enough deals to make everyone rich. At any given time there are hundreds of properties for sale in your market for each investor looking for them. In addition, a majority of people who say they are investors are just sitting on the sidelines waiting for someone to fall in their lap. Don't be one of them - go out and make deals happen.
Reason #5: It Doesn't Work in My Market
The Myth: "It doesn't work in my market."
The Truth: It works in EVERY market. True, it may work differently in some markets than in others, but there are investors making money in every city, every day of the week. You have to learn your market - the rents, the trends, the local customs, the bankers, the title companies, etc. Then, learn the techniques and adapt them for your market. If you are in a hot market, you can sell properties faster and ride inflation. If you are in a down market, you can find lots of bargains. And, in any market, there are people with financial problems that translate into bargain properties.
Reason #6: The Recession is Coming
The Myth: "Certainly, the September 11th tragedy, the huge number of layoffs and the decline of the stock market will kills the economy, so anything I buy will go down in value."
The Truth: Sell cheaper or with attractive terms. When Dell wants to move computers, they drop the price. When GM wants to move cars they offer no interest financing. Be creative and go things they make your houses sell and rent faster. If the prices are falling, buy way below market and sell just below market. If rental vacancies go up, offer free satellite TV (heck, it's $25/month). When everyone else is "dooming and glooming", it only clears out the competition.
Reason #7: Realtors Won't Cooperate With Me
The Myth: "Real estate agents don't want to cooperate with investors."
The Truth: The right agent can be your best friend and #1 source of business. I have a one agent that brought me six deals in the past year. He knows exactly what I want and only calls me when there's a deal. You need to educate a few agents and let them know exactly what you want. Few agents have repeat customers - you have to make them understand that you will be giving them business over and over again.
Reason #8: I Have Bad Credit
The Myth: "I need good credit to buy houses."
The Truth: Good credit helps, but you don't need it to make money in real estate. Lease/options, owner-financing, flipping properties and other creative techniques will allow you to buy real estate without credit. You can always use a partner who has good credit. You can also borrow "hard money" without having good credit. In the meantime, you can work on fixing your bad credit so you can use it as an asset in the future.
Reason #9: I Might Lose Money
The Myth: "Real estate is very risky."
The Truth: Real estate is one of the safest investments you can buy. The stock market is beyond your control. Savings, CDs and money market funds won't give your enough return to make money. You have to be willing to take a calculated risk to make money. The more you educate yourself, the less risky real estate becomes. However, don't think you need to know EVERYTHING before taking action.
Reason #10: I Don't Know What To Do
The Myth: "I need to learn more before I start."
The Truth: You probably know more than enough to get started in real estate. It takes years to learn a lot. You never learn everything. Success is an ongoing learning process. Read some books, take some seminars and go take MASSIVE action. Then, learn some more and take a lot more action. If you are really impatient, enlist the help of others.
Henry Ford said, "Why should I clutter my mind with general information when I have men around me who can supply any knowledge I need?" Henry Ford was a smart man because he realized that he didn't need to know it all if he could consult with others that did. Ronald Reagan's cabinet was said to be the team of the brightest people in politics.
Reason #1: No Cash
The Myth: "You need money to make money."
The Truth: Find a good real estate deal, and the money will find you. Ask any seasoned investor and they will tell you that lack of funds is never an issue; lack of good deals is! If you can negotiate a good price on a house, you will find plenty of partners willing to put up the money.
Reason #2: No Time
The Myth: "I've got a job, a spouse, kids and little time on my hands."
The Truth: Throw out your television and you'll have all the time you need. People spend an average 3 hours per day in front of the tube. They spend even more time on weekends. Want to do something fun this Saturday? Load the kids in the mini van and go driving around looking for ugly houses. Make a game out of it giving a dollar to each of your kids that spots an ugly house. Tell them that each ugly house your buy means enough money to take them all to Disney World.
Reason #3: Everyone Says This Stuff Doesn't Work
The Myth: "That late night TV stuff doesn't work."
The Truth: You can convince yourself that anything won't work. Henry Ford once said, "Whether you think you can or think you can't, you are right."
Every real estate transaction has risks; some risks are realistic, while others are remote. If you listen to the critics, the naysayers and other pessimists, you'll convince yourself it doesn't work. Most people that criticize money-making ideas need to do so for their own ego. After all, if it were true, what's their excuse for not being successful? Make it a point of not taking financial advice from anyone who makes less than you do.
Reason #4: Too Much Competition
The Myth: "There's too many people buying houses to find a deal."
The Truth: There are more than enough deals to make everyone rich. At any given time there are hundreds of properties for sale in your market for each investor looking for them. In addition, a majority of people who say they are investors are just sitting on the sidelines waiting for someone to fall in their lap. Don't be one of them - go out and make deals happen.
Reason #5: It Doesn't Work in My Market
The Myth: "It doesn't work in my market."
The Truth: It works in EVERY market. True, it may work differently in some markets than in others, but there are investors making money in every city, every day of the week. You have to learn your market - the rents, the trends, the local customs, the bankers, the title companies, etc. Then, learn the techniques and adapt them for your market. If you are in a hot market, you can sell properties faster and ride inflation. If you are in a down market, you can find lots of bargains. And, in any market, there are people with financial problems that translate into bargain properties.
Reason #6: The Recession is Coming
The Myth: "Certainly, the September 11th tragedy, the huge number of layoffs and the decline of the stock market will kills the economy, so anything I buy will go down in value."
The Truth: Sell cheaper or with attractive terms. When Dell wants to move computers, they drop the price. When GM wants to move cars they offer no interest financing. Be creative and go things they make your houses sell and rent faster. If the prices are falling, buy way below market and sell just below market. If rental vacancies go up, offer free satellite TV (heck, it's $25/month). When everyone else is "dooming and glooming", it only clears out the competition.
Reason #7: Realtors Won't Cooperate With Me
The Myth: "Real estate agents don't want to cooperate with investors."
The Truth: The right agent can be your best friend and #1 source of business. I have a one agent that brought me six deals in the past year. He knows exactly what I want and only calls me when there's a deal. You need to educate a few agents and let them know exactly what you want. Few agents have repeat customers - you have to make them understand that you will be giving them business over and over again.
Reason #8: I Have Bad Credit
The Myth: "I need good credit to buy houses."
The Truth: Good credit helps, but you don't need it to make money in real estate. Lease/options, owner-financing, flipping properties and other creative techniques will allow you to buy real estate without credit. You can always use a partner who has good credit. You can also borrow "hard money" without having good credit. In the meantime, you can work on fixing your bad credit so you can use it as an asset in the future.
Reason #9: I Might Lose Money
The Myth: "Real estate is very risky."
The Truth: Real estate is one of the safest investments you can buy. The stock market is beyond your control. Savings, CDs and money market funds won't give your enough return to make money. You have to be willing to take a calculated risk to make money. The more you educate yourself, the less risky real estate becomes. However, don't think you need to know EVERYTHING before taking action.
Reason #10: I Don't Know What To Do
The Myth: "I need to learn more before I start."
The Truth: You probably know more than enough to get started in real estate. It takes years to learn a lot. You never learn everything. Success is an ongoing learning process. Read some books, take some seminars and go take MASSIVE action. Then, learn some more and take a lot more action. If you are really impatient, enlist the help of others.
Henry Ford said, "Why should I clutter my mind with general information when I have men around me who can supply any knowledge I need?" Henry Ford was a smart man because he realized that he didn't need to know it all if he could consult with others that did. Ronald Reagan's cabinet was said to be the team of the brightest people in politics.
Start the New Year Right!
I was just reading some of my notes and quotes that I've complied over the years and thought I'd share some of them with you. Most were obtained from various speakers/teachers/writers of motivational tapes/books/seminars etc. Hope they have the same positive impact on you, as they did for me.
* If you're not getting what you want in life, take a good look at the reasons (I call them excuses) that are preventing it.
* There comes a point when you have to stop making excuses and start taking action that will get the results you want.
* We hold on to bad habits because we're not really committed.
* Make a commitment that will force you to take action.
* Doing nothing is a decision to stay where you are.
* Know what you want, and be willing to give up something to get it.
* Take control of your life, or someone else will.
* Financial struggle is often the result of people working all their life for someone else.
* You must be able to recognize the difference between a goal and a fantasy.
* Don't be afraid to make a mistake, that's how you learn your best lessons.
* Don't let other people do your thinking for you, think for yourself.
* People that don't understand how money works, will always work for people that do.
* Most people are in debt from the time they leave school until they die.
* If your only source of income is a paycheck, your livelihood is entirely dependent on your employer.
* Only 2% earn over $100,000 yearly.
* Where are you now? If you lost your job tomorrow, how long could you support your family on your present assets?
* If you do the same thing this year, as you did last year, where will you be next year?
* Minimum effort equals minimum wages.
* The type of people you spend your time with determines your future.
* Social Security checks are the major source of income for 66% of retired people. Average SS retiree gets $710 monthly.
* Our lives are a reflection of our habits, and what we study. What are you studying?
* If you spend tomorrow's earnings for today's toys & pleasure, you'll always be broke.
* Your thoughts will make you rich, or keep you poor.
* What we know is so small, compared to what we don't know.
* It's not the things you do that you regret the most, but the things you didn't do.
* When you stop learning, you start dying.
* Some people make things happen, some people let things happen, some people watch things happen and some people don't even know what's happening.
* Hang around people that are smarter than you.
* Your financial future will be determined by the choices you make today.
* The best way to conquer fear is to meet it head-on.
* What you know is your greatest wealth. What you don't know is your greatest liability.
So, it's decision time. You can choose to be in the 5% bracket and learn how to enjoy financial freedom and security. Or, you can do like most folks do and settle for whatever your employer is willing to pay you. (Providing you don't get "down-sized".)
* If you're not getting what you want in life, take a good look at the reasons (I call them excuses) that are preventing it.
* There comes a point when you have to stop making excuses and start taking action that will get the results you want.
* We hold on to bad habits because we're not really committed.
* Make a commitment that will force you to take action.
* Doing nothing is a decision to stay where you are.
* Know what you want, and be willing to give up something to get it.
* Take control of your life, or someone else will.
* Financial struggle is often the result of people working all their life for someone else.
* You must be able to recognize the difference between a goal and a fantasy.
* Don't be afraid to make a mistake, that's how you learn your best lessons.
* Don't let other people do your thinking for you, think for yourself.
* People that don't understand how money works, will always work for people that do.
* Most people are in debt from the time they leave school until they die.
* If your only source of income is a paycheck, your livelihood is entirely dependent on your employer.
* Only 2% earn over $100,000 yearly.
* Where are you now? If you lost your job tomorrow, how long could you support your family on your present assets?
* If you do the same thing this year, as you did last year, where will you be next year?
* Minimum effort equals minimum wages.
* The type of people you spend your time with determines your future.
* Social Security checks are the major source of income for 66% of retired people. Average SS retiree gets $710 monthly.
* Our lives are a reflection of our habits, and what we study. What are you studying?
* If you spend tomorrow's earnings for today's toys & pleasure, you'll always be broke.
* Your thoughts will make you rich, or keep you poor.
* What we know is so small, compared to what we don't know.
* It's not the things you do that you regret the most, but the things you didn't do.
* When you stop learning, you start dying.
* Some people make things happen, some people let things happen, some people watch things happen and some people don't even know what's happening.
* Hang around people that are smarter than you.
* Your financial future will be determined by the choices you make today.
* The best way to conquer fear is to meet it head-on.
* What you know is your greatest wealth. What you don't know is your greatest liability.
So, it's decision time. You can choose to be in the 5% bracket and learn how to enjoy financial freedom and security. Or, you can do like most folks do and settle for whatever your employer is willing to pay you. (Providing you don't get "down-sized".)
Some Ground Rules (and House Rules , Too)
If you were to guess that buying a home is not like buying a parcel of land, you’d be right – and you’d also be wrong. Although the house purchase is different from the land transaction, it’s actually the same in certain key respects. The reason is there are a couple of critical principles that apply to all types of property – houses, land, retail centers or whatever – and they can have a big impact on a property’s value and its market appeal.
Location (Location, Location)
We’ve all heard that location is the most important thing about a property, but why is that true? You can demolish or add onto the house or maybe even pick it up and move it (although that’s expensive and often not feasible), but you can’t pick the land up and move it. It’s the land that gives the property its location, and location is the only thing about a property that you can’t change. It determines how the property can be used (zoning), visibility and accessibility to public utilities, and it has a positive or negative effect on value based on the surrounding properties.
Value Is Relative to Use
If the property matches most of your needs and wants, it will be more valuable to you. How often have you walked into a store and bought something you couldn’t use or didn’t really want only because you thought the price was ridiculously low? Would you have paid a lot more for it? Probably not.
A corollary of this principle is that the property’s inherent value increases if the property can be used by many potential buyers or categories of buyers. Suppose you’re thinking about buying a building lot that has a stream running through its front yard. Your builder tells you he’ll have to put the house on the far side of the stream and the driveway (about 200’ long) will have to cross the stream. The cost for all of this work will be about $30-40,000. That driveway could cost you more than the initial $30,000 over time in maintenance, repairs and resurfacing. However, something even more important should make you hesitate. Someday when you try to sell the property, you could discover that most buyers won’t want the property because of the stream and driveway or they’ll offer you much less than you want for it. Now what’s this property worth to you? When you sell, you’ll probably have to discount the price or wait a long time for the “right” buyer to come along – or both.
Value = Price + Terms
Ultimately, buyers determine what a property is worth, but an offer is much more than just price. It’s a set of scales with price on one side and terms and conditions on the other. The real value of any property is the price a buyer is willing to pay in exchange for terms and conditions. You want to buy that building lot with the stream running through it. Public water and sewer aren’t available and the seller hasn’t had the property tested to determine if some type of sewage disposal system would be approved by the county health department. You need to know if the lot is buildable. You don’t want to spend the money for testing unless the seller accepts your offer and you don’t want to have to buy the property if you can’t get a building permit. What you might do here is give the seller an offer contingent on your being able to get the property approved for a certain type of sewage system and anything else you’d need in order to get a building permit. You’d be more likely to offer the seller a higher price if the seller would agree to these conditions than if the seller wanted to sell “as is.” Sellers who get the highest price usually have to give the buyer favorable terms. Buyers who want the lowest price will have to forego most if not all of their contingencies. The seller’s willingness to assume some of the risk and give the buyer time to satisfy conditions is as important (and sometimes even more important) as price in development property transactions.
Buyers Are Sellers
Before you decide to buy a property, you should evaluate it as objectively as possible. Put it under the microscope and try to identify objections that buyers in the future might have when you go to sell. In short, when buying, think like a seller because some day you will be one. Whatever you buy should have appeal to the widest segment of the buyer market, and remember that there’s no substitute for a good location. A good location is one that enhances the property’s value relative to the intended use. For instance, when builders purchase development land, they take into account factors that will reduce the property’s appeal in the eyes of the end users (homeowners), such as location on a busy street. On the other hand, if they want to develop the property into retail space, visibility and high traffic counts are critical.
Don’t Over Improve
The value of residential property is generally defined by the uses and sale prices of neighboring “comparable” properties – those having the same characteristics as your property. Investment property value (including land) is tied to the income or profit that the property can produce, either immediately or down the road. Value won’t increase in direct proportion to the cost of additional improvements if surrounding property values are equal to or less than the property’s value without the additional improvements. For example, you live in a subdivision of homes that have two-car attached garages and sell for $250,000. Four years ago, you had a three-car detached garage built in your back yard because you wanted more garage space. Now you’ve got your property up for sale for $300,000. Even if you find a buyer willing to pay your price, the buyer’s lender will have an appraisal done to make sure that the property appraises for the purchase price. The ideal buyer in this situation would be someone who wants mega garage space and can either pay cash or doesn’t need a mortgage for more than 80% of the purchase price.
Location (Location, Location)
We’ve all heard that location is the most important thing about a property, but why is that true? You can demolish or add onto the house or maybe even pick it up and move it (although that’s expensive and often not feasible), but you can’t pick the land up and move it. It’s the land that gives the property its location, and location is the only thing about a property that you can’t change. It determines how the property can be used (zoning), visibility and accessibility to public utilities, and it has a positive or negative effect on value based on the surrounding properties.
Value Is Relative to Use
If the property matches most of your needs and wants, it will be more valuable to you. How often have you walked into a store and bought something you couldn’t use or didn’t really want only because you thought the price was ridiculously low? Would you have paid a lot more for it? Probably not.
A corollary of this principle is that the property’s inherent value increases if the property can be used by many potential buyers or categories of buyers. Suppose you’re thinking about buying a building lot that has a stream running through its front yard. Your builder tells you he’ll have to put the house on the far side of the stream and the driveway (about 200’ long) will have to cross the stream. The cost for all of this work will be about $30-40,000. That driveway could cost you more than the initial $30,000 over time in maintenance, repairs and resurfacing. However, something even more important should make you hesitate. Someday when you try to sell the property, you could discover that most buyers won’t want the property because of the stream and driveway or they’ll offer you much less than you want for it. Now what’s this property worth to you? When you sell, you’ll probably have to discount the price or wait a long time for the “right” buyer to come along – or both.
Value = Price + Terms
Ultimately, buyers determine what a property is worth, but an offer is much more than just price. It’s a set of scales with price on one side and terms and conditions on the other. The real value of any property is the price a buyer is willing to pay in exchange for terms and conditions. You want to buy that building lot with the stream running through it. Public water and sewer aren’t available and the seller hasn’t had the property tested to determine if some type of sewage disposal system would be approved by the county health department. You need to know if the lot is buildable. You don’t want to spend the money for testing unless the seller accepts your offer and you don’t want to have to buy the property if you can’t get a building permit. What you might do here is give the seller an offer contingent on your being able to get the property approved for a certain type of sewage system and anything else you’d need in order to get a building permit. You’d be more likely to offer the seller a higher price if the seller would agree to these conditions than if the seller wanted to sell “as is.” Sellers who get the highest price usually have to give the buyer favorable terms. Buyers who want the lowest price will have to forego most if not all of their contingencies. The seller’s willingness to assume some of the risk and give the buyer time to satisfy conditions is as important (and sometimes even more important) as price in development property transactions.
Buyers Are Sellers
Before you decide to buy a property, you should evaluate it as objectively as possible. Put it under the microscope and try to identify objections that buyers in the future might have when you go to sell. In short, when buying, think like a seller because some day you will be one. Whatever you buy should have appeal to the widest segment of the buyer market, and remember that there’s no substitute for a good location. A good location is one that enhances the property’s value relative to the intended use. For instance, when builders purchase development land, they take into account factors that will reduce the property’s appeal in the eyes of the end users (homeowners), such as location on a busy street. On the other hand, if they want to develop the property into retail space, visibility and high traffic counts are critical.
Don’t Over Improve
The value of residential property is generally defined by the uses and sale prices of neighboring “comparable” properties – those having the same characteristics as your property. Investment property value (including land) is tied to the income or profit that the property can produce, either immediately or down the road. Value won’t increase in direct proportion to the cost of additional improvements if surrounding property values are equal to or less than the property’s value without the additional improvements. For example, you live in a subdivision of homes that have two-car attached garages and sell for $250,000. Four years ago, you had a three-car detached garage built in your back yard because you wanted more garage space. Now you’ve got your property up for sale for $300,000. Even if you find a buyer willing to pay your price, the buyer’s lender will have an appraisal done to make sure that the property appraises for the purchase price. The ideal buyer in this situation would be someone who wants mega garage space and can either pay cash or doesn’t need a mortgage for more than 80% of the purchase price.
Should You Use an Attorney's Fee Clause?
Most "standard" real estate contracts and leases contain provisions that state something to the effect, "If there is any dispute as to the agreement, the winning party is entitled to attorney's fees". Is this a good idea? Well, yes and no. First, understand that attorney's fees are generally not awarded by the court to the winning party in a lawsuit. There must be either a specific statutory provision or a clause in the disputed agreement that calls for attorney's fees. In addition, a court may award attorney's fees where there is "bad faith" on the part of one of the litigants, but judges rarely enforce this rule.
If you have to sue another party to a lease or contract for $100, it hardly seems worth the effort if you have to pay your attorney $2,500 to file the lawsuit. In such cases, the opposing party may thumb his nose at you and say, "so sue me". The court system is very unfair to the poor in this regard. However, if you are the potential defendant, it works in your favor if someone is thinking of suing you for some bogus reason and you know that they can't afford an attorney. So, should you always insert an attorney's fee clause in every contract or lease that you sign? Well, that depends on whether such a clause inures to your benefit. For example, if you are a landlord, chances are you will be suing your tenant for non-performance of the lease, not vice-versa. So, having the ability to get attorney's fees if you win is to your benefit. Of course, this may be futile, since any judgment may be uncollectible, whether for $100 or $10,000. But, if you think you can collect a judgment, go ahead and put the clause in your lease.
Another example might be a purchase contract with a seller in foreclosure. Suppose you have an agreement to buy a property from a seller who is near insolvency. If he breaches the agreement, you can sue, but what will you get? On the other hand, if he can convince a court that YOU are in breach, you could lose and end up paying HIS attorney's fees. Thus, you can see how an attorney's fee clause may work against you. If you get into a dispute with a seller or buyer and they cannot afford an attorney, you reduce your risk if something goes bad. Remember, whether you are right or wrong in your actions involving a real estate deal, it's what is proven in court that matters. Having plenty of trial experience, I can tell you that going to court is a gamble - sometimes you win, sometimes you lose, and truth and justice have little to do with it.
Finally, some agreements will state that if one party must enforce the agreement in court (e.g., the landlord in a lease), the landlord is entitled to lawyer fees. Many courts will apply the rules in reverse, even if the agreement doesn't explicitly state. So, you cannot necessarily limit attorney's fee if one party wins but not the other. As with any transaction, you could consult with an attorney before drafting any agreement you are uncertain of.
If you have to sue another party to a lease or contract for $100, it hardly seems worth the effort if you have to pay your attorney $2,500 to file the lawsuit. In such cases, the opposing party may thumb his nose at you and say, "so sue me". The court system is very unfair to the poor in this regard. However, if you are the potential defendant, it works in your favor if someone is thinking of suing you for some bogus reason and you know that they can't afford an attorney. So, should you always insert an attorney's fee clause in every contract or lease that you sign? Well, that depends on whether such a clause inures to your benefit. For example, if you are a landlord, chances are you will be suing your tenant for non-performance of the lease, not vice-versa. So, having the ability to get attorney's fees if you win is to your benefit. Of course, this may be futile, since any judgment may be uncollectible, whether for $100 or $10,000. But, if you think you can collect a judgment, go ahead and put the clause in your lease.
Another example might be a purchase contract with a seller in foreclosure. Suppose you have an agreement to buy a property from a seller who is near insolvency. If he breaches the agreement, you can sue, but what will you get? On the other hand, if he can convince a court that YOU are in breach, you could lose and end up paying HIS attorney's fees. Thus, you can see how an attorney's fee clause may work against you. If you get into a dispute with a seller or buyer and they cannot afford an attorney, you reduce your risk if something goes bad. Remember, whether you are right or wrong in your actions involving a real estate deal, it's what is proven in court that matters. Having plenty of trial experience, I can tell you that going to court is a gamble - sometimes you win, sometimes you lose, and truth and justice have little to do with it.
Finally, some agreements will state that if one party must enforce the agreement in court (e.g., the landlord in a lease), the landlord is entitled to lawyer fees. Many courts will apply the rules in reverse, even if the agreement doesn't explicitly state. So, you cannot necessarily limit attorney's fee if one party wins but not the other. As with any transaction, you could consult with an attorney before drafting any agreement you are uncertain of.
Should You Do Real Estate Full-Time?
Many self-acclaimed real estate gurus state that everyone should quit their jobs and immediately jump into full time real estate investing. They often claim incredible results from students with little experience. We would like to caution that life-changing decisions are not usually simple and that full time investing is not for everyone. Let's discuss some pros and cons of full-time versus part-time investing.
The Full-Time Investor
Entering into the real estate profession on a full-time basis offers several advantages over a part-time commitment. Being successful requires you to develop knowledge in many aspects of real estate, and more time focused on real estate leads to greater knowledge. The more your learn, the more you earn, since you do not need to rely on as many professional services or partners for help. You also learn to recognize a deal (or a dud) faster, which gives you more time to do more business or spend with your family.
As a full-time investor, you work your own hours. When we say "full-time," that may mean as little as twenty hours per week if you are good at finding deals. The rest of your time can be spent pursuing other vocations or hobbies. Or, if you are so inspired, you can work forty or more hours and use the extra cash flow to buy rental properties or diversify your holdings in the stock market. The point is that you need to satisfy your cash flow needs before you can start "investing" your money.
One final point you should consider is whether you want to be "self-employed." If you have always worked for someone else, being your own boss sounds very attractive. In some, respects, this isn't quite the truth. Being your own boss means being an accountant, bookkeeper, stock clerk, receptionist and office manager all-in-one. You have to do deal with tax returns, payroll, office supplies, customer service, bills and all the other hassles that come with a business. You don't have friends to chat with at the water cooler. You don't have paid health insurance, a company car and a 401(k). You take your problems home with you every night.
Sound like fun? It is, once you learn how to master your time and run your business. Being the master of your own life and career is well worth the other hassles of dealing with your own business.
The Part-Time Investor
The part-time investor holds a "regular job." This may be by choice or for the time being until his real estate ventures are bringing in enough cash to quit his job. If it is the latter reason, don't quit your job because the real estate "guru" told you so. Quit your job when it is not worth the income that it brings you. In other words, if you are making more money per hour flipping properties on the side, you are at the point that where your regular job is costing you money. Only then, is it time to quit!
One of the advantages of starting out part-time is that you can maintain cash flow while learning the business. It may take weeks or possibly months to find your first deal. That same deal may take several months to turn around, especially if you decide to fix it and sell it retail. Think twice before telling your boss you’re leaving; you will have plenty of time to make the career switch once you have real estate experience. You may, on the other hand, like your occupation. If so, continue to work at it, and invest in real estate on the side.
The best case scenario, if you are married, is to have one spouse work a regular job. The other spouse work the real estate business for creating wealth, retirement income and a nice college fund for the children. Of course, in today's market, you could be laid off due to unforeseen circumstances. If you earn additional income flipping houses and invest the proceeds into rental properties, you will be covered if your main income is lost. This is especially the case for married women that often forego a career and raise a family, only to find themselves divorced with no means of making a living. We don't want to sound cynical about marriage, but with a fifty-percent divorce rate in America, it never hurts to have a system for making money.
Someone with a full time job tends to have little free time to focus on real estate. A part-timer should learn most of the same skills as a full timer. Thus, the key disadvantage to flipping properties on a part-time basis is that it takes sacrifice to learn the business. Something has to give; television, lazy weekends, meaningless hobbies and even some family activities must be compromised. As with any education, time spent learning about real estate will bring its own rewards, especially if the people in your life understand your goals and your plan to achieve those goals. If you are married, make sure your spouse reads this material with you and participates in the fun process of making money.
Treat Real Estate as A Business
People are lured to real estate because of the quick buck that it promises. Don't hold your breath, you won't get rich quick. An "overnight sensation" usually takes about five years. More than ninety percent of the people who take a real estate seminar quit after three months. Real estate investing should be treated with the seriousness of a career. It takes months, even years for a business to cultivate customers and have a life of its own. You need to treat it like any other business.
The Full-Time Investor
Entering into the real estate profession on a full-time basis offers several advantages over a part-time commitment. Being successful requires you to develop knowledge in many aspects of real estate, and more time focused on real estate leads to greater knowledge. The more your learn, the more you earn, since you do not need to rely on as many professional services or partners for help. You also learn to recognize a deal (or a dud) faster, which gives you more time to do more business or spend with your family.
As a full-time investor, you work your own hours. When we say "full-time," that may mean as little as twenty hours per week if you are good at finding deals. The rest of your time can be spent pursuing other vocations or hobbies. Or, if you are so inspired, you can work forty or more hours and use the extra cash flow to buy rental properties or diversify your holdings in the stock market. The point is that you need to satisfy your cash flow needs before you can start "investing" your money.
One final point you should consider is whether you want to be "self-employed." If you have always worked for someone else, being your own boss sounds very attractive. In some, respects, this isn't quite the truth. Being your own boss means being an accountant, bookkeeper, stock clerk, receptionist and office manager all-in-one. You have to do deal with tax returns, payroll, office supplies, customer service, bills and all the other hassles that come with a business. You don't have friends to chat with at the water cooler. You don't have paid health insurance, a company car and a 401(k). You take your problems home with you every night.
Sound like fun? It is, once you learn how to master your time and run your business. Being the master of your own life and career is well worth the other hassles of dealing with your own business.
The Part-Time Investor
The part-time investor holds a "regular job." This may be by choice or for the time being until his real estate ventures are bringing in enough cash to quit his job. If it is the latter reason, don't quit your job because the real estate "guru" told you so. Quit your job when it is not worth the income that it brings you. In other words, if you are making more money per hour flipping properties on the side, you are at the point that where your regular job is costing you money. Only then, is it time to quit!
One of the advantages of starting out part-time is that you can maintain cash flow while learning the business. It may take weeks or possibly months to find your first deal. That same deal may take several months to turn around, especially if you decide to fix it and sell it retail. Think twice before telling your boss you’re leaving; you will have plenty of time to make the career switch once you have real estate experience. You may, on the other hand, like your occupation. If so, continue to work at it, and invest in real estate on the side.
The best case scenario, if you are married, is to have one spouse work a regular job. The other spouse work the real estate business for creating wealth, retirement income and a nice college fund for the children. Of course, in today's market, you could be laid off due to unforeseen circumstances. If you earn additional income flipping houses and invest the proceeds into rental properties, you will be covered if your main income is lost. This is especially the case for married women that often forego a career and raise a family, only to find themselves divorced with no means of making a living. We don't want to sound cynical about marriage, but with a fifty-percent divorce rate in America, it never hurts to have a system for making money.
Someone with a full time job tends to have little free time to focus on real estate. A part-timer should learn most of the same skills as a full timer. Thus, the key disadvantage to flipping properties on a part-time basis is that it takes sacrifice to learn the business. Something has to give; television, lazy weekends, meaningless hobbies and even some family activities must be compromised. As with any education, time spent learning about real estate will bring its own rewards, especially if the people in your life understand your goals and your plan to achieve those goals. If you are married, make sure your spouse reads this material with you and participates in the fun process of making money.
Treat Real Estate as A Business
People are lured to real estate because of the quick buck that it promises. Don't hold your breath, you won't get rich quick. An "overnight sensation" usually takes about five years. More than ninety percent of the people who take a real estate seminar quit after three months. Real estate investing should be treated with the seriousness of a career. It takes months, even years for a business to cultivate customers and have a life of its own. You need to treat it like any other business.
Should I Get Real Estate License?
New investors almost always ask “Should I get my real estate license?” or “Should I become a real estate agent?” It’s almost immediately followed up with a comment similar to...“I was talking to or I saw on TV and said... I don’t need to be a real estate agent to be a real estate investor”. Most of the time, they’ll add, “...in fact, it makes things more difficult for you as a real estate investor.” (Look at the head this noise is coming out of… we’ll address this subject in a bit.) Does this sound familiar? It makes me cringe when new investors who are hungry for knowledge are getting this kind of advice. These comments and attitudes are supported by the infomercials on TV announcing you can be successful without being licensed. This one subject ruffles so many feathers in my noggin. Let me share a couple of my mistakes and growing pains as a new investor. Remember when... I got started as an aggressive investor and really began to “see the light” (benefits) of buying houses, renting them, and letting somebody else pay for them.
Yeah, a little work here and there, but it sure beat the heck out getting paid $12.00 an hour to work an “off duty job” after hours. Off duty jobs for police officers were plentiful, especially those who had take-home marked patrol cars. Utility companies with projects on busy roadways loved having a police car with lights flashing to slow traffic and make a jobsite safer for their workers. Bad apartment communities would hire off duty police to patrol their apartment community to help get rid of the undesirables… it worked. You must understand the environment I was involved in at the time. As a uniformed patrol officer, I was assigned and rode a very active and busy beat. It included the housing projects commonly referred to as “the bricks”. (The residents called it the “bricks” as well) Now, travel to my lifestyle at this time. Arrive for “roll call” at 11:45 p.m. and get off at 7:45 a.m. the following morning providing everything was in order. What kind of people are you dealing with during these hours? For the most part, we were dealing with” tax-eaters”. Most “tax payers” were horizontal (sleeping) during these hours. Yes, on occasion, you could find taxpayers working these late hours. My point is I usually dealt with folks who weren’t very responsible. The Jerry Springer types and I was the problem solver. This resulted in many trips to the jail, along with many court appearances. If you locked somebody up, you ended up with a subpoena to go to court.
Well, this is where part of my real estate troubles began. Keep in mind, I was going to court almost every morning at am. Our courthouse is the busiest building in our entire state, as far as traffic count of people. A typical morning in court may involve me having to appear for 3 to 6 different cases, all scheduled for 9 a.m. For example, imagine being scheduled to appear in 3 different court rooms at the same time… 9 a.m. You develop relationships with attorneys on both sides of the fence. There are attorneys representing “the commonwealth” (good guys) and there are other attorneys representing the bad guys. Many of these cases were discussed and remedied with simple solutions in what was called the “conference room” adjacent to the courtroom. If you’d developed a reputation as a good police officer with common sense, you were labeled good to the system among the attorneys.
Therefore, any kind of a “deal” considered for a defendant, the attorneys, as a professional courtesy, would usually ask for your permission on the proposed deal before running it through the system. I have no intention of rambling on about police work here. It’s important you understand the environment my daily activities involved. In dealing with tax eaters on a daily basis, prosecutors, defense attorneys, and only the criminal side of the court system, a warped perspective of reality was almost a guaranteed harmful side effect to me as a beginner investor. I’m not quite sure how to describe it exactly, but after spending hours daily in the courthouse with attorneys, another court case didn’t amount to a hill of beans. I was there already for hours every day anyway. Maybe your job and position puts you in a position of authority as well.
So, back to real estate… I’m the new investor. I felt like Beavis and Butt Head. My light bulb went off and I realized I could benefit better for the long haul by focusing my after hours efforts on real estate investing instead of off-duty jobs. I began buying houses and renting them. I vividly recall in the beginning, my closing attorney at the time, Hank, would ask “Do you want title insurance for this property you’re buying?” I interpreted his question almost as an insult. He doesn’t know who I am. Remember, I’m a good cop, well respected, who’s in court every day and with an understanding of how the system and attorneys work (or so I thought). My answer to Hank was no, I’m not wasting my money on title insurance. That’s what I pay you for. I believed he was selling insurance for himself in case he didn’t do a good job. My attitude was phooey on this money making scheme on his part. I’d simply go after Hank if he screwed up on my title exam. Needless to say, he was baffled and I was stubborn by displaying my Bullwinkle Syndrome (named after my little sister who is a know-it-all). I was just too stupid to realize there was a lot I didn’t know about real estate.
So, as I purchased more properties, I discovered I could make more money and buy properties cheaper if I got my real estate license. The money part alone was enough to motivate me to enroll in the school and get my license. My objective was not education. The challenge was to become a real estate agent fast so I can buy properties cheaper by collecting commissions when buying properties for myself. Now here goes “Mr. Know It All” investor(me) enrolling in the grueling boring, mundane school for real estate agents. I didn’t really need to learn this stuff. I just wanted to pass the test and get my license to buy houses cheaper. This school is designed to groom folks to pass the state’s exam to become a licensed agent. Although I can’t remember exactly, I’m guessing I had 30-40 properties at the time. I was already on the road to financial independence! Rude Awakening!!!!
Long story short, after the first class or two, I discovered how much I didn’t know. Let’s use the analogy to checkers and chess, the board games. Pay attention to this one. As a homeowner and having purchased several investment properties, I felt I was already qualified as a knowledgeable investor. Here’s a simple version and getting to the point quickly. It ties right in with checkers and chess. They both use the same game board. I was a checker player. As a checker player, I’d see the veteran investors who are chess players. The checker player honestly believes they are a chess player too, because they own investment property just like the veteran investors. The new investor expects to be almost automatically accepted into the inner circle of veteran investors.
The checkers player tries to participate in a conversation with the chess players. The chess players are discussing strategies and techniques with phrases such as “how to make an extra $5,000 by moving the rook and bishop to a place behind the pawn.” The eager checker player, not realizing their own ignorance, asks the chess player “what’s a rook?” or “What’s a bishop?” The chess players look in amazement at each other in total disbelief and frustration. Inside their noggin, the chess players are saying “How can you discuss strategies or techniques with this bozo when he doesn’t even know and understand the pieces and parts to the game.” The checker player immediately picks up on the attitude exhibited from the chess players as a selfish, “you’re not allowed in this group.” Major, major miscommunication occurs.
The checker player is baffled and thinks the chess players are “clickish” and refuse to share any information about strategies and techniques. The real lesson learned is you must learn and understand the pieces and parts to this game called real estate investing before you can play effectively. After learning the pieces and parts, (rook, bishop, knight, pawn, etc.) and you happen across another group of chess players discussing strategies, you’ll be in a better position to absorb the techniques because you already know the pieces and parts.
So, back to real estate school. Thank goodness I humbled myself enough to accept my discovery of how much I didn’t know. Just because I could buy property and spend hours in the courthouse every day, didn’t make me an expert. While in school, I discovered the importance of title insurance. Remember me blasting my closing attorney with an attitude if something is wrong with the title, I’d go after him? I was absolutely wrong! In our state, our closing attorney runs a title exam by researching courthouse records; however, there’s a catch with real estate. You can legally own real estate without having the deed recorded! What? This is mind boggling.
For example. Billy Bob buys a house and his name is on his deed. Billy Bob gets married. Billy Bob wants to sell his house. You buy it by having him sign a deed over to you on the hood of your truck. Sounds proper, right? False, you’ve already set the stage for major mistake. Believe it or not, hiswife, whose name is not on the deed anywhere, must sign off also transferring title to you although her name is nowhere on his deed. Little things like this can be different in every state. I was shocked to learn this in real estate school. In just a class or two, I realized I was very, very, lucky nothing had blown up on me. I realized how much I didn’t know, and how valuable and powerful education is with successful investing. Just a short time after completing this school, my wife wanted a bigger nicer home. I captured a deal involving an estate, purchased it, rehabbed it, and made it our home.
I purchased title insurance on this property because I finally understood the protection it offers. My attorney was thrilled I finally saw the light. This very same property, the heirs got into a pi#$%$ing contest, sueing each other and me for having purchased the house so cheap. In summary, this resulted in a lengthy lawsuit. Guess what? My title insurance picked up the tab of all of the legal expenses. We won only because the title insurance covered the legal expenses. Without title insurance, I would be holding the bag for all of my legal expenses even if I won the lawsuit, which we did. So after a couple of real life examples: Should you get a real estate license? Let’s look at the benefits for you as an investor vs. the baggage some veteran folks say come with being licensed.
Benefits:
* Learning the pieces and parts of real estate.
* Ability to understand techniques faster because you have a solid foundation of education.
* As a buying tool, you’ll have access to MLS, the database of all properties listed for sale by real estate agents. It’s also a powerful tool to quickly learn market values.
* You may receive commissions on properties you purchase depending on the arrangement with your broker.
* As a selling tool, you may list your own properties on the MLS.
* Most communities require continuing education courses if you’re licensed. Although many may say this is a pain, it’s still education.
* You’ll simply discover how much you didn’t know.
* Powerful opportunity to have real estate agents work for you and put you at the top on their buyers list.
* What you learn in this school will stay with you your whole investing career. You’ll be able to grasp new creative investing ideas faster because you already have a solid foundation to build upon.
* Keep in mind, as an investor, you’ll be labeled a “professional” with or without a license. You are the one who decided to become an investor. If you are ever in any kind of lawsuit, including eviction court, you will be almost automatically tattooed a real estate expert simply because you are trying to act like one.
Cons:
* Annual fees and licensing. (In my town it’s approx. $850 annually, including errors and omissions insurance).
* You must disclose to your sellers you’re licensed and buying for investment and/or you intend to make a profit from the purchase of their property. (This is the one a lot of anti-get-your- license folks complain about. What’s wrong with it? It simply covers your butt.)
* Complaints of paperwork. For the most part, only if you are representing a buyer or seller is the paperwork cumbersome. It’s cumbersome because you are their agent representing their interests. The forms to fill out are designed to protect both you and the consumer.
* If you’re the buyer or the seller, most of the paperwork is gone because you’re representing yourself. You must simply disclose you are licensed. So, the next time you hear someone say “You don’t need a license to be an investor.”, look at the head the noise is coming out of. Do you want to be like them when you grow up as an investor? all of my mentors and investors I admired not only were licensed, but actually continued with more education to become a broker. If you’re just getting started or you want to really begin cranking your investments, getting your license won’t hurt you. I’m encouraging you to get the education not the license. But, how can getting your license hurt you?
If you plan on buying one property a year, it may not benefit you to have your license active. You may choose to escrow your license. If you plan on cranking it seriously and buy a few houses a year, having your license is a good thing. Remember the person who said having your license is a bad thing? Do you really want to be like that person when you grow up? I have my broker’s license today and maybe one day when I slow down, I may escrow it to save $800 a year. Right now, it’s still worth every single penny!
Enroll in school. Get the education. Knowledge is your power. Learn the pieces and parts. Varsity and Pro Level One on One Coaching Students (if not licensed or previously attended school) must go to real estate school after their second session before they can schedule their third coaching session. They’re a little baffled and confused at first, but all are 100% in agreement attending the school is a definite benefit and advantage to their game plan for investing. The pieces and parts have been identified, explained, and it’s time to start the investing game.
Yeah, a little work here and there, but it sure beat the heck out getting paid $12.00 an hour to work an “off duty job” after hours. Off duty jobs for police officers were plentiful, especially those who had take-home marked patrol cars. Utility companies with projects on busy roadways loved having a police car with lights flashing to slow traffic and make a jobsite safer for their workers. Bad apartment communities would hire off duty police to patrol their apartment community to help get rid of the undesirables… it worked. You must understand the environment I was involved in at the time. As a uniformed patrol officer, I was assigned and rode a very active and busy beat. It included the housing projects commonly referred to as “the bricks”. (The residents called it the “bricks” as well) Now, travel to my lifestyle at this time. Arrive for “roll call” at 11:45 p.m. and get off at 7:45 a.m. the following morning providing everything was in order. What kind of people are you dealing with during these hours? For the most part, we were dealing with” tax-eaters”. Most “tax payers” were horizontal (sleeping) during these hours. Yes, on occasion, you could find taxpayers working these late hours. My point is I usually dealt with folks who weren’t very responsible. The Jerry Springer types and I was the problem solver. This resulted in many trips to the jail, along with many court appearances. If you locked somebody up, you ended up with a subpoena to go to court.
Well, this is where part of my real estate troubles began. Keep in mind, I was going to court almost every morning at am. Our courthouse is the busiest building in our entire state, as far as traffic count of people. A typical morning in court may involve me having to appear for 3 to 6 different cases, all scheduled for 9 a.m. For example, imagine being scheduled to appear in 3 different court rooms at the same time… 9 a.m. You develop relationships with attorneys on both sides of the fence. There are attorneys representing “the commonwealth” (good guys) and there are other attorneys representing the bad guys. Many of these cases were discussed and remedied with simple solutions in what was called the “conference room” adjacent to the courtroom. If you’d developed a reputation as a good police officer with common sense, you were labeled good to the system among the attorneys.
Therefore, any kind of a “deal” considered for a defendant, the attorneys, as a professional courtesy, would usually ask for your permission on the proposed deal before running it through the system. I have no intention of rambling on about police work here. It’s important you understand the environment my daily activities involved. In dealing with tax eaters on a daily basis, prosecutors, defense attorneys, and only the criminal side of the court system, a warped perspective of reality was almost a guaranteed harmful side effect to me as a beginner investor. I’m not quite sure how to describe it exactly, but after spending hours daily in the courthouse with attorneys, another court case didn’t amount to a hill of beans. I was there already for hours every day anyway. Maybe your job and position puts you in a position of authority as well.
So, back to real estate… I’m the new investor. I felt like Beavis and Butt Head. My light bulb went off and I realized I could benefit better for the long haul by focusing my after hours efforts on real estate investing instead of off-duty jobs. I began buying houses and renting them. I vividly recall in the beginning, my closing attorney at the time, Hank, would ask “Do you want title insurance for this property you’re buying?” I interpreted his question almost as an insult. He doesn’t know who I am. Remember, I’m a good cop, well respected, who’s in court every day and with an understanding of how the system and attorneys work (or so I thought). My answer to Hank was no, I’m not wasting my money on title insurance. That’s what I pay you for. I believed he was selling insurance for himself in case he didn’t do a good job. My attitude was phooey on this money making scheme on his part. I’d simply go after Hank if he screwed up on my title exam. Needless to say, he was baffled and I was stubborn by displaying my Bullwinkle Syndrome (named after my little sister who is a know-it-all). I was just too stupid to realize there was a lot I didn’t know about real estate.
So, as I purchased more properties, I discovered I could make more money and buy properties cheaper if I got my real estate license. The money part alone was enough to motivate me to enroll in the school and get my license. My objective was not education. The challenge was to become a real estate agent fast so I can buy properties cheaper by collecting commissions when buying properties for myself. Now here goes “Mr. Know It All” investor(me) enrolling in the grueling boring, mundane school for real estate agents. I didn’t really need to learn this stuff. I just wanted to pass the test and get my license to buy houses cheaper. This school is designed to groom folks to pass the state’s exam to become a licensed agent. Although I can’t remember exactly, I’m guessing I had 30-40 properties at the time. I was already on the road to financial independence! Rude Awakening!!!!
Long story short, after the first class or two, I discovered how much I didn’t know. Let’s use the analogy to checkers and chess, the board games. Pay attention to this one. As a homeowner and having purchased several investment properties, I felt I was already qualified as a knowledgeable investor. Here’s a simple version and getting to the point quickly. It ties right in with checkers and chess. They both use the same game board. I was a checker player. As a checker player, I’d see the veteran investors who are chess players. The checker player honestly believes they are a chess player too, because they own investment property just like the veteran investors. The new investor expects to be almost automatically accepted into the inner circle of veteran investors.
The checkers player tries to participate in a conversation with the chess players. The chess players are discussing strategies and techniques with phrases such as “how to make an extra $5,000 by moving the rook and bishop to a place behind the pawn.” The eager checker player, not realizing their own ignorance, asks the chess player “what’s a rook?” or “What’s a bishop?” The chess players look in amazement at each other in total disbelief and frustration. Inside their noggin, the chess players are saying “How can you discuss strategies or techniques with this bozo when he doesn’t even know and understand the pieces and parts to the game.” The checker player immediately picks up on the attitude exhibited from the chess players as a selfish, “you’re not allowed in this group.” Major, major miscommunication occurs.
The checker player is baffled and thinks the chess players are “clickish” and refuse to share any information about strategies and techniques. The real lesson learned is you must learn and understand the pieces and parts to this game called real estate investing before you can play effectively. After learning the pieces and parts, (rook, bishop, knight, pawn, etc.) and you happen across another group of chess players discussing strategies, you’ll be in a better position to absorb the techniques because you already know the pieces and parts.
So, back to real estate school. Thank goodness I humbled myself enough to accept my discovery of how much I didn’t know. Just because I could buy property and spend hours in the courthouse every day, didn’t make me an expert. While in school, I discovered the importance of title insurance. Remember me blasting my closing attorney with an attitude if something is wrong with the title, I’d go after him? I was absolutely wrong! In our state, our closing attorney runs a title exam by researching courthouse records; however, there’s a catch with real estate. You can legally own real estate without having the deed recorded! What? This is mind boggling.
For example. Billy Bob buys a house and his name is on his deed. Billy Bob gets married. Billy Bob wants to sell his house. You buy it by having him sign a deed over to you on the hood of your truck. Sounds proper, right? False, you’ve already set the stage for major mistake. Believe it or not, hiswife, whose name is not on the deed anywhere, must sign off also transferring title to you although her name is nowhere on his deed. Little things like this can be different in every state. I was shocked to learn this in real estate school. In just a class or two, I realized I was very, very, lucky nothing had blown up on me. I realized how much I didn’t know, and how valuable and powerful education is with successful investing. Just a short time after completing this school, my wife wanted a bigger nicer home. I captured a deal involving an estate, purchased it, rehabbed it, and made it our home.
I purchased title insurance on this property because I finally understood the protection it offers. My attorney was thrilled I finally saw the light. This very same property, the heirs got into a pi#$%$ing contest, sueing each other and me for having purchased the house so cheap. In summary, this resulted in a lengthy lawsuit. Guess what? My title insurance picked up the tab of all of the legal expenses. We won only because the title insurance covered the legal expenses. Without title insurance, I would be holding the bag for all of my legal expenses even if I won the lawsuit, which we did. So after a couple of real life examples: Should you get a real estate license? Let’s look at the benefits for you as an investor vs. the baggage some veteran folks say come with being licensed.
Benefits:
* Learning the pieces and parts of real estate.
* Ability to understand techniques faster because you have a solid foundation of education.
* As a buying tool, you’ll have access to MLS, the database of all properties listed for sale by real estate agents. It’s also a powerful tool to quickly learn market values.
* You may receive commissions on properties you purchase depending on the arrangement with your broker.
* As a selling tool, you may list your own properties on the MLS.
* Most communities require continuing education courses if you’re licensed. Although many may say this is a pain, it’s still education.
* You’ll simply discover how much you didn’t know.
* Powerful opportunity to have real estate agents work for you and put you at the top on their buyers list.
* What you learn in this school will stay with you your whole investing career. You’ll be able to grasp new creative investing ideas faster because you already have a solid foundation to build upon.
* Keep in mind, as an investor, you’ll be labeled a “professional” with or without a license. You are the one who decided to become an investor. If you are ever in any kind of lawsuit, including eviction court, you will be almost automatically tattooed a real estate expert simply because you are trying to act like one.
Cons:
* Annual fees and licensing. (In my town it’s approx. $850 annually, including errors and omissions insurance).
* You must disclose to your sellers you’re licensed and buying for investment and/or you intend to make a profit from the purchase of their property. (This is the one a lot of anti-get-your- license folks complain about. What’s wrong with it? It simply covers your butt.)
* Complaints of paperwork. For the most part, only if you are representing a buyer or seller is the paperwork cumbersome. It’s cumbersome because you are their agent representing their interests. The forms to fill out are designed to protect both you and the consumer.
* If you’re the buyer or the seller, most of the paperwork is gone because you’re representing yourself. You must simply disclose you are licensed. So, the next time you hear someone say “You don’t need a license to be an investor.”, look at the head the noise is coming out of. Do you want to be like them when you grow up as an investor? all of my mentors and investors I admired not only were licensed, but actually continued with more education to become a broker. If you’re just getting started or you want to really begin cranking your investments, getting your license won’t hurt you. I’m encouraging you to get the education not the license. But, how can getting your license hurt you?
If you plan on buying one property a year, it may not benefit you to have your license active. You may choose to escrow your license. If you plan on cranking it seriously and buy a few houses a year, having your license is a good thing. Remember the person who said having your license is a bad thing? Do you really want to be like that person when you grow up? I have my broker’s license today and maybe one day when I slow down, I may escrow it to save $800 a year. Right now, it’s still worth every single penny!
Enroll in school. Get the education. Knowledge is your power. Learn the pieces and parts. Varsity and Pro Level One on One Coaching Students (if not licensed or previously attended school) must go to real estate school after their second session before they can schedule their third coaching session. They’re a little baffled and confused at first, but all are 100% in agreement attending the school is a definite benefit and advantage to their game plan for investing. The pieces and parts have been identified, explained, and it’s time to start the investing game.
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