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.
Sunday, May 31, 2009
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.
Sunday, May 24, 2009
Security vs. Freedom...It's Your Choice
Most of us would like to believe we can have both security and freedom. But in Rich Dad® terms, these are two opposing values. My rich dad said, "Freedom and security are not the same ideals. In fact, in many ways, freedom and security are exact opposites. The people who have the most security are people in prison. Prisoners have the least freedom and the highest security. People in prison do not need to provide housing, food, recreation, health care, or education for themselves. They have a lot of security but at the price of their freedom."
One advantage of living in a free society is the freedom to make choices. There are two big choices according to my rich dad: the choice of freedom and the choice of security. Both choices have appeal, both have strengths and weaknesses, and both come with a price. If you choose freedom, the price is paid up front, at the beginning of your life. If you choose security, you pay a huge price in the form of excessive taxes and interest payments. Often the price is paid later in your life.
Look at the bankruptcy debacle of Enron, one of the world's largest corporations. The price the loyal, hard-working, security-seeking employees paid is very high: they lost their jobs and their retirement plans. Unfortunately, many are paying this price at the end of their working years, just when their options diminish because of age or health.
Security vs. Freedom: It's Your Choice
Today, many employees are learning their jobs are not secure and neither are their retirement plans. In the coming years, 75 million baby-boomers may discover that their stocks and mutual funds were not as secure as they thought, forcing them to retire to a lower standard of living that their parents enjoyed. With the prospects of downsizing looming over their heads, some have taken the initiative to start their own businesses. Should you be one of them?
My rich dad said, "Somewhere along the way, people become more desirous of security and have paid the price by selling their freedom. You may have noticed that schools today focus primarily on job security rather than financial freedom. The problem is most people do not know that the cost of that security is their freedom." He continued to say, "If you choose security, someone is always telling you what hours to work, how much you make, and even when you can eat your lunch. That is the price of security."
Freedom means having more choices, not security. You have a choice to be poor, middle class, or rich. If you choose to be rich, then you need to learn a whole new game. But it requires a different mindset and financial intelligence. You will be free to work or not to work. Your knowledge will bring you freedom from work because you will learn how to make your money work for you. The choice is yours.
One advantage of living in a free society is the freedom to make choices. There are two big choices according to my rich dad: the choice of freedom and the choice of security. Both choices have appeal, both have strengths and weaknesses, and both come with a price. If you choose freedom, the price is paid up front, at the beginning of your life. If you choose security, you pay a huge price in the form of excessive taxes and interest payments. Often the price is paid later in your life.
Look at the bankruptcy debacle of Enron, one of the world's largest corporations. The price the loyal, hard-working, security-seeking employees paid is very high: they lost their jobs and their retirement plans. Unfortunately, many are paying this price at the end of their working years, just when their options diminish because of age or health.
Security vs. Freedom: It's Your Choice
Today, many employees are learning their jobs are not secure and neither are their retirement plans. In the coming years, 75 million baby-boomers may discover that their stocks and mutual funds were not as secure as they thought, forcing them to retire to a lower standard of living that their parents enjoyed. With the prospects of downsizing looming over their heads, some have taken the initiative to start their own businesses. Should you be one of them?
My rich dad said, "Somewhere along the way, people become more desirous of security and have paid the price by selling their freedom. You may have noticed that schools today focus primarily on job security rather than financial freedom. The problem is most people do not know that the cost of that security is their freedom." He continued to say, "If you choose security, someone is always telling you what hours to work, how much you make, and even when you can eat your lunch. That is the price of security."
Freedom means having more choices, not security. You have a choice to be poor, middle class, or rich. If you choose to be rich, then you need to learn a whole new game. But it requires a different mindset and financial intelligence. You will be free to work or not to work. Your knowledge will bring you freedom from work because you will learn how to make your money work for you. The choice is yours.
Recycle the Real Estate Oink
The grandparents from my mother's side of the family had been in the butchering business for over fifty years. As a kid I visited their butcher house with great curiousity. The amazing thing they showed me was how virtually every part of the animal gets processed into some salable product. There's a saying in the slaughterhouse business--"We use everything but the oink." I will relate how all of this fits into your real estate business in a moment. Indulge me, please.
In the meat processing business every single by-product and meat part gets used (if you are a militant vegetarian stop reading now). The bones are sold to fertilizer factories where they are ground into powder and dried. Ditto for most of the blood. Blood makes fine fertilizer. The hides are obviously sold to leather tanning companies where they too are processed. The best cuts of meat are sold as steak and roasts, while the lesser grade cuts are ground into hamburger with a little blood added for color enhancement. The inedible entrails are typically sold to petfood companies where they are mashed and cooked into a nutritous dinner for North America's pets. Some of the more unknown organ meats are sold to Asia as various food delicacies, while some are sold to pharmaceutical companies to extract life-saving medicines or chemical substances. I could go on, but I think you get my point.
In your real estate business (rentals, flipping, or management services) you need to model yourself after the butcherhouse model. How? By taking all of the materials and supplies that you use and not waste a scrap. This means saving all end of can paints, screws, nails, carpet pieces, vinyl scraps, wood, and 100s of other things used in rehabbing and maintenance.
For instance. I saved about a 4X5 foot scrap of leftover vinyl used on a house 5 years ago. That house developed a hole in the vinyl. All I had to do was take the "scrap" piece to my handyman and have him splice it into the hole area! Same thing works with carpet--ever have tenants burn holes in carpet? Things you should save: celing tiles, miscellaneous hardware, outet and switch covers, nails, screws, cabinets, roofing supplies, glass panes, etc.
Next, with this philosophy, start stopping and picking up unwanted stuff left by the curb as junk by homeowners. This means old cabinets, windows, doors, storm window glass, vanities, etc. As you know, if you have read my book, Perpetual Income, that I am a dumpster diver. I root through job site dumpsters. People throw out lots of good stuff. I have carpet in several of my properties that was gotten for free or almost-free prices.
To have long-term success in real estate you need to be frugal. Being strategically cheap is fun. Frankly, when I use some supplies I have either found for free or have stored in my inventory, I get a lot of kicks out of it using them.
Do this: Save everything remotely usable. Inventory the stuff so you know what you have. Check out buildings that are scheduled to be torn down. Strip them (with permission). Stop and pick up freebies. Be cheap!
This works once you get going with it. You will need some storage. Buy or build a small barn or garage out behind your house, if possible. The costs of a small out building are extremely low--especially if you do it yourself with the many kits available. This will payoff big in your housing business.
In the meat processing business every single by-product and meat part gets used (if you are a militant vegetarian stop reading now). The bones are sold to fertilizer factories where they are ground into powder and dried. Ditto for most of the blood. Blood makes fine fertilizer. The hides are obviously sold to leather tanning companies where they too are processed. The best cuts of meat are sold as steak and roasts, while the lesser grade cuts are ground into hamburger with a little blood added for color enhancement. The inedible entrails are typically sold to petfood companies where they are mashed and cooked into a nutritous dinner for North America's pets. Some of the more unknown organ meats are sold to Asia as various food delicacies, while some are sold to pharmaceutical companies to extract life-saving medicines or chemical substances. I could go on, but I think you get my point.
In your real estate business (rentals, flipping, or management services) you need to model yourself after the butcherhouse model. How? By taking all of the materials and supplies that you use and not waste a scrap. This means saving all end of can paints, screws, nails, carpet pieces, vinyl scraps, wood, and 100s of other things used in rehabbing and maintenance.
For instance. I saved about a 4X5 foot scrap of leftover vinyl used on a house 5 years ago. That house developed a hole in the vinyl. All I had to do was take the "scrap" piece to my handyman and have him splice it into the hole area! Same thing works with carpet--ever have tenants burn holes in carpet? Things you should save: celing tiles, miscellaneous hardware, outet and switch covers, nails, screws, cabinets, roofing supplies, glass panes, etc.
Next, with this philosophy, start stopping and picking up unwanted stuff left by the curb as junk by homeowners. This means old cabinets, windows, doors, storm window glass, vanities, etc. As you know, if you have read my book, Perpetual Income, that I am a dumpster diver. I root through job site dumpsters. People throw out lots of good stuff. I have carpet in several of my properties that was gotten for free or almost-free prices.
To have long-term success in real estate you need to be frugal. Being strategically cheap is fun. Frankly, when I use some supplies I have either found for free or have stored in my inventory, I get a lot of kicks out of it using them.
Do this: Save everything remotely usable. Inventory the stuff so you know what you have. Check out buildings that are scheduled to be torn down. Strip them (with permission). Stop and pick up freebies. Be cheap!
This works once you get going with it. You will need some storage. Buy or build a small barn or garage out behind your house, if possible. The costs of a small out building are extremely low--especially if you do it yourself with the many kits available. This will payoff big in your housing business.
Real Estate Investing is Just Like Weight Loss
It takes a lot of effort on your part (but a guru or two can help)
It amazes me how many people get started in real estate investing, only to fail when the going gets tough. As soon as someone discovers they can’t get rich in a week or two, they are on to the next “hidden guru” secret. It’s the same as weight loss - everyone talks about it, many try it, but few succeed. There are thousands of “get rich quick” and “get slim quick” gimmicks. No wonder both the real estate investing information and weight loss products industries make BILLIONS!
Weight loss isn’t easy… ask anyone who has tried it. However, the concept of weight loss is very basic - burn more calories than you ingest and your body will react accordingly. Unless you have a medical disorder, this formula works for just about anyone. Simple as it may be, the formula is HARD, meaning it takes a lot of DISCIPLINE AND HARD WORK. So, the weight loss industry has offered us thousands of ways to make it easier. Many of these solutions do work, but they only work if you put forth effort.
Now, let’s start with the premise you don’t need any of these “solutions” to make real estate OR weight loss work for you. You can eat less calories, go walking or jogging every day and you will lose weight. But, having knowledge of the caloric content of different foods is relevant. Also, for many people, knowing the carbohydrate content is relevant. Having the advice of a physician, dietician and personal trainer will help you prevent injuries and maximum your effort.
Same principle applies to real estate - you can go out and make hundreds of offers to motivated sellers and find a good deal. However, having information about how to solve the seller’s needs and construct an offer will help. Having an attorney, real estate agent or “guru” to assist you with constructing the offer and the paperwork will make it easier. Having advice from other people who have already done hundreds of deals will also make it easier for you to learn from other people’s success (and failures).
However, whether it’s weight loss or real estate, the bottom line is not just knowing, but DOING. You can’t blame the diet if you don’t stick to it. Many people have successfully lost weight using the ZONE, WEIGHT WATCHERS, ATKINS and other similar plans. Many people have succeeded with the famous “guru” plans, but many have failed, likely because they didn’t give the required effort, NOT because the plan isn’t effective.
Both real estate investing business and weight loss are simple, but neither is easy. It takes a lot of work. Having a proven “system” or plan helps, but only if you stick to it. If the diet plan says, “exercise 3x times per week”, you can’t be sloppy about it and expect results. It’s like the people reading a book on the treadmill at the gym - if you can read a book, you’re not working HARD ENOUGH. Likewise, people call newspaper ads and say “hey, you wouldn’t want to sell me your house cheap, would you?” This is not DOING it is TRYING. You have to give 100% to a particular plan or formula before you say, “this stuff doesn’t work.”
Many people who are interested in weight loss join a gym or hire a personal trainer. From personal experience, I can say that both are great for weight loss. But, the weeks I didn’t show up, it was a BIG WASTE OF MONEY! The same thing goes for a real estate training system or mentor program - if you don’t put forth any effort, it won’t work! And, of course, you’ll likely get bitter about all the money you spent and blame the guru. After all, it can’t be YOUR fault!
That brings us to another topic - the “scam” side of the real estate and weight loss business. Sure, the “magic pills” that melt off fat are probably a scam. These snake oil salesman are offering the lazy and desperate people a solution - no work and results. Hah! If you bought into this scam you deserve to be parted from your money. Likewise, any real estate guru who promises riches with no work is also a scam. My favorite promise is “no selling involved” - that’s the biggest lie ever told.
No business can be successful without a certain amount of selling of their product or service to customers - period! So, while there is a dark side to the weight loss and real estate investing information businesses, I assert that most people fail at both because of their own lack of action, not the fault of the “systems.” If you aren’t willing to work, another weight loss program or real estate seminar won’t get you any more results than you are currently getting - save your money and take MORE CONSISTENT ACTION with what you are currently doing.
However, if you are willing to work hard and take a lot of consistent action, a guru or program will likely give you more results. If you bought a book, course or program and already have results, another program, course or book will likely give you tools to get MORE RESULTS. I often hear about successes people have with my real estate programs, but a lot of them are not FIRST TIME successes. They are most often people who have already been successful, and, using my tools, became MORE successful.
If someone asks me whether my program will make them successful, I ask, “what other programs have you bought?” If they have already spend thousands on other programs and have done NOTHING, I discourage them from buying mine. These people are looking for the elusive “holy grail” that all the other programs left out. More than likely, the missing element is lack of action on their part.
If you aren’t willing to take action on a massive scale, you won’t get more results by buying more products. If you have the discipline to work hard and take consistent action, then products and services will help you get there faster. Whether you are looking to get rich or lose weight, the bottom line is YOU!
It amazes me how many people get started in real estate investing, only to fail when the going gets tough. As soon as someone discovers they can’t get rich in a week or two, they are on to the next “hidden guru” secret. It’s the same as weight loss - everyone talks about it, many try it, but few succeed. There are thousands of “get rich quick” and “get slim quick” gimmicks. No wonder both the real estate investing information and weight loss products industries make BILLIONS!
Weight loss isn’t easy… ask anyone who has tried it. However, the concept of weight loss is very basic - burn more calories than you ingest and your body will react accordingly. Unless you have a medical disorder, this formula works for just about anyone. Simple as it may be, the formula is HARD, meaning it takes a lot of DISCIPLINE AND HARD WORK. So, the weight loss industry has offered us thousands of ways to make it easier. Many of these solutions do work, but they only work if you put forth effort.
Now, let’s start with the premise you don’t need any of these “solutions” to make real estate OR weight loss work for you. You can eat less calories, go walking or jogging every day and you will lose weight. But, having knowledge of the caloric content of different foods is relevant. Also, for many people, knowing the carbohydrate content is relevant. Having the advice of a physician, dietician and personal trainer will help you prevent injuries and maximum your effort.
Same principle applies to real estate - you can go out and make hundreds of offers to motivated sellers and find a good deal. However, having information about how to solve the seller’s needs and construct an offer will help. Having an attorney, real estate agent or “guru” to assist you with constructing the offer and the paperwork will make it easier. Having advice from other people who have already done hundreds of deals will also make it easier for you to learn from other people’s success (and failures).
However, whether it’s weight loss or real estate, the bottom line is not just knowing, but DOING. You can’t blame the diet if you don’t stick to it. Many people have successfully lost weight using the ZONE, WEIGHT WATCHERS, ATKINS and other similar plans. Many people have succeeded with the famous “guru” plans, but many have failed, likely because they didn’t give the required effort, NOT because the plan isn’t effective.
Both real estate investing business and weight loss are simple, but neither is easy. It takes a lot of work. Having a proven “system” or plan helps, but only if you stick to it. If the diet plan says, “exercise 3x times per week”, you can’t be sloppy about it and expect results. It’s like the people reading a book on the treadmill at the gym - if you can read a book, you’re not working HARD ENOUGH. Likewise, people call newspaper ads and say “hey, you wouldn’t want to sell me your house cheap, would you?” This is not DOING it is TRYING. You have to give 100% to a particular plan or formula before you say, “this stuff doesn’t work.”
Many people who are interested in weight loss join a gym or hire a personal trainer. From personal experience, I can say that both are great for weight loss. But, the weeks I didn’t show up, it was a BIG WASTE OF MONEY! The same thing goes for a real estate training system or mentor program - if you don’t put forth any effort, it won’t work! And, of course, you’ll likely get bitter about all the money you spent and blame the guru. After all, it can’t be YOUR fault!
That brings us to another topic - the “scam” side of the real estate and weight loss business. Sure, the “magic pills” that melt off fat are probably a scam. These snake oil salesman are offering the lazy and desperate people a solution - no work and results. Hah! If you bought into this scam you deserve to be parted from your money. Likewise, any real estate guru who promises riches with no work is also a scam. My favorite promise is “no selling involved” - that’s the biggest lie ever told.
No business can be successful without a certain amount of selling of their product or service to customers - period! So, while there is a dark side to the weight loss and real estate investing information businesses, I assert that most people fail at both because of their own lack of action, not the fault of the “systems.” If you aren’t willing to work, another weight loss program or real estate seminar won’t get you any more results than you are currently getting - save your money and take MORE CONSISTENT ACTION with what you are currently doing.
However, if you are willing to work hard and take a lot of consistent action, a guru or program will likely give you more results. If you bought a book, course or program and already have results, another program, course or book will likely give you tools to get MORE RESULTS. I often hear about successes people have with my real estate programs, but a lot of them are not FIRST TIME successes. They are most often people who have already been successful, and, using my tools, became MORE successful.
If someone asks me whether my program will make them successful, I ask, “what other programs have you bought?” If they have already spend thousands on other programs and have done NOTHING, I discourage them from buying mine. These people are looking for the elusive “holy grail” that all the other programs left out. More than likely, the missing element is lack of action on their part.
If you aren’t willing to take action on a massive scale, you won’t get more results by buying more products. If you have the discipline to work hard and take consistent action, then products and services will help you get there faster. Whether you are looking to get rich or lose weight, the bottom line is YOU!
Real Estate Investing Crystal Ball
Now that the year 2001 has rolled around... it’s time to take a look at our Real Estate Investing Crystal Ball. If you know what to expect out of the coming economy, you can position yourself to take maximum advantage of the opportunities. It’s almost like having the winning lottery numbers a few hours before the drawing. With that in mind, let’s gaze into the future...
Some Interesting Facts
Consumer spending drives the economy. We as consumers are highly predictable. When large numbers of us earn and spend more, the economy grows.
People spend, save, work and mature in predictable patterns as they age.
Newborns don’t spend anything. 18-22 year olds are just moving into the work force and have very little economic impact. Spending for Baby Boomers currently peaks around age 49. Spending demands fall as the maturing work force moves into the power structure of business and industry.
The Baby Boomer generation is the largest in history at 80 million strong.
The Baby Boom generation is defined by those born in the above average birth years between 1946 and 1964.
The most concentrated surge in property buying comes at age 43 when most people buy their largest home. Home buying declines as buyers approach their peak spending age of 49... then drops off dramatically.
Housing is a key factor in the economy. Housing leads the way out of recessions.
The Baby Boom birth wave peaked between 1950 and 1957. This should put the 43 year housing peak from late 1993 through the year 2000.
How Interesting...
The above information is powerful. Most of it was compiled by our own government via the U.S. Bureau of Labor Statistics, Consumer Expenditure Survey and the U.S. Census Bureau.
The reason this information is so powerful is that it can be used to predict what will be happening in our economy way into the future. This kind of stuff will turn you psychic. No kiddin’.
Think about it. If you agree spending is what drives our economy... then the shear number of people spending is where the real impact comes into play. This has been going on in commercial real estate for years. If you put a McDonalds on a street with a high traffic count... assuming easy access... it should outperform a McDonalds on a street with a low traffic count. Make sense?
This has been referred to in Real Estate as location, location, location. In McDonalds’ case... the hungry crowd is bigger in the high traffic location. Every thing else being equal... which location do you think has the higher probability of success? Which would you rather invest your hard earned dollars?
But you see... this is exactly the same impact we can expect from the Baby Boom generation. More people in their peak spending years. As a matter of fact... the most people in the history of the United States reaching their peak spending years as a group.
The Boom Economy
Right now... we’re on the leading edge of a Boom Economy. Because of the tremendous size of this Baby Boom generation... this will be the strongest and healthiest economy we’ll see in our lifetimes. In fact, this boom economy should take us well into the 21st century in grand style... lasting until 2010 to 2015.
Get ready! Position yourself to take maximum advantage of this unprecedented opportunity.
Now... Let’s Take A Closer Look At Your Tea Leaves...
What can you expect from this economy? Come closer and I’ll tell you... First of all, let’s talk about inflation. Inflation has made a lot of real estate property owners rich. In fact... there have been times in the not so distant past... when all you had to do was own real estate to become wealthy.
So... what causes inflation? Some say it’s the devaluation of our currency by our Government via the printing of more and more money. Let’s see if we can’t take it a little further. How about this... Inflation occurs when we have a high requirement for investment and low productivity to help finance that investment. In other words... it’s the economy’s way of financing periods of high investment.
Historically... inflation has accompanied periods of war. High requirement for investment... low productivity to help finance that investment. Inflation also accompanies transitions in technology. Each generation brings with it new ideas and technologies as it enters the work force. The Baby Boomers were far from the exception.
Think of the expense of training this enormous work force (high requirement for investment) compared to their productivity during the training process (low productivity). Add to that the expense of retooling for the new technology they brought with them. This... no doubt... is the formula for inflation. A workable formula we can use to predict inflation.
Pass the Windex
There is no question... barring the possibility of all-out war... this boom economy is going to be one with little... if any... inflation. We will even see many items go down in price. This has already happened to housing prices in some parts of the country like Southern California. It may have even happened in your part of the world.
If you are buying real estate property with the hope you’ll be the recipient of a great transfer of wealth because of inflationary times... you may want to re-evaluate your thinking. Real Estate prices... in the next 10-15 years... will be pushed into higher ground only by the laws of supply and demand. Well located... quality real estate property will be the appreciation play.
O.K. Mr. Hotshot... Know-it-all... Psychic Real Estate Man... What About Interest Rates?
Well... let me ask you. What have you noticed as the trend with interest rates in the last couple of years? Been coming down a bit... haven’t they? Every time you turn on CNBC they’re talking about pressure on the "The Fed" to lower interest rates. "The Fed" is making an effort to protect us from inflation. It is their contention... if you lower interest rates... the economy will heat up... bringing with it inflation.
The reality of the situation is this... every time they have lowered interest rates... the economy has improved without any inflation. In fact... as we have already seen... quite a few items have actually gone down in price.
Interest rates are nothing more than a symptom of inflation. With inflation in check... interest rates will continue to seek a lower level. Look for 30 year real estate mortgage rates to continue to drop... possibly reaching as low as 5-6% by 1998.
"What’s It All Mean... Alfie"
It’s time for Chicken Little to go back inside. With inflation gone... and with deflation in prices in a broad range of categories... interest rates at the lowest levels in decades... we can expect our purchasing power to increase dramatically.
Think about this: If you could afford to pay $1,000 a month on your primary residence with 100% financing at 10%... you could afford to live in a $114,000 home. With interest rates at 5%... you’d be living in a $186,000 pad. Not too bad... but consider this... with a somewhat deflationary trend in Real Estate Property values... that $186,000 house might actually be the equivalent of yesterdays $200,000 - $225,000 crib. Oooh, Baby! That’s goood.
Couple the above with the fact all other consumer items will stabilize in price (or even drop slightly)... savings will increase... spendable income should increase... and you may actually be able to afford $1,500 a month for a house note... moving you into the $280,000 price range. Wow! Can this really be true?
"I Can See Clearly Now... The Haze Is Gone"
What’s this all mean to you and me as Real Estate investors? Well... first of all... we can’t count on inflation to make us rich for a long, long time. We have to buy property based on it’s economic value today. We’ll need to re-negotiate interest rates on our existing debt to bring them in line with lower market rates... increasing our cash flow. Lock in on fixed rates where possible. This may also be the best buying opportunity of the century.
Listen friend... take advantage of this boom economy. There will be numerous opportunities to become truly wealthy in the next 15-20 years. It’s in your tea leaves. But be warned... it won’t last forever. Don’t allow yourself to be caught in the trap of linear thinking. Just because it’s good now and it’s getting better every day... doesn’t mean it will always be that way.
Things are cyclical. The shear numbers of Baby Boomers reaching their peak spending years are what fuels this incredible economy. This was put into play some 49 years ago. There’s not much that can happen to change this direction. However... behind the Boomers is a serious drop in the birth rate. What will happen in 2015 when the number of people supporting our economy falls off dramatically? Will it be worse than the Great Depression? Probably so!
Your future will look bright if you plan accordingly. Entering into a 30 year mortgage won’t have you debt free before the bottom drops out. Consider limiting yourself to 15 year financing or less. The lower interest rates will help. Having large cash reserves will not only help you weather the storm but will also put you in a position to profit from those who don’t have their own Real Estate Crystal Ball.
Some Interesting Facts
Consumer spending drives the economy. We as consumers are highly predictable. When large numbers of us earn and spend more, the economy grows.
People spend, save, work and mature in predictable patterns as they age.
Newborns don’t spend anything. 18-22 year olds are just moving into the work force and have very little economic impact. Spending for Baby Boomers currently peaks around age 49. Spending demands fall as the maturing work force moves into the power structure of business and industry.
The Baby Boomer generation is the largest in history at 80 million strong.
The Baby Boom generation is defined by those born in the above average birth years between 1946 and 1964.
The most concentrated surge in property buying comes at age 43 when most people buy their largest home. Home buying declines as buyers approach their peak spending age of 49... then drops off dramatically.
Housing is a key factor in the economy. Housing leads the way out of recessions.
The Baby Boom birth wave peaked between 1950 and 1957. This should put the 43 year housing peak from late 1993 through the year 2000.
How Interesting...
The above information is powerful. Most of it was compiled by our own government via the U.S. Bureau of Labor Statistics, Consumer Expenditure Survey and the U.S. Census Bureau.
The reason this information is so powerful is that it can be used to predict what will be happening in our economy way into the future. This kind of stuff will turn you psychic. No kiddin’.
Think about it. If you agree spending is what drives our economy... then the shear number of people spending is where the real impact comes into play. This has been going on in commercial real estate for years. If you put a McDonalds on a street with a high traffic count... assuming easy access... it should outperform a McDonalds on a street with a low traffic count. Make sense?
This has been referred to in Real Estate as location, location, location. In McDonalds’ case... the hungry crowd is bigger in the high traffic location. Every thing else being equal... which location do you think has the higher probability of success? Which would you rather invest your hard earned dollars?
But you see... this is exactly the same impact we can expect from the Baby Boom generation. More people in their peak spending years. As a matter of fact... the most people in the history of the United States reaching their peak spending years as a group.
The Boom Economy
Right now... we’re on the leading edge of a Boom Economy. Because of the tremendous size of this Baby Boom generation... this will be the strongest and healthiest economy we’ll see in our lifetimes. In fact, this boom economy should take us well into the 21st century in grand style... lasting until 2010 to 2015.
Get ready! Position yourself to take maximum advantage of this unprecedented opportunity.
Now... Let’s Take A Closer Look At Your Tea Leaves...
What can you expect from this economy? Come closer and I’ll tell you... First of all, let’s talk about inflation. Inflation has made a lot of real estate property owners rich. In fact... there have been times in the not so distant past... when all you had to do was own real estate to become wealthy.
So... what causes inflation? Some say it’s the devaluation of our currency by our Government via the printing of more and more money. Let’s see if we can’t take it a little further. How about this... Inflation occurs when we have a high requirement for investment and low productivity to help finance that investment. In other words... it’s the economy’s way of financing periods of high investment.
Historically... inflation has accompanied periods of war. High requirement for investment... low productivity to help finance that investment. Inflation also accompanies transitions in technology. Each generation brings with it new ideas and technologies as it enters the work force. The Baby Boomers were far from the exception.
Think of the expense of training this enormous work force (high requirement for investment) compared to their productivity during the training process (low productivity). Add to that the expense of retooling for the new technology they brought with them. This... no doubt... is the formula for inflation. A workable formula we can use to predict inflation.
Pass the Windex
There is no question... barring the possibility of all-out war... this boom economy is going to be one with little... if any... inflation. We will even see many items go down in price. This has already happened to housing prices in some parts of the country like Southern California. It may have even happened in your part of the world.
If you are buying real estate property with the hope you’ll be the recipient of a great transfer of wealth because of inflationary times... you may want to re-evaluate your thinking. Real Estate prices... in the next 10-15 years... will be pushed into higher ground only by the laws of supply and demand. Well located... quality real estate property will be the appreciation play.
O.K. Mr. Hotshot... Know-it-all... Psychic Real Estate Man... What About Interest Rates?
Well... let me ask you. What have you noticed as the trend with interest rates in the last couple of years? Been coming down a bit... haven’t they? Every time you turn on CNBC they’re talking about pressure on the "The Fed" to lower interest rates. "The Fed" is making an effort to protect us from inflation. It is their contention... if you lower interest rates... the economy will heat up... bringing with it inflation.
The reality of the situation is this... every time they have lowered interest rates... the economy has improved without any inflation. In fact... as we have already seen... quite a few items have actually gone down in price.
Interest rates are nothing more than a symptom of inflation. With inflation in check... interest rates will continue to seek a lower level. Look for 30 year real estate mortgage rates to continue to drop... possibly reaching as low as 5-6% by 1998.
"What’s It All Mean... Alfie"
It’s time for Chicken Little to go back inside. With inflation gone... and with deflation in prices in a broad range of categories... interest rates at the lowest levels in decades... we can expect our purchasing power to increase dramatically.
Think about this: If you could afford to pay $1,000 a month on your primary residence with 100% financing at 10%... you could afford to live in a $114,000 home. With interest rates at 5%... you’d be living in a $186,000 pad. Not too bad... but consider this... with a somewhat deflationary trend in Real Estate Property values... that $186,000 house might actually be the equivalent of yesterdays $200,000 - $225,000 crib. Oooh, Baby! That’s goood.
Couple the above with the fact all other consumer items will stabilize in price (or even drop slightly)... savings will increase... spendable income should increase... and you may actually be able to afford $1,500 a month for a house note... moving you into the $280,000 price range. Wow! Can this really be true?
"I Can See Clearly Now... The Haze Is Gone"
What’s this all mean to you and me as Real Estate investors? Well... first of all... we can’t count on inflation to make us rich for a long, long time. We have to buy property based on it’s economic value today. We’ll need to re-negotiate interest rates on our existing debt to bring them in line with lower market rates... increasing our cash flow. Lock in on fixed rates where possible. This may also be the best buying opportunity of the century.
Listen friend... take advantage of this boom economy. There will be numerous opportunities to become truly wealthy in the next 15-20 years. It’s in your tea leaves. But be warned... it won’t last forever. Don’t allow yourself to be caught in the trap of linear thinking. Just because it’s good now and it’s getting better every day... doesn’t mean it will always be that way.
Things are cyclical. The shear numbers of Baby Boomers reaching their peak spending years are what fuels this incredible economy. This was put into play some 49 years ago. There’s not much that can happen to change this direction. However... behind the Boomers is a serious drop in the birth rate. What will happen in 2015 when the number of people supporting our economy falls off dramatically? Will it be worse than the Great Depression? Probably so!
Your future will look bright if you plan accordingly. Entering into a 30 year mortgage won’t have you debt free before the bottom drops out. Consider limiting yourself to 15 year financing or less. The lower interest rates will help. Having large cash reserves will not only help you weather the storm but will also put you in a position to profit from those who don’t have their own Real Estate Crystal Ball.
Quality Deals
I’ve been meaning to write this article for quite some time and those who have heard me speak in the last couple of years have already gotten an earful of this. This topic isn’t about a neat investing technique or new idea, but about a mindset. It’s my mindset and one that I believe will make many other people successful.
Back in 1998 when I took my first step into real estate investing, I was strongly influenced by others around me who believed you had to be a dominant force in your market to make real money. They stressed doing as many deals as possible and beating out the competition. The world around me was saying that the person who does the most wins. More deals lead to more profits which ultimately leads to greater success – all going hand-in-hand.
As a newbie, I took the teaching to heart and did over 100 deals in my first two years. I was proud of my accomplishments and knew many around me were impressed with my successes. However, when stopped to look at the big picture, I was doing a lot of deals and making more money than ever before, but I had little control elsewhere. My time wasn’t my own and the deals truly controlled me. In short, I wasn’t living a life that felt fulfilling.
I’ve talked with many investors across the country and always ask what draws them to real estate investing. The answers vary, but typically can be summed up in one sentence, “I want a better quality of life.” Over my years of investing, I have come to realize that QUANTITY does not lead to QUALITY. If you want real estate investing to provide you with a good quality of life, you need to pursue good quality deals, not a good quantity of deals.
What are quality deals? They’re deals that contribute to the advancement your goals. They get you moving in the direction that you want to go. Many investors start buying homes with no idea of what they really want to accomplish with investing. As a result, they buy anything that looks like a deal and, all too often, get pulled in directions they never intended to go.
Your goals should drive your decision making. For example, a person who needs money today and buys a property to keep it as a rental is contradicting or not fulfilling the original goal. Rental properties will not reap quick, fast cash today. Let’s say your goal is to free up your time so that you can do other things important to you. If you only want to work 20 hours a week and are taking on deals that require 40 hours a week, you’re not doing quality deals. You’re focused on quantity.
We need to make sacrifices to achieve the success that we desire, but need to be careful not to sacrifice the important things in life. If you are pursuing investing to achieve a better quality of life, focus on quality deals and not quantity.
Back in 1998 when I took my first step into real estate investing, I was strongly influenced by others around me who believed you had to be a dominant force in your market to make real money. They stressed doing as many deals as possible and beating out the competition. The world around me was saying that the person who does the most wins. More deals lead to more profits which ultimately leads to greater success – all going hand-in-hand.
As a newbie, I took the teaching to heart and did over 100 deals in my first two years. I was proud of my accomplishments and knew many around me were impressed with my successes. However, when stopped to look at the big picture, I was doing a lot of deals and making more money than ever before, but I had little control elsewhere. My time wasn’t my own and the deals truly controlled me. In short, I wasn’t living a life that felt fulfilling.
I’ve talked with many investors across the country and always ask what draws them to real estate investing. The answers vary, but typically can be summed up in one sentence, “I want a better quality of life.” Over my years of investing, I have come to realize that QUANTITY does not lead to QUALITY. If you want real estate investing to provide you with a good quality of life, you need to pursue good quality deals, not a good quantity of deals.
What are quality deals? They’re deals that contribute to the advancement your goals. They get you moving in the direction that you want to go. Many investors start buying homes with no idea of what they really want to accomplish with investing. As a result, they buy anything that looks like a deal and, all too often, get pulled in directions they never intended to go.
Your goals should drive your decision making. For example, a person who needs money today and buys a property to keep it as a rental is contradicting or not fulfilling the original goal. Rental properties will not reap quick, fast cash today. Let’s say your goal is to free up your time so that you can do other things important to you. If you only want to work 20 hours a week and are taking on deals that require 40 hours a week, you’re not doing quality deals. You’re focused on quantity.
We need to make sacrifices to achieve the success that we desire, but need to be careful not to sacrifice the important things in life. If you are pursuing investing to achieve a better quality of life, focus on quality deals and not quantity.
Planning For Success
As Lonnie Scruggs says, "The opportunities are everywhere. There is no reason to be poor unless you choose to be."
So, why do some educated, hard-working people always have to struggle to keep up with their bills? And why is it that everything some people touch seems to turn to gold? Is it just luck? Or, does it have something to do with their frame of mind?
There are two questions you should ask yourself: Are you comfortable with your present income? Are you satisfied with the amount of money you have accumulated to date? If your response to either question is no, you will find answers in the following pages.
Today's American adults are some of the luckiest people in the history of the world. Just think about it. If you were born between 1940 and 1980, you grew up during the most prosperous period in history. You have seen the birth of modern technology and enjoyed the benefits of the space age, the computer age—and, for the most part, a period of peace. Those of us who have good health are indeed lucky. So, why shouldn't we have a positive outlook?
The optimist says, "My cup runneth over, what a blessing."
The pessimist says, "My cup runneth over, what a mess."
Granted, the economic future for some Americans may not be as bright as it could be. Yes, the country still has political and economic problems and some families are experiencing a decline in their standard of living.
But, we should keep in mind that "the flip side of a problem is an opportunity—for those who are prepared to find and implement solutions."
Successful People Have a Lot in Common
People who understand the importance of keeping their money working for them are usually more successful financially than those who fail to appreciate this fact. If you have a lot of money, it is important to keep it working because you have a lot to gain or lose, depending on how well your money is working for you. If you have very little money, it is even more important to keep what money you do have working. It can be the seed that grows to become great wealth. Once you begin wisely investing your money, efforts, and talents, you will be on your way to becoming financially independent.
Yet, those who have been successful in accumulating wealth through their own efforts have more than money in common. They think and plan "long-term." They believe in the planning process, set financial goals that are carefully thought out, put their plans into writing and then into action. They form good economic habits by saving and investing. They study, think, plan and learn from others and by doing. They make adjustments where necessary, continuously reinvesting. They never stop trying—and they always maintain "a winning attitude."
Successful people don't allow negative feelings to linger. They quickly get rid of the feelings by taking steps to solve their problems or by doing something positive.
"Don't be surprised to discover that luck favors those who are prepared."
You, Too, Can Be Financially Independent
Tenacity is also a most important quality. It is difficult to succeed without consistently focusing on the things we want to achieve—and by taking action each day to get closer to where we want to be. We must be willing to do whatever it takes if we are to get the results we want.
Lonnie Scruggs, the "father" of mobile home investments, says "the toughest thing for a lot of people is to actually get out and do that first deal. They let fear of making a mistake keep them from improving their lifestyle and financial position."
The first step in succeeding is that we must believe in what we are doing. If we don't believe strongly enough in the service we are performing, we will not succeed. We shouldn't think, for example, that because we have lived in a nice single family home, that manufactured homes can't play an important role in today's housing market.
Efficient manufacturing methods, low maintenance, and lower utility costs make it possible for millions of people to have a better place to live. For many, it is a way to build an equity that can be used later to make a down payment on a conventional home.
The Miracle Of Compound Interest
When asked to name the seven wonders of the world, Baron de Rothchild once said, "I cannot. But, I know the eighth wonder is compound interest."
Throughout the ages, the constant use of compound interest has made the difference between those who have become wealthy and those who stayed poor. In simple terms, compound interest means earning a return on both the money invested and on interest that was previously earned, but justify in the account to grow.
If you don't understand the concept of compound interest, learn it thoroughly and keep it in mind when planning your investments. If you will continuously use the power of compounding your money at a reasonable rate of return over a period of years, you will almost certainly become wealthy.
The higher the return on your money, the sooner your net worth will double. Once you double your net worth, the same rate of return will double your income. To illustrate the importance of earning a higher return, the chart in Table I below shows how long it will take to double your money at various rates, compounded monthly.
Table I
Time required to double your money,
depending upon the rate of return
Compound Rate Months Required
40% 21
30% 28
20% 42
15% 56
10% 84
6% 139
3% 278
We know that most banks will pay 2% to 5% interest on our money. But, before dismissing 20% to 40% returns as wishful thinking and, no doubt unsafe, bear with me a little longer and I will show you how.
First, there is another important concept that we should understand and keep in mind: The time value of money. We all understand the importance of avoiding losses when investing our money. However, most people don't realize that the profits we could have earned had we taken the correct steps, is just as real as the loss of money when we make a bad investment. The longer our money is allowed to sit idle—or invested at rates that are too low—the more money we lose.
To show the dramatic difference, let's look at the results achieved by our two hypothetical investors. After keeping $10,000 in savings at 6% for ten years, Mr. DeLay discovered he could earn 20% on his money. At the end of ten years he invested the accumulated $17,908 at the higher rate for the next ten years. Now, at the end of twenty years, his $10,000 investment has grown to $110,882 ($10,000 compounded at 6% to $17,908 over the first ten years; then compounded at 20% for ten years).
Mr. Timely, on the other hand, discovered at the outset that he could earn 20% on his money. During the same twenty year period his $10,000 grew to $383,376. Besides earning $272,494 more than Mr. DeLay, what did Mr. Timely do different? He allowed his money to grow at the higher rate for a longer period of time. He understood the concept of compound interest and the time value of money. Other important lessons can be learned by studying the following examples:
Table II
Results of Compounding a $10,000 Investment
at Varying Rates of Return
Compound Rate 2 Years 5 Years 10 Years 20 Years
40% $19,600 $ 53,782 $289,255 $8,366,826
30% 16,900 37,129 137,858 1,900,496
20% 14,400 24,883 61,917 383,376
15% 13,225 20,114 40,456 163,665
10% 2,100 16,105 25,937 67,275
6% 11,236 13,382 17,908 32,071
3% 10,609 11,593 13,439 18,061
Before going any further with this theory, let's get rid of some of your skepticism by reviewing a typical transaction, involving the purchase and sale of a used manufactured home. It was one of my wife's first transactions, done while she still worked as a nurse.
SITUATION
The manufactured home owner was a registered nurse who had just contracted to purchase a house. She had maintained her home in good condition and paid off the loan. Her asking price was $5,000 cash.
My wife had discovered it was relatively simple—and much more efficient—to buy and sell used homes that were already set up in a park and didn't need to be moved.
PROBLEMS
The owner was already under contract to buy a house and needed to get cash for her mobile home to help with the down payment. But, most prospective buyers don't have the cash—and banks wouldn't finance older mobile homes. She also needed to be relieved of her obligation to pay lot rent of $158 per month.
SOLUTION
The owner agreed to accept our cash offer of $3,500, with the understanding that she would be allowed to stay in the home for about three weeks until she could close on the purchase of her new home.
After the seller moved out, Janet resold the home within two weeks for $6,250. Our buyer paid $750 cash down and agreed to finance the $5,500 balance at $189.32 per month, including 14.5% interest for 36 months.
The financial results were as follows:
Selling Price $ 6,250
Less Down Payment from Buyer 750
_______
Net Receivable $5,500
Cost of Mobile Home $3,500
Sales Tax (6%) & Transfer Fee 245
Thorough Cleaning 50
Lot Rent (one month) 158
______
Total Cost $3,953
Less Buyer's Down Payment 750
_______
Net Investment After Sale 3,203
_______
Net Gain (65%) $2,297
Months Investment Annual Return Monthly Income
Receivable 36 $5,500 14.5% $189.32
Net Investment 36 $3,203 57.9%
ADVANTAGES
The owner received $3,500 of the cash needed for her new home and was relieved of $158 per month in lot rent. She no longer had to be responsible for the mobile home and was free to move at her convenience.
Our buyer was able to move into a neat home for only $750 down and $347.32 per month, including lot rent. His cash requirement and monthly payments were about the same as it would be had he rented a comparable apartment. But, unlike renting an apartment, the home will be paid for in three years. After that, he would have only lot rent to pay.
The park manager was happy to have the home stay in the park and to be able to continue collecting lot rent.
On a net investment of $3,203, my wife received $189.32 per month for the next 36 months—a net yield of 57.9% per annum.
Keep in mind, however, that we earn this kind of return by dealing in manufactured homes as a business—not a passive investment. While almost anyone can find ways to buy and sell manufactured homes, it does take a little time and effort.
Rules For Setting Effective Goals
To become financially independent, we believe it is necessary to set effective goals. Here are some rules you may want to follow:
1. Your goals should be written. An unwritten goal is merely a wish that you probably won't achieve. When you write your goals down, they become a commitment you have made to yourself. Since your situation today and your goals for tomorrow are both unique, your plan must be personalized.
Ask yourself, "How will I know if I am accomplishing my goals?" If you can't answer that question, you should rewrite your goals.
2. Financial goals should be specific. State your financial goals in terms of numbers and dates. For example, you might decide to have investments worth $250,000, producing an annual net income of $25,000 within five years.
Break your goals down into smaller sub-goals. If the value of your investments don't increase by at least $50,000 each year with an increase of $5,000 in income, you will know that you are behind schedule and should take steps to do better.
3. Focus on the things you want to achieve. Setting your priorities is of utmost importance. Keep a daily or weekly list of things that you need to do. Arrange them in order of importance. Ask yourself: If I could accomplish only one of these objectives, which one should it be?
Once the list is arranged in order of importance, take some action each day that will get you closer to where you want to be.
4. Your goals must be challenging, but attainable. Excitement and challenge are important ingredients when setting goals. If your goals don't demand your best efforts and push you beyond where you have been before, the lack of challenge may cause you to lose interest. However, if it becomes apparent as you get more involved that your goals are unrealistic, adjust them to a more realistic level. If you don't believe you can achieve the goals, you won't be willing to pay the price. When they begin to lose their challenge because they are too easy, adjust them upward.
5. Review your goals regularly. This is another reason it is important to have written goals. In a world that constantly threatens to overwhelm us with alternatives, reviewing written goals will help you stay on course and make adjustments when appropriate.
6. Evaluate your progress regularly. Without the satisfaction of reaching some of your goals for long periods of time, you may lose interest in your long-term goals. It may be helpful to reward yourself when achieving one of your sub-goals. Such things as new clothes, a new car, or a vacation could be a part of your goals. Don't spend any more of your profits than necessary. The more you spend, the less you have justify to work for you.
7. You must want to achieve your goals. The stronger the desire to reach those goals, the more willing you will be to pay the price for achievement. Spend a little time visualizing yourself possessing the things you want to acquire—then go out and do it. A plan that is not implemented is really no plan at all.
Obstacles You Will Need to Overcome
To become financially independent, it is essential to know the obstacles you will face, and then devise methods of overcoming them. Three major obstacles which need to be considered are:
1. The fear of taking a risk: The inability or unwillingness to take risks is a major handicap to financial success. Those who will not take risks often become spectators in the economic world and eventually blame everyone but themselves for their lack of wealth. Most people, in their desire for safety, choose methods that are familiar, rather than keeping an open mind and considering new ideas.
2. Procrastination and indecision: The best opportunities are usually brief and do not wait for those who are unprepared. How many times have we missed an opportunity by waiting too long? Almost everyone procrastinates to some extent. The difference is one of degree and only a small degree of difference can separate the successful from the unsuccessful.
3. Taxation: Our income tax system tends to punish the uninformed and reward those who are informed—provided they plan ahead and then take action. While the existence of taxation is beyond our control, there are many ways to minimize taxes, while working within the system.
Avoid Making Decisions By Indecision
If you are like many others, one of the big problems facing you is indecision. Usually, indecision is based upon a lack of information. When you are faced with making important decisions that you are not sure about, why not talk to people who are in a position to help? Ask each to list all the advantages and disadvantages.
Once you have the information necessary to make an informed decision, evaluate that information and then take appropriate action. The best decisions are made by design and systematic planning—not by acting on impulse.
You probably learned in school that Benjamin Franklin was famous for making wise decisions. If it was the right thing, he wanted to be sure to do it. If it was the wrong thing, he wanted to be sure to avoid it. His simple method of making decisions is used by many astute people today.
Taking a sheet of blank paper, Benjamin Franklin would draw a line down the middle. On one side he would list all the reasons for taking the action. On the other he would list the reasons not to take the action. When he was through, he counted the reasons on each side and the decision was made for him.
However, some reasons are more important than others. To be more precise when making important decisions, we could give each reason a weighted number on a scale of one to ten. When the totals on one side out-weigh the totals on the other, the right decision becomes more apparent.
Some decisions, such as buying or selling a large property, involve many different considerations. How will it affect your monthly income? Will cash be available to meet obligations? Do you have capable management? Will it result in additional taxes or tax savings? Is the property likely to increase or decline in value? Such decisions may be too complex to be made by approaching it as one decision.
Complex decisions should be broken down into "bite-size" pieces with each consideration listed as a separate issue. Then focus your attention on one issue at a time. When in doubt, get advice from people who are experienced in that area. When one issue is resolved, go to the next. When you are finished, the right decision will be clear.
Just Do It!
Knowledge, ideas, and good intentions will not pay the bills—until we decide to make it happen. Why do so many capable people fail to take action? They talk, read and think about all the great things they would like to do. And, then they fail to take action.
In his outstanding tapes, "Personal Power," Anthony Robbins explains that our actions are based on pain and pleasure. We have allowed our sub-conscious minds to believe that we can get more instant pleasure by sitting in front of the television set than by taking action. We are pained by the fear of making mistakes, failing to get the desired results, or what others might think about us. So, rather than take a chance, we procrastinate.
But, that same fear and pain can be turned to our advantage. Spend a few moments thinking about the pain you will have if you miss the opportunity to enjoy the benefits because you failed to use the talents you have. Then think about all the pleasures that come from achievement; the personal satisfaction of knowing that you are a person who can make a decision. And, think about the security, peace of mind and freedom from financial worry when you become financially independent.
Change the way you look at failure. And always remember that failure is a condition—not a person. The first time you tried to ride a bicycle, you probably had a few falls. You picked yourself up and kept trying until you got it right. Then you "practiced" riding the bicycle until you got very good at it.
You can avoid any feelings of fear or rejection when dealing with buyers and sellers by reminding yourself that you are just "practicing." Don't be shy about asking for more than you expect to get. If you don't get the desired response, you won't be discouraged. You simply discover one of the things that didn't work with that particular person. As adults, we practice in our trade or profession. Lawyers practice law and doctors practice medicine.
Start with the easy deals first and "earn as you learn." In the years to come, "we regret what we fail to do much more than what we have done."
So, why do some educated, hard-working people always have to struggle to keep up with their bills? And why is it that everything some people touch seems to turn to gold? Is it just luck? Or, does it have something to do with their frame of mind?
There are two questions you should ask yourself: Are you comfortable with your present income? Are you satisfied with the amount of money you have accumulated to date? If your response to either question is no, you will find answers in the following pages.
Today's American adults are some of the luckiest people in the history of the world. Just think about it. If you were born between 1940 and 1980, you grew up during the most prosperous period in history. You have seen the birth of modern technology and enjoyed the benefits of the space age, the computer age—and, for the most part, a period of peace. Those of us who have good health are indeed lucky. So, why shouldn't we have a positive outlook?
The optimist says, "My cup runneth over, what a blessing."
The pessimist says, "My cup runneth over, what a mess."
Granted, the economic future for some Americans may not be as bright as it could be. Yes, the country still has political and economic problems and some families are experiencing a decline in their standard of living.
But, we should keep in mind that "the flip side of a problem is an opportunity—for those who are prepared to find and implement solutions."
Successful People Have a Lot in Common
People who understand the importance of keeping their money working for them are usually more successful financially than those who fail to appreciate this fact. If you have a lot of money, it is important to keep it working because you have a lot to gain or lose, depending on how well your money is working for you. If you have very little money, it is even more important to keep what money you do have working. It can be the seed that grows to become great wealth. Once you begin wisely investing your money, efforts, and talents, you will be on your way to becoming financially independent.
Yet, those who have been successful in accumulating wealth through their own efforts have more than money in common. They think and plan "long-term." They believe in the planning process, set financial goals that are carefully thought out, put their plans into writing and then into action. They form good economic habits by saving and investing. They study, think, plan and learn from others and by doing. They make adjustments where necessary, continuously reinvesting. They never stop trying—and they always maintain "a winning attitude."
Successful people don't allow negative feelings to linger. They quickly get rid of the feelings by taking steps to solve their problems or by doing something positive.
"Don't be surprised to discover that luck favors those who are prepared."
You, Too, Can Be Financially Independent
Tenacity is also a most important quality. It is difficult to succeed without consistently focusing on the things we want to achieve—and by taking action each day to get closer to where we want to be. We must be willing to do whatever it takes if we are to get the results we want.
Lonnie Scruggs, the "father" of mobile home investments, says "the toughest thing for a lot of people is to actually get out and do that first deal. They let fear of making a mistake keep them from improving their lifestyle and financial position."
The first step in succeeding is that we must believe in what we are doing. If we don't believe strongly enough in the service we are performing, we will not succeed. We shouldn't think, for example, that because we have lived in a nice single family home, that manufactured homes can't play an important role in today's housing market.
Efficient manufacturing methods, low maintenance, and lower utility costs make it possible for millions of people to have a better place to live. For many, it is a way to build an equity that can be used later to make a down payment on a conventional home.
The Miracle Of Compound Interest
When asked to name the seven wonders of the world, Baron de Rothchild once said, "I cannot. But, I know the eighth wonder is compound interest."
Throughout the ages, the constant use of compound interest has made the difference between those who have become wealthy and those who stayed poor. In simple terms, compound interest means earning a return on both the money invested and on interest that was previously earned, but justify in the account to grow.
If you don't understand the concept of compound interest, learn it thoroughly and keep it in mind when planning your investments. If you will continuously use the power of compounding your money at a reasonable rate of return over a period of years, you will almost certainly become wealthy.
The higher the return on your money, the sooner your net worth will double. Once you double your net worth, the same rate of return will double your income. To illustrate the importance of earning a higher return, the chart in Table I below shows how long it will take to double your money at various rates, compounded monthly.
Table I
Time required to double your money,
depending upon the rate of return
Compound Rate Months Required
40% 21
30% 28
20% 42
15% 56
10% 84
6% 139
3% 278
We know that most banks will pay 2% to 5% interest on our money. But, before dismissing 20% to 40% returns as wishful thinking and, no doubt unsafe, bear with me a little longer and I will show you how.
First, there is another important concept that we should understand and keep in mind: The time value of money. We all understand the importance of avoiding losses when investing our money. However, most people don't realize that the profits we could have earned had we taken the correct steps, is just as real as the loss of money when we make a bad investment. The longer our money is allowed to sit idle—or invested at rates that are too low—the more money we lose.
To show the dramatic difference, let's look at the results achieved by our two hypothetical investors. After keeping $10,000 in savings at 6% for ten years, Mr. DeLay discovered he could earn 20% on his money. At the end of ten years he invested the accumulated $17,908 at the higher rate for the next ten years. Now, at the end of twenty years, his $10,000 investment has grown to $110,882 ($10,000 compounded at 6% to $17,908 over the first ten years; then compounded at 20% for ten years).
Mr. Timely, on the other hand, discovered at the outset that he could earn 20% on his money. During the same twenty year period his $10,000 grew to $383,376. Besides earning $272,494 more than Mr. DeLay, what did Mr. Timely do different? He allowed his money to grow at the higher rate for a longer period of time. He understood the concept of compound interest and the time value of money. Other important lessons can be learned by studying the following examples:
Table II
Results of Compounding a $10,000 Investment
at Varying Rates of Return
Compound Rate 2 Years 5 Years 10 Years 20 Years
40% $19,600 $ 53,782 $289,255 $8,366,826
30% 16,900 37,129 137,858 1,900,496
20% 14,400 24,883 61,917 383,376
15% 13,225 20,114 40,456 163,665
10% 2,100 16,105 25,937 67,275
6% 11,236 13,382 17,908 32,071
3% 10,609 11,593 13,439 18,061
Before going any further with this theory, let's get rid of some of your skepticism by reviewing a typical transaction, involving the purchase and sale of a used manufactured home. It was one of my wife's first transactions, done while she still worked as a nurse.
SITUATION
The manufactured home owner was a registered nurse who had just contracted to purchase a house. She had maintained her home in good condition and paid off the loan. Her asking price was $5,000 cash.
My wife had discovered it was relatively simple—and much more efficient—to buy and sell used homes that were already set up in a park and didn't need to be moved.
PROBLEMS
The owner was already under contract to buy a house and needed to get cash for her mobile home to help with the down payment. But, most prospective buyers don't have the cash—and banks wouldn't finance older mobile homes. She also needed to be relieved of her obligation to pay lot rent of $158 per month.
SOLUTION
The owner agreed to accept our cash offer of $3,500, with the understanding that she would be allowed to stay in the home for about three weeks until she could close on the purchase of her new home.
After the seller moved out, Janet resold the home within two weeks for $6,250. Our buyer paid $750 cash down and agreed to finance the $5,500 balance at $189.32 per month, including 14.5% interest for 36 months.
The financial results were as follows:
Selling Price $ 6,250
Less Down Payment from Buyer 750
_______
Net Receivable $5,500
Cost of Mobile Home $3,500
Sales Tax (6%) & Transfer Fee 245
Thorough Cleaning 50
Lot Rent (one month) 158
______
Total Cost $3,953
Less Buyer's Down Payment 750
_______
Net Investment After Sale 3,203
_______
Net Gain (65%) $2,297
Months Investment Annual Return Monthly Income
Receivable 36 $5,500 14.5% $189.32
Net Investment 36 $3,203 57.9%
ADVANTAGES
The owner received $3,500 of the cash needed for her new home and was relieved of $158 per month in lot rent. She no longer had to be responsible for the mobile home and was free to move at her convenience.
Our buyer was able to move into a neat home for only $750 down and $347.32 per month, including lot rent. His cash requirement and monthly payments were about the same as it would be had he rented a comparable apartment. But, unlike renting an apartment, the home will be paid for in three years. After that, he would have only lot rent to pay.
The park manager was happy to have the home stay in the park and to be able to continue collecting lot rent.
On a net investment of $3,203, my wife received $189.32 per month for the next 36 months—a net yield of 57.9% per annum.
Keep in mind, however, that we earn this kind of return by dealing in manufactured homes as a business—not a passive investment. While almost anyone can find ways to buy and sell manufactured homes, it does take a little time and effort.
Rules For Setting Effective Goals
To become financially independent, we believe it is necessary to set effective goals. Here are some rules you may want to follow:
1. Your goals should be written. An unwritten goal is merely a wish that you probably won't achieve. When you write your goals down, they become a commitment you have made to yourself. Since your situation today and your goals for tomorrow are both unique, your plan must be personalized.
Ask yourself, "How will I know if I am accomplishing my goals?" If you can't answer that question, you should rewrite your goals.
2. Financial goals should be specific. State your financial goals in terms of numbers and dates. For example, you might decide to have investments worth $250,000, producing an annual net income of $25,000 within five years.
Break your goals down into smaller sub-goals. If the value of your investments don't increase by at least $50,000 each year with an increase of $5,000 in income, you will know that you are behind schedule and should take steps to do better.
3. Focus on the things you want to achieve. Setting your priorities is of utmost importance. Keep a daily or weekly list of things that you need to do. Arrange them in order of importance. Ask yourself: If I could accomplish only one of these objectives, which one should it be?
Once the list is arranged in order of importance, take some action each day that will get you closer to where you want to be.
4. Your goals must be challenging, but attainable. Excitement and challenge are important ingredients when setting goals. If your goals don't demand your best efforts and push you beyond where you have been before, the lack of challenge may cause you to lose interest. However, if it becomes apparent as you get more involved that your goals are unrealistic, adjust them to a more realistic level. If you don't believe you can achieve the goals, you won't be willing to pay the price. When they begin to lose their challenge because they are too easy, adjust them upward.
5. Review your goals regularly. This is another reason it is important to have written goals. In a world that constantly threatens to overwhelm us with alternatives, reviewing written goals will help you stay on course and make adjustments when appropriate.
6. Evaluate your progress regularly. Without the satisfaction of reaching some of your goals for long periods of time, you may lose interest in your long-term goals. It may be helpful to reward yourself when achieving one of your sub-goals. Such things as new clothes, a new car, or a vacation could be a part of your goals. Don't spend any more of your profits than necessary. The more you spend, the less you have justify to work for you.
7. You must want to achieve your goals. The stronger the desire to reach those goals, the more willing you will be to pay the price for achievement. Spend a little time visualizing yourself possessing the things you want to acquire—then go out and do it. A plan that is not implemented is really no plan at all.
Obstacles You Will Need to Overcome
To become financially independent, it is essential to know the obstacles you will face, and then devise methods of overcoming them. Three major obstacles which need to be considered are:
1. The fear of taking a risk: The inability or unwillingness to take risks is a major handicap to financial success. Those who will not take risks often become spectators in the economic world and eventually blame everyone but themselves for their lack of wealth. Most people, in their desire for safety, choose methods that are familiar, rather than keeping an open mind and considering new ideas.
2. Procrastination and indecision: The best opportunities are usually brief and do not wait for those who are unprepared. How many times have we missed an opportunity by waiting too long? Almost everyone procrastinates to some extent. The difference is one of degree and only a small degree of difference can separate the successful from the unsuccessful.
3. Taxation: Our income tax system tends to punish the uninformed and reward those who are informed—provided they plan ahead and then take action. While the existence of taxation is beyond our control, there are many ways to minimize taxes, while working within the system.
Avoid Making Decisions By Indecision
If you are like many others, one of the big problems facing you is indecision. Usually, indecision is based upon a lack of information. When you are faced with making important decisions that you are not sure about, why not talk to people who are in a position to help? Ask each to list all the advantages and disadvantages.
Once you have the information necessary to make an informed decision, evaluate that information and then take appropriate action. The best decisions are made by design and systematic planning—not by acting on impulse.
You probably learned in school that Benjamin Franklin was famous for making wise decisions. If it was the right thing, he wanted to be sure to do it. If it was the wrong thing, he wanted to be sure to avoid it. His simple method of making decisions is used by many astute people today.
Taking a sheet of blank paper, Benjamin Franklin would draw a line down the middle. On one side he would list all the reasons for taking the action. On the other he would list the reasons not to take the action. When he was through, he counted the reasons on each side and the decision was made for him.
However, some reasons are more important than others. To be more precise when making important decisions, we could give each reason a weighted number on a scale of one to ten. When the totals on one side out-weigh the totals on the other, the right decision becomes more apparent.
Some decisions, such as buying or selling a large property, involve many different considerations. How will it affect your monthly income? Will cash be available to meet obligations? Do you have capable management? Will it result in additional taxes or tax savings? Is the property likely to increase or decline in value? Such decisions may be too complex to be made by approaching it as one decision.
Complex decisions should be broken down into "bite-size" pieces with each consideration listed as a separate issue. Then focus your attention on one issue at a time. When in doubt, get advice from people who are experienced in that area. When one issue is resolved, go to the next. When you are finished, the right decision will be clear.
Just Do It!
Knowledge, ideas, and good intentions will not pay the bills—until we decide to make it happen. Why do so many capable people fail to take action? They talk, read and think about all the great things they would like to do. And, then they fail to take action.
In his outstanding tapes, "Personal Power," Anthony Robbins explains that our actions are based on pain and pleasure. We have allowed our sub-conscious minds to believe that we can get more instant pleasure by sitting in front of the television set than by taking action. We are pained by the fear of making mistakes, failing to get the desired results, or what others might think about us. So, rather than take a chance, we procrastinate.
But, that same fear and pain can be turned to our advantage. Spend a few moments thinking about the pain you will have if you miss the opportunity to enjoy the benefits because you failed to use the talents you have. Then think about all the pleasures that come from achievement; the personal satisfaction of knowing that you are a person who can make a decision. And, think about the security, peace of mind and freedom from financial worry when you become financially independent.
Change the way you look at failure. And always remember that failure is a condition—not a person. The first time you tried to ride a bicycle, you probably had a few falls. You picked yourself up and kept trying until you got it right. Then you "practiced" riding the bicycle until you got very good at it.
You can avoid any feelings of fear or rejection when dealing with buyers and sellers by reminding yourself that you are just "practicing." Don't be shy about asking for more than you expect to get. If you don't get the desired response, you won't be discouraged. You simply discover one of the things that didn't work with that particular person. As adults, we practice in our trade or profession. Lawyers practice law and doctors practice medicine.
Start with the easy deals first and "earn as you learn." In the years to come, "we regret what we fail to do much more than what we have done."
Partnering On Real Estate Deals For The Right Reasons
My personal investment strategy has constantly changed over the years as I've discovered what works, what don't and how to "tighten-up" my deals to maximize cash flow. I've always felt that investing alone is better than splitting the pie and sharing my profits! However, I have had several excellent partnership ventures over the years. And I must tell you this, when they work, you can achieve your financial goals many times faster than doing deals alone. But remember, I said when they work - that's the tricky part.
Partnerships are like marriages - there are some good ones that last a lifetime and many that don't last till they're paid for! Like marriages, partnerships stand a much better chance of working and lasting if the partners are selected for the right reason. When I talk about partnership investing, I don't necessarily mean you should form a legal partnership. I'm talking co-ownership or two investors owning real estate together for the purpose of making money.
Why Would Anyone Want a Partnership?
There is only one good reason I know of to take on an investment partner. It's when you don't have enough financial horsepower to do the total deal by yourself. Most often, it's financial assistance you need. However there might be other legitimate reasons. Equity sharing and timeshare contracts are two examples of partnership investing. Both arrangements are specifically designed for investors who can't purchase the whole "enchilada" themselves, or at least they don't think they can!
Do Not Take on a Partner Because You want Companionship!
Always ask yourself these questions: Do I really need a partner or do I just think I need one? Is it wise for me to split my profits with someone else? The answers should be very clear before you look for a partner. Every so often I hear about a "lonely investor" who apparently doesn't have enough confidence to buy real estate by himself. Generally this type of person lacks courage. He wants a partner for moral support. That's not a good reason to form a partnership. It's like the guy who thinks he's better oft crashing in an airplane with 100 people aboard rather than crashing alone. Take my advice here, do not take on a partner because you want companionship. Partnerships are tough enough when you have a good reason.
Partnerships Must Be Based on Mutual Needs
Consider the want-to-be investor who knows just enough about real estate to be dangerous. He has more guts than it takes to fight a mountain lion, but not enough cash to use the pay toilet at the bus depot! Nine out of ten times, this joker will attempt to convince someone with money that by simply joining together, they'll both end up millionaires. Nearly always they both end up broke instead! Stay away from people who have million-dollar ideas, but no money!
My first thoughts when anyone approaches me with a partnership proposition are -
What's in the deal for me?
What's the risk to me and what assurances do I have that a partner will do what he says?
One question you should always ask yourself is -
What's the most I can lose if I do this deal?
Naturally, I'd be very concerned that my partner and I shared equal risk!
Partnerships Can Solve Your Money Problems
Developing partnerships to pool individual resources, knowledge and experience can provide an excellent vehicle for acquiring wealth at a much faster pace than would otherwise be possible. I've discovered that in most successful partnerships, the partners themselves will often have very little in common with each other except their desire to make money together. Sometimes an accountant will team up with a carpenter or handyman. A doctor might select a contractor, or a school teacher with extra hours and mechanical skills might work very well with a real estate broker.
Sometimes the best way to find investment partners with the particular qualifications you need is by advertising in the Help Wanted ads of a local newspaper. Many folks would like to create a profitable partnership, but don't have any idea where to start! The first thing you must determine is what can you provide to the partnership! Will it be investment capital, your time or the specialized skills you possess. Write it down on paper, then advertise for a partner. There are many people looking for what you have to offer, but if they don't know you exist you must speak up and let them know.
The Courting Period Requires Honesty
The biggest mistake for no money partners to make in trying to entice a person with money is to oversell and overstate the benefits the money partner is supposed to receive. If I were to show you all the proposals offered to me and added up all the profits I've been promised over the years, I'd need to rent the Bank of America headquarters building to store all my money. Fortunately or unfortunately, whichever way you view it, I didn't invest my money, so I'll never really know for sure. I can tell you this much however, a very high percentage of the deals went bust!
Jay's Rules for Finding a Money Partner
My "no-compromise" business rule for finding an investor with money when I need financial help is the same rule I use for landlording. I call it my 60/40 rule. It means I'm willing to give more than I take! I've always felt that broke investors should be willing to give up at least 60% of the partnership benefits in order to attract the money. This means if I'm the broke partner, I'll be content with taking 40% of the deal for myself.
Always ask yourself this question about the partnership. Who could most likely make it on their own - the partner with or without the money? I think it's clear - the party with the money will always have a much greater opportunity than the one who's broke.
Partnerships are like marriages - there are some good ones that last a lifetime and many that don't last till they're paid for! Like marriages, partnerships stand a much better chance of working and lasting if the partners are selected for the right reason. When I talk about partnership investing, I don't necessarily mean you should form a legal partnership. I'm talking co-ownership or two investors owning real estate together for the purpose of making money.
Why Would Anyone Want a Partnership?
There is only one good reason I know of to take on an investment partner. It's when you don't have enough financial horsepower to do the total deal by yourself. Most often, it's financial assistance you need. However there might be other legitimate reasons. Equity sharing and timeshare contracts are two examples of partnership investing. Both arrangements are specifically designed for investors who can't purchase the whole "enchilada" themselves, or at least they don't think they can!
Do Not Take on a Partner Because You want Companionship!
Always ask yourself these questions: Do I really need a partner or do I just think I need one? Is it wise for me to split my profits with someone else? The answers should be very clear before you look for a partner. Every so often I hear about a "lonely investor" who apparently doesn't have enough confidence to buy real estate by himself. Generally this type of person lacks courage. He wants a partner for moral support. That's not a good reason to form a partnership. It's like the guy who thinks he's better oft crashing in an airplane with 100 people aboard rather than crashing alone. Take my advice here, do not take on a partner because you want companionship. Partnerships are tough enough when you have a good reason.
Partnerships Must Be Based on Mutual Needs
Consider the want-to-be investor who knows just enough about real estate to be dangerous. He has more guts than it takes to fight a mountain lion, but not enough cash to use the pay toilet at the bus depot! Nine out of ten times, this joker will attempt to convince someone with money that by simply joining together, they'll both end up millionaires. Nearly always they both end up broke instead! Stay away from people who have million-dollar ideas, but no money!
My first thoughts when anyone approaches me with a partnership proposition are -
What's in the deal for me?
What's the risk to me and what assurances do I have that a partner will do what he says?
One question you should always ask yourself is -
What's the most I can lose if I do this deal?
Naturally, I'd be very concerned that my partner and I shared equal risk!
Partnerships Can Solve Your Money Problems
Developing partnerships to pool individual resources, knowledge and experience can provide an excellent vehicle for acquiring wealth at a much faster pace than would otherwise be possible. I've discovered that in most successful partnerships, the partners themselves will often have very little in common with each other except their desire to make money together. Sometimes an accountant will team up with a carpenter or handyman. A doctor might select a contractor, or a school teacher with extra hours and mechanical skills might work very well with a real estate broker.
Sometimes the best way to find investment partners with the particular qualifications you need is by advertising in the Help Wanted ads of a local newspaper. Many folks would like to create a profitable partnership, but don't have any idea where to start! The first thing you must determine is what can you provide to the partnership! Will it be investment capital, your time or the specialized skills you possess. Write it down on paper, then advertise for a partner. There are many people looking for what you have to offer, but if they don't know you exist you must speak up and let them know.
The Courting Period Requires Honesty
The biggest mistake for no money partners to make in trying to entice a person with money is to oversell and overstate the benefits the money partner is supposed to receive. If I were to show you all the proposals offered to me and added up all the profits I've been promised over the years, I'd need to rent the Bank of America headquarters building to store all my money. Fortunately or unfortunately, whichever way you view it, I didn't invest my money, so I'll never really know for sure. I can tell you this much however, a very high percentage of the deals went bust!
Jay's Rules for Finding a Money Partner
My "no-compromise" business rule for finding an investor with money when I need financial help is the same rule I use for landlording. I call it my 60/40 rule. It means I'm willing to give more than I take! I've always felt that broke investors should be willing to give up at least 60% of the partnership benefits in order to attract the money. This means if I'm the broke partner, I'll be content with taking 40% of the deal for myself.
Always ask yourself this question about the partnership. Who could most likely make it on their own - the partner with or without the money? I think it's clear - the party with the money will always have a much greater opportunity than the one who's broke.
Wednesday, May 13, 2009
Overcoming Fear (Beginning With A Vision)
Typically I write "how to" articles about real estate investing - particularly flipping homes.
Today is a little different. I have something important on my heart to share with you, and I hope you'll take a few moments to take it in.
For years I’ve wanted to write something about overcoming fear. And for years, I haven’t had a clue what to write.
But today, as I was doing my daily devotion, it hit me like a brick on the side of the head. The Lord put it on my heart to immediately stop and begin writing - right then and there!
Fear. It's a big word. Fear is about control, or lack thereof. Fear can motivate you. It can drive you, distract you, petrify you, and ultimately completely control you, if you allow it to.
There are more than a few interesting facts about fear. I believe one of them is that fear is the number one reason most people walking the face of this earth will choose to settle for a life of mediocrity.
For many, it is an insurmountable obstacle, with too many risks to even try to escape. The masses of society live through each day-to-day voluntarily bound up by the fear that enslaves them.
My experience in this life so far has taught me that most people are secretly disappointed with the lives that they live, but rarely, if ever, will admit it.
They measure themselves up against others and, in doing so, sink lower and lower into a dangerous pit. They look around and find someone not doing as well as they are (or not seeming to), and somehow, seeing them makes their own situation seem all right, even though they're still living in fear. The dominating vision I see so many people hhaving created is to be just a little better than someone else.
Have you ever heard someone say something like, “I’m not an alcoholic; I only drink on the weekends. But John -- he goes to happy hour ever day!” ...or maybe something like...“We’re not doing so bad. At least I can figure out a way to get my car payment made.”
These thoughts and other like them are what go through the minds of people who have settled for mediocrity. We’ve all had grand visions of what we wanted out of life. We have allowed our circumstances and others around us to steal our vision for the greatness we are capable of.
Here are a few of the qualities I believe a person must possess in order to overcome mediocrity, break free from fear, and make their vision a reality. I also challenge both of us (you and me) to strive for our vision:
A Good Attitude
If you are pessimistic and believe that everything is going to fall apart, why would you ever take a step toward your vision? A positive attitude gives life to a vision; a negative attitude kills it.
My challenge - look at yourself and get rid of any negative thoughts.
Turn them into positives and reflect on the positive thoughts when you catch yourself thinking negatively.
Belief In Yourself
If you don’t believe in yourself, why should anyone else believe in you?
My challenge – look at the things you wish to accomplish and have confidence that you CAN do them.
If you need to take steps to make your visions a reality (i.e. more knowledge or education, making better choices, etc), then start those steps today. Don’t put off until tomorrow what can be done today!
Willingness to Grow
The fact of the matter is that none of us are capable of carrying out our grand visions in our current state. We need to be stretched and have to allow it to happen. Stretching is oftentimes painful as we go through it; however, it makes us stronger and better.
My challenge - let your desire to be better exceed your desire to avoid the painful stretching called growth.
World class athletes put themselves through excruciating pain during their workouts because they know it will pay off and they’ll be better athletes for it. If they opted to avoid the pain because it hurts, they would also opt to give up their status as world class athletes. Mediocrity is the easy way out.
Focus
To overcome your fears, you need to truly know what it is that you are pursuing. You need to have an end in mind and focus on it.
My challenge – come up with a plan on how to achieve that end and muster up the determination to follow it.
Following a plan isn’t always easy. In fact, most things are never easy the first time we do them. However, the more we do them, the easier they get. Your plan may be difficult to get rolling, but once it starts moving, you’re on your way. It’s like pushing a stalled car. On a flat surface, it takes a lot of work to get the car moving. Your efforts are far greater to get it started compared to the effort needed once it’s moving. On occasion you’ll hit little hills, and sometimes big hills, but if you are determined enough, you will push the car over the hill and get to a point where it rolls by itself.
Enthusiasm
This is the fuel that gives energy to your vision. If you aren’t excited about your vision, it’s going to die.
My challenge - maintain your enthusiasm by exercising all of the items above.
I stated earlier that the Lord put it on my heart to write this, and to write it now.
The Lord gave me the vision and with that vision He gives the tools to carry it out. When you have a vision, you will also have all of the tools available to you. You can either pursue your vision with a good attitude, a belief in yourself, a willingness to grow, focus and enthusiasm or choose a life of mediocrity. Which will you choose?
Today is a little different. I have something important on my heart to share with you, and I hope you'll take a few moments to take it in.
For years I’ve wanted to write something about overcoming fear. And for years, I haven’t had a clue what to write.
But today, as I was doing my daily devotion, it hit me like a brick on the side of the head. The Lord put it on my heart to immediately stop and begin writing - right then and there!
Fear. It's a big word. Fear is about control, or lack thereof. Fear can motivate you. It can drive you, distract you, petrify you, and ultimately completely control you, if you allow it to.
There are more than a few interesting facts about fear. I believe one of them is that fear is the number one reason most people walking the face of this earth will choose to settle for a life of mediocrity.
For many, it is an insurmountable obstacle, with too many risks to even try to escape. The masses of society live through each day-to-day voluntarily bound up by the fear that enslaves them.
My experience in this life so far has taught me that most people are secretly disappointed with the lives that they live, but rarely, if ever, will admit it.
They measure themselves up against others and, in doing so, sink lower and lower into a dangerous pit. They look around and find someone not doing as well as they are (or not seeming to), and somehow, seeing them makes their own situation seem all right, even though they're still living in fear. The dominating vision I see so many people hhaving created is to be just a little better than someone else.
Have you ever heard someone say something like, “I’m not an alcoholic; I only drink on the weekends. But John -- he goes to happy hour ever day!” ...or maybe something like...“We’re not doing so bad. At least I can figure out a way to get my car payment made.”
These thoughts and other like them are what go through the minds of people who have settled for mediocrity. We’ve all had grand visions of what we wanted out of life. We have allowed our circumstances and others around us to steal our vision for the greatness we are capable of.
Here are a few of the qualities I believe a person must possess in order to overcome mediocrity, break free from fear, and make their vision a reality. I also challenge both of us (you and me) to strive for our vision:
A Good Attitude
If you are pessimistic and believe that everything is going to fall apart, why would you ever take a step toward your vision? A positive attitude gives life to a vision; a negative attitude kills it.
My challenge - look at yourself and get rid of any negative thoughts.
Turn them into positives and reflect on the positive thoughts when you catch yourself thinking negatively.
Belief In Yourself
If you don’t believe in yourself, why should anyone else believe in you?
My challenge – look at the things you wish to accomplish and have confidence that you CAN do them.
If you need to take steps to make your visions a reality (i.e. more knowledge or education, making better choices, etc), then start those steps today. Don’t put off until tomorrow what can be done today!
Willingness to Grow
The fact of the matter is that none of us are capable of carrying out our grand visions in our current state. We need to be stretched and have to allow it to happen. Stretching is oftentimes painful as we go through it; however, it makes us stronger and better.
My challenge - let your desire to be better exceed your desire to avoid the painful stretching called growth.
World class athletes put themselves through excruciating pain during their workouts because they know it will pay off and they’ll be better athletes for it. If they opted to avoid the pain because it hurts, they would also opt to give up their status as world class athletes. Mediocrity is the easy way out.
Focus
To overcome your fears, you need to truly know what it is that you are pursuing. You need to have an end in mind and focus on it.
My challenge – come up with a plan on how to achieve that end and muster up the determination to follow it.
Following a plan isn’t always easy. In fact, most things are never easy the first time we do them. However, the more we do them, the easier they get. Your plan may be difficult to get rolling, but once it starts moving, you’re on your way. It’s like pushing a stalled car. On a flat surface, it takes a lot of work to get the car moving. Your efforts are far greater to get it started compared to the effort needed once it’s moving. On occasion you’ll hit little hills, and sometimes big hills, but if you are determined enough, you will push the car over the hill and get to a point where it rolls by itself.
Enthusiasm
This is the fuel that gives energy to your vision. If you aren’t excited about your vision, it’s going to die.
My challenge - maintain your enthusiasm by exercising all of the items above.
I stated earlier that the Lord put it on my heart to write this, and to write it now.
The Lord gave me the vision and with that vision He gives the tools to carry it out. When you have a vision, you will also have all of the tools available to you. You can either pursue your vision with a good attitude, a belief in yourself, a willingness to grow, focus and enthusiasm or choose a life of mediocrity. Which will you choose?
No Money Down Real Estate Investing: Is It For Real?
You see it bookstores, read about it in newspapers and magazines and hear about it on late night TV. But many people are still begging the question, “Is no money down real estate investing really possible?” The short answer to this question is, “Yes”. I’ve done it. But to understand how this is done, you must first have the proper mindset. Regardless of how much cash you may have, if you think like an investor without any money, then you’ll be forced to either admit defeat or be creative. And if you choose the latter route, you’ll almost always be able to find a way to buy properties without any of your own money.
Now notice that I said, “…without any of your own money.” The term “no money down real estate investing” can be a little misleading. It’s really better stated in saying “none of your own money down” – but someone’s money is still likely going to be involved in most cases. Interestingly enough, I actually have new investors frequently come to me who are fortunate enough to have a large nest egg which they can use to get started in the business. Many people have approached me and said, “I have $100,000 in the bank. How should I invest it?”
I always advise them to put their money aside and learn how to do deals without money. Money can kill your creativity, and creativity is essential in this business in my opinion. Even $100,000 doesn’t go very far when buying homes, and if you always rely upon the cash that you have, you will often find yourself without any cash and unable to do more deals until you sell something. So even if you have access to some of your own money, my advice is to first cultivate your ability to do deals without use of your own money. Not only will this help keep you creative, but it allows the cash you do have to act as a safety net, making you even stronger. Never underestimate the value of a BBC (Big Bag of Cash).
Now lets go back to my earlier statement that “no money down real estate investing” should really be better phrased as none of YOUR money. Their bears further explanation. Here’s a quick list of a few ways to invest in real estate with none of your own money:
Use OPM (Other People’s Money)
I’m referring to such things as a hard money lender or private lender to purchase and rehab a property. Make sure you’re getting a good enough deal so that your lender can safely loan you enough money to cover your purchase price, closing costs, holding costs and rehab costs. I do it all the time. Then you can either refinance or just sell. None of your money was ever used.
Use Owner Financing
Many individual sellers will be open to this scenario – especially if you’re offering it on the short term and they can make a little more money because of it. (I will often pay a little more for a house if owner financing is involved because of what I save in closing costs.)
Purchase “Subject To” Existing Loans
Many people will get into arguments with on this one about the “due on sale” clause. I won’t go into that here – that’s another article (or an entire course) entirely. But suffice it to say that it’s another variation of owner financing, and can be a powerful way to get into a deal with no money down.
There Are Other Ways – These Are Just A Few Of Them
Make Sure You Have All Bases Covered
Keep in mind that even though it may not be coming out of your own pocket, you must have a source for the working capital needed to hold and possibly renovate a property. This source can be your own bank account if it must, but if you want your deal to truly be “no money down real estate investing,” consider finding someone else (a friend or colleague) who is willing to make an investment in you and fund these holding costs. This can be much easier than you may think, trust me. Whichever you choose, you should be sure of your source for working capital before you buy an investment property.
Is No Money Down Investing Ethical?
Can you invest in real estate with no money down and keep your ethics intact? The answer to this question is a 100%, absolute, unequivocal “yes!” Many people find this difficult to believe because they feel that we are taking advantage of someone when we buy homes really cheap. In fact I struggled with this issue myself when I first started, especially when it came to offering less than what a seller was asking. If they were asking $80,000, then offering $60,000 made me feel uneasy. But after getting a few of these offers accepted I realized that I wasn’t such the bad guy after all. The sellers were just happy to have someone willing to buy the home, and I was solving their problem in a big way.
Another example involves a woman who sold me two homes which had appraised for $100,000 (combined) for $29,000. She was crying when she sold them to me because – not because she was so upset, but because she was so happy that I had taken these “house problems” off of her hands. I realized at that moment exactly what a motivated seller was, and what kind of valuable role I had to provide them. I was truly providing a desperately needed service.
Am I A Home Stealer?
As a result of my experience, I have but one comment to make with regard to the sentiment that we are somehow stealing houses. IF THE SELLER COULD GET MORE MONEY OR A BETTER DEAL FROM SOMEONE ELSE, THEN THEY WOULD TAKE IT! Get over it! The reason the seller is willing to sell you their home really cheap is because no one else is willing to buy it or give them more for it. Most of the properties that I buy really cheap are from banks or government agencies. Do you think they don’t know what they’re doing? Wouldn’t they get more for their homes if they could? Would you feel bad if a bank sold you their home for 50% of fair market value?
If so, relax! It’s all part of the business of finance and real estate. You are going to get paid for knowing how to buy and flip houses. You will be helping not only the sellers by buying their “problem properties” (something which few are qualified or willing to do), but you will help other investors by providing them with a profitable opportunity, the local community by doing something productive with an otherwise vacant home, and eventually a family by providing them with a nice place to live. So all things considered, I would submit that not only is no money down real estate investing possible and ethical, but when properly practiced, it provides the community at large with a number of benefits and a much needed service.
Now notice that I said, “…without any of your own money.” The term “no money down real estate investing” can be a little misleading. It’s really better stated in saying “none of your own money down” – but someone’s money is still likely going to be involved in most cases. Interestingly enough, I actually have new investors frequently come to me who are fortunate enough to have a large nest egg which they can use to get started in the business. Many people have approached me and said, “I have $100,000 in the bank. How should I invest it?”
I always advise them to put their money aside and learn how to do deals without money. Money can kill your creativity, and creativity is essential in this business in my opinion. Even $100,000 doesn’t go very far when buying homes, and if you always rely upon the cash that you have, you will often find yourself without any cash and unable to do more deals until you sell something. So even if you have access to some of your own money, my advice is to first cultivate your ability to do deals without use of your own money. Not only will this help keep you creative, but it allows the cash you do have to act as a safety net, making you even stronger. Never underestimate the value of a BBC (Big Bag of Cash).
Now lets go back to my earlier statement that “no money down real estate investing” should really be better phrased as none of YOUR money. Their bears further explanation. Here’s a quick list of a few ways to invest in real estate with none of your own money:
Use OPM (Other People’s Money)
I’m referring to such things as a hard money lender or private lender to purchase and rehab a property. Make sure you’re getting a good enough deal so that your lender can safely loan you enough money to cover your purchase price, closing costs, holding costs and rehab costs. I do it all the time. Then you can either refinance or just sell. None of your money was ever used.
Use Owner Financing
Many individual sellers will be open to this scenario – especially if you’re offering it on the short term and they can make a little more money because of it. (I will often pay a little more for a house if owner financing is involved because of what I save in closing costs.)
Purchase “Subject To” Existing Loans
Many people will get into arguments with on this one about the “due on sale” clause. I won’t go into that here – that’s another article (or an entire course) entirely. But suffice it to say that it’s another variation of owner financing, and can be a powerful way to get into a deal with no money down.
There Are Other Ways – These Are Just A Few Of Them
Make Sure You Have All Bases Covered
Keep in mind that even though it may not be coming out of your own pocket, you must have a source for the working capital needed to hold and possibly renovate a property. This source can be your own bank account if it must, but if you want your deal to truly be “no money down real estate investing,” consider finding someone else (a friend or colleague) who is willing to make an investment in you and fund these holding costs. This can be much easier than you may think, trust me. Whichever you choose, you should be sure of your source for working capital before you buy an investment property.
Is No Money Down Investing Ethical?
Can you invest in real estate with no money down and keep your ethics intact? The answer to this question is a 100%, absolute, unequivocal “yes!” Many people find this difficult to believe because they feel that we are taking advantage of someone when we buy homes really cheap. In fact I struggled with this issue myself when I first started, especially when it came to offering less than what a seller was asking. If they were asking $80,000, then offering $60,000 made me feel uneasy. But after getting a few of these offers accepted I realized that I wasn’t such the bad guy after all. The sellers were just happy to have someone willing to buy the home, and I was solving their problem in a big way.
Another example involves a woman who sold me two homes which had appraised for $100,000 (combined) for $29,000. She was crying when she sold them to me because – not because she was so upset, but because she was so happy that I had taken these “house problems” off of her hands. I realized at that moment exactly what a motivated seller was, and what kind of valuable role I had to provide them. I was truly providing a desperately needed service.
Am I A Home Stealer?
As a result of my experience, I have but one comment to make with regard to the sentiment that we are somehow stealing houses. IF THE SELLER COULD GET MORE MONEY OR A BETTER DEAL FROM SOMEONE ELSE, THEN THEY WOULD TAKE IT! Get over it! The reason the seller is willing to sell you their home really cheap is because no one else is willing to buy it or give them more for it. Most of the properties that I buy really cheap are from banks or government agencies. Do you think they don’t know what they’re doing? Wouldn’t they get more for their homes if they could? Would you feel bad if a bank sold you their home for 50% of fair market value?
If so, relax! It’s all part of the business of finance and real estate. You are going to get paid for knowing how to buy and flip houses. You will be helping not only the sellers by buying their “problem properties” (something which few are qualified or willing to do), but you will help other investors by providing them with a profitable opportunity, the local community by doing something productive with an otherwise vacant home, and eventually a family by providing them with a nice place to live. So all things considered, I would submit that not only is no money down real estate investing possible and ethical, but when properly practiced, it provides the community at large with a number of benefits and a much needed service.
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