|7 Secrets The Successful Real Estate Investor knows
Secret 1: The rich are not necessarily smarter than everyone else. It's true. If you
were to take a poll of every successful person in real estate (or any industry for that matter). I
would bet you over half graduated in the middle of their high school class. I encourage you to attend
a real estate investment club in your area. (They are everywhere, just look on the internet). Start
talking with these folks and you will see that they are not walking around with a brain trust sitting
on their shoulders. It will shock you how average these people can be. Don't ever let "lack
of intelligence" be your excuse for not pursuing your real estate dreams.
Secret 2: No other industry is like real estate. No other industry allows you to
leverage your money the way real estate does.
A while back I was listening to an investment tape from a well-known speaker, and as I was
driving he said something like "real estate isn't a good investment because it only earns
nationwide about 4 percent per year". I about ran through a red light.
And he was supposed to be an expert. I'm no mathematician or CPA, but if you consider
appreciation, tax deductions for depreciation, equity buy down, and the fact that you can leverage to
purchase a property, it would take a moron to come up with 4 percent (no offense to mister speaker).
Example: a $100,000 property might require $10,000 down (there definitely are ways around
that - but for the sake of an example let us say that's what we put down). Let's say the principal
we pay over the first year is $1,000 and the depreciation is $3,000. So, from a non-mathematician
and non-CPA point of view what does this mean?
|Tax write off (approximately) for depreciation
|Principal buy down by tenants
This means you have earned a value of $5,800 for this property. But wait, you didn't invest
$100,000, you only invested $10,000. Therefore $5,800 for a $10,000 investment means your rate of
return is 58% (please CPA's don't call me- I know it's a little more complicated than that - but you
get the jest of it).
And that, my friend, is why real estate is in a class by itself.
Secret 3: Time is your ally or your enemy; use it wisely. It is called the great
equalizer. Both kings and paupers have but 24 hours in each day - no one has a second more than the
next person does.
I want to give you just one piece of advice. Don't watch so much television! It really
is that simple.
Think about it. The average American comes home and watches almost 3 to 4 hours of
television per day. (I actually read it was 6 hours per day - but I found that hard to believe so I
lowered it to 3 or 4) What could you accomplish if you didn't do this?
Okay, here's one more piece of advice relative to television. Instead of giving up the shows
you like, record ONLY the ones you like and watch them at a preset time.
No more of this, "...well, just one hour until the show I want is on, so I'll just watch
television for an hour until it comes on." I am not suggesting you give up your entire lifestyle.
Just streamline it. Couldn't you set aside one or two evenings a week by following that simple advice?
You can invest in real estate without severely impacting your family time. The television is
one. Next comes your lunch break.
If you are working for someone else, why not go in a half-hour earlier and take an hour and a
half lunch to look at houses and stroll the neighborhood looking for houses.
Or why not take a half-hour lunch and leave early driving different routes home looking for
houses. The deals are there; you just have to look for them.
Get up a half-hour early every day and read read read educational material on real estate
Secret 4: The deal of the decade comes along every week. This is a statement made by
Dr. Dolf De Roos. And it is true. Go to any real estate investment club and I will prove my point.
Each and every one of them will have at least one example of a good deal of the decade. The only
caveat to this is you don't find these deal by looking for a blazing neon sign - you need to dig.
Ask around. Follow up on abandoned houses. Call on rental ads. Look for frustrated out of state
owners. Tell friend, neighbors, grocery baggers, and relatives what you are looking for.
Secret 5: Not all great real estate deals are sold through real estate agents. Don't
get me wrong. I am not against real estate agents by any means. But if you limit yourself to only
what the agents show you, you are not just missing the boat you're missing the whole harbor. When
you first start in real estate it doesn't seem like any deals will come your way. But trust me.
Once people start knowing you're out there they will recommend their family and friends
contact you. Heck, I even have my mail lady scouting out houses for me.
Secret 6: Not all strategies will work for all people all the time. Long-term holding
is much different than quick flipping property. Just to give the new person a glimpse of some of
the possible real estate strategies:
Lease option is a quick way to buy a house and sell it within a year to two years. With
this process, you do not own the house; you have an option to buy the house at a set price by a
specific time. Usually, you will have to put a renter in the property, and after a year, you (or
the tenant) can do a refi loan and get in with essentially, no money down.
It works well to have the seller of the house at a low price, and your tenant to have an
agreement with you to buy it at a higher price. Therefore, you would keep the spread.
Wholesale/retail is when you buy a junky house, fix it up and sell at retail price.
Long-term holding: when you want to hold a house for a long period of time (forever perhaps)
and let the tenants pay it down or pay it off. Long-term can be a little more forgiving if you
overpaid for the property. On the short term, if you miscalculate, you can lose your shorts!
Then there is a quick flip where you put a house under contract and then assign it to someone
else, usually a rehabber.
Preforeclosures. Preforeclosures are houses that have distressed owners or distressed
properties. In most cases the owner just want some sort of debt relief. The result of divorce,
financial difficulty, loss of job, or any number of situations.
So how do you know what is right for you? It depends on your goals. Is your plan to quit
working for someone else and start a new career? Do you want to just supplement your income while
working in your present field? Are you just thinking of retirement and don't want any extra work.
Real estate can answer all of these, but in different routes. For the person who wants to go
into real estate full time he/she may want to do rehabs. For the supplemental income you might want
to do lease options, rehabs, and quick flips.
For long-term hold, you find a house at a good price (one that will cover your mortgage
payments) and you may or may not have any repairs to do. You can hold on to the property until a
larger more desirable one comes along. At which point you can continue investing, using it as a 1031
exchange for larger properties, or just keep the property and receive the rental income for life.
Also, with long term holding, you can have, say 10 properties, and by the time you retire you
could arrange it so they are all paid off. It won't make you rich in the short run, but you could
live way more comfortably than the average retiree.
Secret 7: Real estate is cyclical. You have to be flexible. What is working like
gang busters one year may not work the following. Right now in my state there is a shortage of houses
in most areas, and interest rates are low nation wide. But next year may not be so. Have you studied
enough to know what strategies you should use or when you should adjust? The person who isn't
flexible in this industry can get broken when the winds of change blow.
Bonus secret 8: You will never get rich trading hours for dollars. With a few
exceptions, this is a true axiom. Unless you are a much-in-demand entertainer or high profile
surgeon, you are literally trading your life (time) for money. When you trade hours for dollars you
have set a limit to your income. If you work for XX amount of dollars per day it will never exceed
XX times 24 hours (assuming you never want to see your family, eat, or sleep).
Part two to this secret is that the more you have others do, the more time you will have to
work on your real estate deals. Hire someone to mow your lawn. Can't you hire a high school or
college student to scrub your toilet and tub, and wash your car? What is your time worth to you? I
can pay a kid minimum wage to mow my lawn - if you're doing it yourself you've just saved yourself
$10 bucks and used up an hour of your time. Isn't your time worth more than $10 per hour? You need
to concentrate on tasks that bring in the most money.
Contact Brandy Eismon for a free ebook "foundation to Real Estate Investing"
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