• “It continually amazes me that I can purchase a property then turn around and rent it to a person who will pay down my debt in exchange for living there.”
•Rentals are a “triple play:
◦Positive cash flow
•Napoleon Hill, “What a different story men would have to tell if only they would adopt a definite purpose, and stand by that purpose until it had time to become an all-consuming obsession.”
2.Needs account – for budgeted needs
3.Wants account – for budgeted wants
The personal balance sheet is probably the greatest gift Michael (his financial adviser) gave me in our financial wealth-building breakfasts”
– I update it every week.
Financial Journey model
◦20% discount on median price
◦30 year mortgage
◦Rents increase 5% / year
◦Hold expenses at 40% of rents
◦Motto: “Buy it right – pay it down – pay it off.
Working your Net Work
▪“Whom am I calling today?”
▪“Whom am I seeing this week?”
▪“To whom am I mailing this month?”
Lead Generation built around 4 key questions
1. What property do I want?
Marketing – a leveraged activity.
▪Most millionaire investors use 3-4 methods that worked best for them.
▪The key is to get started.
Marketing is a game of problems & solutions. It’s all about attracting motivated sellers.
•Property was inherited & needs more repairs than owner can handle.
•Change in job or family situation, good or bad.
•Quit claim deed on properties on verge of foreclosure to save owner’s credit; turn around and sell at a profit, share proceeds with original owner. He avoids foreclosure and gets some cash because of your marketing acumen.
•Not a predator/prey situation. It’s problem solving.
•Out-of-town owners struggling with management issues who’d be relieved to unload the property.
•Keep the message straightforward & simple: Pay cash for properties. Quick close.
•Paying cash means, investors have set up lines of credit in advance & quick private financing so that in a matter of days or hours they can have a cashier’s check ready for closing.
Networking and working with real estate agents account for as much as 60 percent of lead generation results.
Show gratitude: cards, gifts, finders’ fees.
Three basic ways to Prospect:
•Pick a certain number of people to call each week
.•Set aside some time and start dialing.
2.Share your criteria
3.Ask for help
4.Update your database
5.Ask for referrals
6.Express your gratitude
7.Follow up with a note.
▪Face to face
•Same seven steps.
•Have business cards ready – “Real Estate Investor.” “I buy real estate.”
•It’s a numbers game. Majority of conversations may be inconsequential; but one thing leads to another and over time, golden opportunities arise
•Local newspaper real estate listings•Internet sites
•Public property records in local courthouse
•MLS search with help of real estate agent
•Get automated email alerts
•Distressed property announcements:
◦Most big business happens as a result of big lead generation.
◦The Five Laws of Lead Generation:
1.Never compromise: properties that meet your criteria, & motivated sellers who will meet your terms. Yes or no…. There is no maybe.
2.Be a shopper, not a buyer – better to miss a good deal than to buy a bad 1
◦Be first or last to make an offer.
“Have you ever considered selling that property?
Option to buy the property subject to inspection, IF it meets their criteria.
4.It’s a numbers game – the quality is in the quantity.
◦Typical ratios:▪suspects : prospects = 30 : 10
▪prospects : qualifieds = 10 : 3
▪qualifieds : closed = 3 : 1
5. Be organized and systematic. Protect your time and your money
◦Being organized is about tracking and sourcing leads.
◦“Have checklists for everything that you do.”
◦Many people don’t make the connection between the time & money they spend looking for opportunity, and results. Be very systematic & organized.
Buying with Cash:
Buy & Sell (strictly retail)
▪ Discount/Profit Margin – breathing room. Recommend: 30%.
▪Every house has a surprise.
▪Budget 3-4 months carrying costs for properties needing minor repair.
Buy, Fix & Sell
▪“Beginners often make the mistake of fixing a property as though they were going to move into it. That’s the wrong way to do it.”
•Cash Flow & Equity Buildup
◦Lease Option: In, Out, or Both.
▪Lease Option In – you’re renting from the seller with an option to buy in 2-5 years.
▪Lease Option Out – you’re renting to a tenant with an option to sell in 2-5 years.
▪You can wrap a Lease Option In inside a Lease Option Out; the difference is positive cash flow (if you do it right).
▪◦Buy & Hold (rentals – true wealth-building)
•Rule of thumb for monthly rents: .8% of the price.
•Allow for vacancies: 6-8%
◦Buy, Improve, & Hold. Improve means:
•Study your marketplace.
•Are values going up or down? At what rate?
•What makes you think trends will continue – or not?
•What are the economic and demographic drivers?
•What are expected rental rates, how are they changing, and why?
•What do renters want that might justify higher rents?
•Keep doing this and you’ll eventually become a “value expert” in your area.
1. Buy and live
Many millionaire investors keep their own databases of real estate activities, listings, rents, & recent closings.
▪If you want increased cash flow, do these three things:
3.Higher annual rent appreciation
▪If you want to increase ROI, do these three things:
1.Invest where values are appreciating
2.Get higher rents
4.Control the Property & Negotiate Everything
◦Gain control by securing an early contract containing escape clauses:
▪Condition at Inspection
▪Results of Feasability Study
▪Other party approval
▪Conveyances (appliances, furniture, etc.)
▪Ability to rent prior to closing
▪Ability to start repairs prior to closing
▪Ability to assign contract
▪Key: learn what’s important to the sellers.
▪Offer them what they want, then ask for what you want.
▪Great negotiators are great investigators.
▪Always be curious.
▪The longer you can tie up the property for little or no money before you actually have to buy it, the more flexibility you’ll have.
◦Owner financing – the seller carries the mortgage for you.◦Assumptions – taking responsibility for the seller’s mortgage when this is allowed by the seller’s lender.
◦Wraps – the owner offers you a new loan while keeping and paying down the original loan (the new loan “wraps” the original)
◦Lease Options– Leasing the property from the seller until you have the equity or cash to buy it.
◦Private seconds – where you obtain a second loan to cover your down payment on a primary mortgage loan.
◦Syndication – where you involve other investors and partners in your acquisition.
◦Success of any deal depends on your credit worthiness, equity, and cash flow.
6.Maximize your NOI (Net Operating Income)
◦Increase rent▪Millionaire real estate investors achieve higher rents than others.▪1 percent rule (Monthly rent = 1% of property value).▪To get higher-than-average rents:•Contractual rent escalators – “I put automatic 10% rent increases in the contract. Then at the first of the year, when I say the increase won’t actually be that high, the tenants are ecstatic because they think I’ve saved them some money.”•Strategic improvements (people will pay more if they believe they’re getting more)•Government subsidies•Targeted tenants•Other income◦Non-refundable deposits & fees◦Charges for parking & storage◦Lawn service◦Cleaning services◦Coin-operated laundry◦Nickel & dime ’em any way you can.
•The key is to look ahead. Anticipate vacancies and have a game plan to market theproperties to new tenants.
•Get ahead of your vacancies, not behind them.
•Keeping tenants for a long time reduces vacancies and is a good thing.
•Many landlords are so eager to raise rents that they may alienate good tenants. “It may take you a very long time, even at a higher rent, to make up for the lost income from a vacancy.”
7.Know Your Options for Property Disposition
◦Determine why you’re selling.
▪Get immediate cash?
◦There are other ways to get cash out of a property than selling it, like a short term line of credit:
1.Lease Option Out
◦Offer to apply some of the rent toward the purchase price, agree on higher than market rent, & negotiate terms of future sale.
◦Result: higher NOI, and higher price.
◦If the tenant does not exercise his option, do it again with the next tenant.
◦Lease option tenants take better care of the property.
◦Mantra for professional relationships: 1. work 2. friends 3. social (maybe)
10.Always Work from Written Proposals & Contracts
◦Good written contracts cover contingencies so that if worse comes to worse, all parties know in advance what will happen.
◦Write agreements to resolve any possible disagreements as agreeably as possible.
◦It’s a “Pay me now or pay me later” deal. Be tough up front & you’ll save money down the road.
•You need to track your ROI for each property and for your entire portfolio.
•15 vs. 30 year mortgages: once they had a solid equity position, most MREIs tended tofavor shorter-term debt. But they continued to refinance, take out equity, and grow their holdings.
◦Best use of time:
▪Look at real estate
▪At the Own a Million Stage:
•Watch finances with an eye toward maximizing returns
•Holding others accountable, to keep your time free.
◦Hire property managers. Typical fee is 10% of gross rents.
◦If your portfolio is large enough, it may make sense to hire one full-time property manager to handle the whole thing.
◦You can also cut deals with responsible tenants.
◦Buy warranties for common repairs with a small deductible, then leave repairs to tenants to initiate & manage.
15.Protect Your Assets
◦Do entity & estate planning as early as possible. Do it right and do it right away
17.Be Accountable by joining a Mastermind, have a mentor, or partner.
◦The greatest successes and the highest achievements almost always are due to accountability. Having a goal = 10%, Having an action plan = 10%, Having accountability = 80%.
1.Getting in for less (little or no down payment)
2.Maximizing cash flow (increase rents & reduce debt service & expenses)
3.Avoiding taxes (reducing or delaying)
4.Increasing ROI (return on investment) & equity
•$1M a month: The Inspirational Story of Investor 34
◦Started on savings & credit cards.
◦He & his wife worked from their kitchen table.
◦Niche: limited partnership interests in real estate.
◦They sought 50% discount; won 5% of the time.
◦“We’d rather do a lot of small profitable transactions than larger less profitable ones.”
◦Limit: how much time they could spend doing mailings.◦Breakthrough: got a printer to do it for them.
◦Grew from 1,000 mailings a month to 30,000.
◦Reinvested profits into rentals.
◦Today owns 4,000 apartment units and >1M square feet in storage rentals.
◦Nets $12M profit on $45M in gross revenues (26.7%)
◦60 employees divided across 5 investment companies + 100 independent contractors.
◦“It really wasn’t about the money. I wanted to set my own schedule and mostly wanted to spend more time with my family.”
◦Works 20 hours a week; doesn’t carry a cell phone or pager because “I want to be connected when I want to be connected.”
Net Worth Worksheet – each week ask “What can I do to increase this?”
▪Create an estate plan
•Put together a reading list each year, and read those books.
•Seminars •Audio tapes •DVDs
•Network. – “I’m an investor. Today could be the day I find an opportunity and make a deal.”
•Set Criteria •Memorize Criteria
•Prospect & market for leads that match your Criteria.
•Time-block your calendar for lead generation time, and protect that time.
•Set the goal of generating one lead daily, put those leads in your database, and then work them.
4.Convert Suspects to Prospects
•The most critical work investors do: figuring out quickly which is which.
•Property that meets your Criteria and is owned by a seller who will meet your Terms
5.Buy Real Estate Investments
•Move quickly to control the property. (except of you wanna develop relationship over time/trust 1st… like in land contract on my residence)
•Make an offer. •Make fair
◦Stage 4: Stay the Course
▪Devote about 10 hours weekly:
◦Sellers & Real Estate
◦Work & Leads Networks
◦See real estate◦Update your database
◦Meet with Inner Circle◦Evaluate Holdings for cash flow, value, equity
◦Update financial statements
◦Do the work
▪Improve & Sell
▪Improve & Hold
◦Engage Work Network
◦Study & Learn
▪Energy Plan: (energy on a plate: soup and a wedge of lettuce)
1.Spiritual 2.Physical 3.Emotional 4.Mental 5.Investment 6.Wealth build
Profiles of 21 Real-Life Millionaire Real Estate Investors
1. Joe Arlt took John Burley’s 5-day boot camp course.
•Many repossessed houses in Virginia Beach.
•He bought & resold repossessed houses on wraps.
•Long-term lease option agreements
2. Don Beck
•Owns 100 20-40 unit complexes.
•Started by living in a duplex.
3. Dwan Bent-Twyford & Sharon Restrepo
•Rehabbing houses – took classes at Home Depot.
•Any time you make an emotional decision, you’ll lose money.
•“Having a toolbox of strategies to pick the one that is right for the deal”
•Invest in your education first. Save T&$ to learn from others.
•5 houses, 2 duplexes, 6 condos, one 18-unit apartment building
•Firm believer in “worst house – best neighborhood” approach
•She likes to use interest-only loans
•53 houses & 2 commercial buildings
•Quit his job, got into full time real estate investing.
•Worked with real estate agents who combed the market for him.
•Bought a REO property for $42K & sold it for $54K without ever seeing it.
“There’s a million ways to make a million dollars in real estate. Start by picking one.”
•First rehab he lost $40K, but saved a million by mistakes never repeated.
•His business is so systematized that he can just about let it run autopilot.
By 1996 he owned 600 units & 100 houses.
“I should have had the systems in place before growing to this next level. You have to start by learning the building blocks of the business.”
Without effective systems in place to hold contractors & managers accountable, his properties deteriorated & he had high vacancies. Employees began stealing from him. One contractor stole enough materials to build himself a house. $50K negative cash flow for 6 months. $4M in debt.
•“When you’re on the right path, money will show up; and it’s a spiritual path, of helping people.”
•He recommends that instead of landlording, noobs begin by wholesaling properties to more experienced investors.
•Learn to spot a good deal.
•Learn to evaluate a house’s condition.
•“A lot of people get good at buying, but not at understanding the mechanics of a house.”
•His “one thing” is buying right. “The hardest part of this business is finding the deals. They’re out there, but you have to spend a lot of time looking.”
•Owns >700 units
•He recommends a 3-6 month emergency fund on hand per property to afford evictions, maintenance emergencies, and market shifts (keeping rents low to minimize vacancies, tolerating negative cash flow for a while). “Reserves are the most important thing in real estate.
– Property Maintenance. “What you spend on roof repairs, HVAC servicing, and lawn maintenance will make all the difference in the long term.”
“I appreciate my tenants because they’re paying off my building.”
•Flips distressed properties in emerging neighborhoods
“Symphony Homes” – nice comfortable homes for people who appreciate & can take care of them.
•Establish relationships with lenders before you need them.
•Foreclosures, fix & hold
Owns only 20 houses
It’s the models and systems that make all the difference.”
•Owns 108 units.
•Rehabs old commercial buildings & single family homes.
•Look at 50-100 houses before making an offer on a single one.
•Ignore the asking price. Offer only what the house is worth based on capitalized rent.
13.Rob Harrington, Jr
•Converts problem properties
•Improves property management
•Owns hundreds of units.
•Careful attention to details – maintenance, vacancies, taxes – is what makes him successful today.•“The key in real estate is to watch your pennies
•“You can do anything you want as long as you have a big desire to do it. •“You have to have a big plan first, then have the obsession to execute it. You have to dream big.
•“We never sell properties. There’s no reason to sell. If you need money, you go to the properties and take out equity, and the renters pay for that.”
•They work on acquiring one property monthly.
•“Failure is just an experience. “Now I know for the future.”
•Owns 35-50 units
•Dislikes rehabbing: easy for costs to run over, & for contractors to rip you off. They can lie and steal, covering over problems with drywall instead of fixing them, disappearing with deposits.
•She prefers long term lease options. Tenant buyers assume responsibility for repairs & maintenance.
•Pull out equity every 2-5 years, then use that money to buy more property.
•Even those who’ve been steeped in real estate for a long time can get into a bad deal. ◦Flooded basement ◦Black mold ◦Cracked heating exchange
•Systems are key: ◦Screening potential buyers ◦Marketing deals ◦Managing rehabs
•“The more you’re able to say, ‘This isn’t something I need to be doing, and therefore I can give it up’ the opportunities there are for growth.”
•Rockford, IL – owns 100 units
•Foreclosures, auctions, helping other investors
•She really enjoys helping people who are in financial distress:
◦Takes over mortgages of people in foreclosure, lets them lease-option for 3 years while they get back on their feet, stay in the house.
◦Offers rent-to-own program for potential buyers with poor credit.
◦Elderly woman’s house was trashed by vandals:
▪Assumed her $20K mortgage in a quick-claim.
▪Put $15K into rehab
▪House reappraised for $70K
▪Took $56K out of the home’s equity, gave the owner $20K, kept $36K
18.Jimmy & Linda McKissack
•Foreclosures, buy & hold
•Their model: ◦80% loan-to-value◦Min. monthly cash flow $200 ◦At least 10% discount ◦15 year mortgage
◦A partner bought a house on courthouse steps after drive-by inspection, not realizing that the whole back of the house was missing, & the previous owner took everything in the house: sink, water heater, doors, windows, etc.
◦Didn’t start sooner.
◦How to exchange smaller properties for eightplexes
19.Bill O’Kane•Chicago, IL
•Owns 2,800 residential units, >200,000 sq feet of commercial space
•Finding a good deal is a matter of negotiation & figuring out where everyone is willing to sacrifice.
•“I’ve always enjoyed the art of the deal.” Learn the other person’s priorities, compare them to yours. If there’s not a conflict, a deal is possible.
•Bought his first “trophy building” 8 years later, 1986: 31-unit apartments with six store fronts, worth $1.2M. Seller wanted $1.4M. Negotiation was breaking down; then sellers offered to loan him $400K. He bought it for nothing down and collected a $400K check at closing. The building was worth $8M in 2005.
20.Wendy Patton – 39 UNITS
• She does recommend buying & selling houses on lease option.
•Lease option is control without ownership. No credit checks.
21.Don & Ryan Zeleznaks
•Started a new business wrapping loans for nonqualified buyers & putting together wrap deals for other investors.
•Investors make a profit, & people whose poor credit would shut them out from traditional financing can buy homes of their own.
•They have a 4.5% default rate.
•“I was involved in rentals in a very big way & I know the headaches. But how do you think people treat the property if they plan to own it?” (Reminds me of Wade Cook, Real Estate Money Machine.)