Master Real Estate Course

Lesson #14 Buying and Selling

Objective:

• To complete your master plan of buying and selling properties to achieve your goal of owning six properties debt free in twenty years or less.

1. Buy six properties. 2. Love your tenants. You buy a property and you pay off the mortgage. Then you enjoy the income. Then your children enjoy the income. Then your grandchildren enjoy the income. Your great-grandchildren will enjoy the income. When does this end? Now, you know why real estate investing is so great because it never ends. In a hundred years, your offspring will be saying, "Thank you great-great-great-great grandpa or grandma!" Start your family dynasty. This is beyond the comprehension of average people. You can do this. You deserve this.

Background:

How do you get your six properties? You could work and save. This may be the approach you use to purchase your first property, but to get from one to six properties through saving alone might be a long struggle. It's tough to save $10,000 or $20,000 for each real estate downpayment.

Consider following the advice in the three Master Small Business Courses. The aim of these courses is to put you into the elite, the top 10% - 20%, of wage earners in your chosen field. If you are a warrior and you aren't making a six figure annual income, why not? You should have plenty of money to live modestly but comfortably, pay your bills, spoil those you love and have sufficient monies to begin this real estate investment program. Do this.

Another option would be to work with partners, but one of the beauties of investment real estate is that you can usually control property without partners. However, if you have a father or brother or close friend who has funds, but not the investment skills and knowledge that you have acquired, then, maybe, you can consider a partnership.

Consider the ambitious young businessperson who wants to rise up the corporate ladder. He or she may have to agree to several relocations, moving from Boston to Reno to St. Louis to Seattle with each new promotion. This is the nature of business. The same may be true for you as an ambitious real estate investor. You may buy one house and even if you love that house, you may have to sell it. You need the profit to buy another house to sell at a profit and so on. You will be finding many wonderful profitable opportunities. You buy and resell to capture the profit in order to buy more property.

This buying and selling doesn't have to go on forever. It only has to go on until you are satisfied with the size of your investment portfolio. This can take a year or five years. This isn't the stock market. You are in control in this business. When you choose, you can stop and wait for your properties to appreciate and your rents to rise.

You'd have to work a lot of hours at Home Depot to make enough money to use as a property downpayment. You'd have to be very lucky to buy a lottery ticket and win enough money to use as a property downpayment. But, as you should already be observing and learning from your local research, making five-figure profits from buying and selling real estate can be quite ordinary and expected. If you weren't going to make $10,000 or more by flipping a property, you'd buy a different property.

his thinking is beyond the comprehension of average people. As a warrior, you understand that this is the beauty of real estate. You are dealing with big numbers, so the profits are big. Profits of ten or twenty percent when buying and selling yield significant financial rewards to anyone savvy enough to study the real estate market and bold enough to act upon the knowledge they gain.

Part of your job is to help your spouse to understand your investment objectives. Real estate is a means to an end. Real estate is your part-time business. You are investing to secure the financial future of the whole family. You don't want to be married to a person who is going to balk when you put the house up for sale or refinance. You need your spouse to be your understanding partner. You want encouragement and not whining or second-guessing. You want someone who is going to say with enthusiasm, "Yes, we should buy the $20,000 car rather than the $35,000 car because we can use the difference to invest in another property". You must take the time to explain investing. Investing is when you sacrifice today for a richer tomorrow. Make sure you have the home team support, routing you to victory. Read and discuss a Military Action Principle™ each day as a family.

You don't have to love every property that you buy. You can sell them for a profit. You pay your capital gains tax. You buy another property. You do want to love your six properties that you are holding for long-term investment.

You have two routes to gaining the investment funds necessary to accelerate your acquisition program. You can buy a property and increase the income through rehab or better management and, then, refinance. Or, you can buy with the intent of reselling at a profit. You must know the fundamentals of marketing real estate.

Poor Wilbur

Nardo was a great real estate agent. He made a great living with less than twenty clients. Nardo's specialty was finding opportunities. I was one of his clients and so was a local school bus driver by the name of Wilbur. When a new deal would come along, Nardo would call me with, "Listen, I'll give you a day to think about this and then I'm calling Wilbur". Wilbur would buy any property that Nardo told him to buy if Nardo could put the deal together and Wilbur got cash back at the closing. All told, Nardo sold Wilbur five properties.

I liked Wilbur, but, to be kind, Wilbur wasn't too bright. Wilbur wasn't very good at keeping his properties up and he wasn't very good at collecting rents. For years, Wilbur had a six-family house with only two units rented because he didn't want trouble from tenants. Wilbur just managed to collect enough money to pay off his mortgages and pay the taxes on his properties. Wilbur lived in a run down house. He drove a junk car.

Wilbur was also paranoid that people were trying to take advantage of him. Every person who inquired to Wilbur about buying his properties, he treated like a crook. Even if those properties were a burden to him, he refused to sell.

Over the two decades that Wilbur owned his properties, he became a millionaire. He should have driven around town in a Cadillac. He should have gone to Hawaii. He didn't. Wilbur did one thing very right in his life, he bought real estate.  Throughout his life, Wilbur never changed.  Now with Wilbur gone, Wilbur's children will drive the Cadillacs and visit Maui.

Money alone won't make you happy. There are many wealthy people who are miserable. Committing to the Action Principles® philosophy of self-improvement and service to others will make you happy.

Marketing Real Estate

You are going to learn most of what you need to know about marketing through observation. Knowledge is power. Knowledge is your advantage. You are going to study the real estate ads. You are going to go to open houses and see all that you can. You are going to keep a continuing dialogue open with Nardo and with other agents and other investors. You will see how they market real estate. You will learn. You will try to be equal to or greater than their best.

You can't find all you need to know by taking this course, reading a book or surfing the Internet, you've got to get out into the field. This is your job to research your investment area. You've got to see the different types of properties in all price ranges. The work of this course is to speak with sellers and agents and tenants and lenders and local officials and other agents. How else will you become THE expert on values in your small specific investment area?

As a Master of Success, you are a thinking person of action. You have objectives and goals and you make things happen. Your Super Agent may be a great marketing agent and you may let him handle everything. Or, you may purchase a property with a buyer already in mind. As you talk with other investors, you will know which ones are buying different types of property. You can buy and resell to them. Or, you may find first-time buyers who are having difficulty getting into the market. You buy a property and add in your profit and then sell to them on affordable terms. This is not taking advantage of people. This is business. Over the years to come, the young couple that buys a property from you is going to be much better off than the young couple that just keeps paying rent to you every month.

Even your Super Agent should be willing to give you a complete marketing plan. If not, find someone else. Who are the targeted buyers and how does the agent intend to reach them? Don't be afraid to ask for specifics. Who will write the ads? Where will the ads be placed? What will be the frequency of advertising? How will the agent split the commission with cooperating brokers?

Some brokers do not like to share their listings with other agents and other offices. They want to sell the properties themselves. Be aware that if your listing agent is cooperating with other offices, the commission split is 50/50. If the commission split is less than 50/50, other brokers may not be interested in showing your property to their prospective buyers.

1031 Property Exchanges

Section 1031 of the U.S. Internal Revenue Code allows investors to defer capital gains taxes on the exchange of like-kind properties. If, as part of the exchange, you also receive other (not like-kind) property or money, gain is recognized to the extent of the other property and money received, but a loss is not recognized. Section 1031 does not apply to exchanges of inventory, stocks, bonds,

Both the property you are selling and the new property you are buying must be held for investment. Any type of property qualifies as long as it is investment property: duplex, office building, apartment building, warehouse, bare land.

Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality. Personal properties of a like class are like-kind properties. However, livestock of different sexes are not like-kind properties. Also, personal property used predominantly in the United States and personal property used predominantly outside the United States are not like-kind properties.

Real properties generally are of like-kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties

In general, limit your properties to three or less. You will have 45 calendar days to provide your intermediary with three or fewer properties that you might like to buy for the exchange. You must close on the new property(s) within 180 calendar days.

Since you cannot hold the money in the exchange, you must choose a qualified intermediary who will set-up a separate account in your name.

Recognize that the titleholders of the old property and the new property must be the same.

If you are interested in a 1031 exchange, your Mastermind Alliance must be consulted. You will need qualified legal and accounting assistance.

Two Dozen Quick Ways To
Prepare Your Property For Sale

In marketing investment real estate, putting some "pizzazz" into the sale is important because purchasers weigh emotional and eye appeal as well as financial considerations in making a buying decision. Much of this is common sense, but common sense is not that common. Always, always remind yourself that most people are doing nothing. Following the Military Action Principles^™, being a warrior person of action, is your strength. Taking pride in the appearance of your properties is your strength.

1.   Scrub and clean common areas

2.   Clean basement and attic storage areas

3.   Replace mailboxes

4.   Replace building and unit numbers

5.   Paint hallways

6.   Paint egress doors

7.   Rake yard, sweep walkways, parking areas, porches, etc.

8.   Mow, sod, seed lawn

9.   Trim shrubs and add more landscaping, especially flowers

10.Decorate hallways

11.Add individual storage bins to basement

12.Replace light bulbs with higher wattage and leave lights on where possible

13.Add spotlights to parking areas

14.Write and distribute a tenant policy manual

15.Prepare an improvement schedule anticipating buyer reactions

16. Have a professional photographer take a photo of the property

17.Tend to all minor repairs

18.Replace egress and unit entry lock sets

19.Scrape off and touch up exterior paint, wrought iron railings, etc.

20.Prepare parking plan, if appropriate

21.Photocopy all leases, plot plans, building drawings and other relevant building documents

22.Arrange representative sampling of apartments with accommodating tenants and rotation schedule for showings

23.Discuss resident manager's role or role of on-site maintenance personnel, if appropriate, before showings

24.Follow-up showings with your agent

Harry Helmsley and Lew Rudin were two independent investors who owned billions of dollars of New York real estate. Harry and Lew had similar investment strategies, "Never Sell Anything". This is a somewhat different strategy than what we've been discussing in this course. That's OK. The means to the end are different, but the end results are the same - prosperity and financial independence. There are many roads to success. There is only one sure way to failure - do nothing.

How To Make Your Buildings Easy To Sell

You bought your building for investment. You sell for a profit. A new buyer acquires your building for investment. He or she expects to sell for a profit. With time, the process continues over and over. Or with imagination, the process continues over and over. In general, buildings outlive people, and, over a particular building's history, there may be many different investment owners with each owner in succession profiting by time and/or imagination. You can sell your building easily either with time or imagination.

Let's say that you own a six-unit apartment building that you purchased eight years ago for $160,000. For personal, business, or reinvestment reasons, you want a quick and easy sale. Your Super Agent tells you that a reasonable valuation of the property in today's market would be $250,000. Over the period that you have owned the building, time has significantly improved your equity position. Time has given you the option of selling your building easily. If you market the building for $240,000, the property should sell without much delay.

When pricing a property for sale, you will consider prior sales of comparable properties. However, even more important, is to consider your present competition. How will buyers evaluate your property against similar offerings?

Pre-planning with imagination can bring about the same effect of easy selling. Your Super Agent can often imagine the best next owner of the property, and can target the advertising in his or her direction. Who should own your building next?

Here are some different types of investors and a few copy headline attention grabbers, which your Super Agent may use to appeal to each of them.

A management-oriented investor A management-oriented investor has time and will be looking for ways to put time to profitable use. This investor will probably be cash flow oriented and interested in supplementing his or her income.

HEADLINING FOR MANAGERS:

THIS BUILDING NEEDS YOU!
EXTRA HOURS - EXTRA PROFITS
HIRE YOURSELF
ARE YOU A PROBLEM SOLVER?
ON-SITE - ON TARGET

An absentee investor An absentee owner doesn't want phone calls. He or she may be willing to sacrifice some cash flow for an up-to-date, well-maintained building with long-term tenants. However, tax-sheltering benefits will be very important.

HEADLINING FOR ABSENTEE OWNERS:

TROUBLE FREE
RELAX AND ENJOY THE TAX SAVINGS
A A A 1!
MANAGEMENT IN PLACE
SELF-OPERATING MONEY MACHINE!

A developer A developer wants to build. A developer also fears the unknown time and money that may be lost through a lengthy approval process. If zoning is clear-cut and/or permits for the adding of units to the property, internally or externally, have been issued, marketing to this type of buyer will be easy.

HEADLINING FOR DEVELOPERS:

ROOM TO GROW
EXTRA LAND TO BUILD - FREE!
ZONING APPROVED!
PERMITS IN PLACE!
CONSTRUCTION OPPORTUNITY

A novice investor An investor new to real estate wishes to prove for himself or herself that all the wonderful benefits they've heard or read about owning income property are really true. This investor will lean toward a property with few potential surprises as he or she gains experience.

HEADLINING FOR NEW INVESTORS:

SMALL INVESTMENT
NICE, QUIET TENANTS
EASY INVESTMENT
A SOLID FOUNDATION

A condominium converter A condominium converter will not be as concerned with the cash flow or tax benefits of long-term ownership. This investor will look to a property whose floor plan lends itself to subdivision. A building with few tenants or a vacant building which would help expedite the conversion would also be a plus.

HEADLINING FOR CONVERTERS:

DIVIDE AND PROFIT
READY TO GO!
EMPTY
CONDO CONVERTER'S DREAM
UNIT BUYERS IN LINE
THE MARKET SAYS "YES"

A Handyman The handyman wants a chance to put his time and skills to work. He will be looking for opportunities to upgrade and modernize, which will result in higher rents and resale value. The handyman might also be drawn to a property with a secondary seller-financing offer to keep funds liquid for renovation expenses.

HEADLINING FOR HANDYMEN:

NOT PRETTY
SMALL DOWNPAYMENT
UGLY INVESTMENT!
UPDATING REQUIRED NOW!
A DIAMOND IN THE ROUGH!

With a target "highest and best use" buyer identified, you and Nardo can coordinate your management and support the rationale to bolster your marketing effort. There are always investors in all categories ready, willing, able, and anxious to buy properties that meet their specific investment criteria. With imagination, you and Nardo can anticipate the wants of various investors and prepare your sales approach accordingly. Given time and/or imagination, investment buildings can often be sold in a minimum amount of time.

Marketing Apartment Buildings:
How To Maximize Profits

Apartment building ownership is considered a fairly prudent, conservative type of investing. However, apartment building investing isn't a "What the heck? I have a few extra dollars. Let's see what happens" type of investing. Apartment building investing, whether buying or selling, is serious business. The marketing of apartment buildings often puts tens - or even hundreds - of thousands of dollars at risk.

Some owners leave more to chance than is necessary when they decide to sell. They don't think as objectively as they might. Perhaps, having always done business a certain way, they suppose that everyone operates as they do. What may happen? Well, when these individuals decide to sell their apartment buildings, they may receive less than the maximum return.

Some investors will let their Super Agent know that they are always ready to sell their properties if they can sell for more than fair market value. If you own a six family house that you could replace for $250,000, would you sell it for $300,000 or $325,000? If someone really wants to buy your property, is there a price at which you will sell it to him or her? Know that price.

For instance, consider the following situation. Five experienced and knowledgeable prospective buyers look at the same Main Street apartment building.

   Buyer No. 1, Apartment Building Buyer, is strictly an apartment building investor. Like many old timers in the business, he hasn't gone wrong yet using his trusty Gross Multiplier of seven times income. Since the gross income from the Main Street building is $40,000, Buyer No. 1 makes an offer of $280,000.

   Buyer No. 2, Handyman Buyer, is a contractor by trade. He has been very successful over the years fixing up properties and increasing rental income. Buyer No. 2 sees upgrade potential in the Main Street building and offers $300,000.

   Buyer No. 3, Syndication Buyer, is a real estate syndicator. She organizes real estate limited partnerships. She has been anxious to buy a property such as the Main Street building for the tax benefits and cash flow, which she can pass on to her limited partners. To her partnership, the property is worth $320,000.

   Buyer No. 4, Condominium Converter, has been very successful converting smaller apartment buildings into condominiums. She sees that the Main Street property has excellent conversion potential. She feels that she could be in and out of the project in less than a year. From her perspective, the property is worth $340,000.

   Buyer No. 5, Developer, has an edge. His edge is that he is well connected. He has pals everywhere. Buyer No. 5 looks at the Main Street building and sees not an apartment building, but a new retail and office complex. He has the friends to make the changes. To fulfill his ambitions, Buyer No. 5 would be willing to pay $400,000 for the site.

Take every offer seriously.  Your marketing has done its job. You have a party interested in your property. Right now, do all you can to close the deal. It may be some time before the next offer.

Give Your Home "Curb Appeal"

There is a very good chance that early in your investing career, you will be buying and selling properties to raise investment capital. Oh, those first impressions. As a seller, you hope the first sight of your home will elicit the strong emotional response from a prospective buyer that says, "This is it". Often, before the buyer walks through your front door, the sale has been won or lost. In fact, many buyers will concede more than a few points from their interior "must list" (the house must have a fireplace, must have a finished basement, must have an eat-in kitchen, etc.) if the exterior curb appeal (what the prospective buyer sees as he drives up to your house) is strong enough. Why? It's human nature.

There is a strong pride factor in homeownership. A buyer lives in a house and can make concessions and make do, but it's the exterior that the world sees. It is the exterior of the home that immediately reflects on the owner. Regardless of price range, the prospective buyer/owner wants the house to look good for that price range. The new owner anticipates meeting his or her friends at the door for the first time and to have those friends smile with approval and sincerely say, "What a nice house!" Curb appeal. Things to consider:

   Determining the best approach route to the house

• Is one avenue to the house superior to others?
• Can neighborhood amenities (schools, churches, stores, transportation, recreational facilities, etc.) be identified en route?

   Finding the best place to park

• At what angle (from the driveway? from the street? from across the street?) does a buyer get the best view of the house and grounds?

   Making the landscaping work

• Does the lawn need seeding, mowing, or raking?
• Do the beds need weeding or mulching?
• Do the shrubs and trees need trimming?

   Checking the driveway

• Does the driveway need patching or sealing?

   Making the entry door inviting

• Does the door color complement the house?
• Does the door need repainting?
• Does the door open without sticking?
• If there is a storm door, is it in good shape or should it be replaced or removed?
• Do exterior stairs or railings need attention?
• Is the doorway well lit?
• Is the door hardware in good repair and shining?
• Does the entry mat need replacing?

   Checking the exterior

• Does the house and/or trim need painting?
• Are the gutters clean and in good shape?
• Does the chimney need repointing?
• Is the roof clear of debris?
• Are the windows and storm windows sparkling clean?
• Do the curtains, drapes and shades, as seen from the outside, complement the look of the house?
• Are the garage doors closed and in good shape?
• Are toys, bicycles, hoses and garden tools in their proper places?
• Is all trash removed or stored properly in containers?
• Can any cars that do not add to the appeal of the house be parked elsewhere?

   Creating the special effect

• After dark, are all the lights, inside and out, turned on to give the home a warm look?
• Are seasonal flowers planted in front beds and/or in a bucket near the front door?
• Would a new doorknob, door hardware, house numbering or a new mailbox help?
• Is a seasonal decoration hung on the door appropriate?
• Are floodlights warranted for showcasing or security?

Quick Land Evaluation Check List

Spot a sign for land that looks promising?
See a land ad in the newspaper that sparks your interest?
Receive a call from your Super Agent?

Have a hunch about a promising area?

What kinds of information do you need to make a preliminary evaluation of the parcel? Here's a handy checklist to get you started on the right track:

Given current and anticipated demand, what is the highest and best use for the property?

Other than the highest and best use, to what other uses could the land be developed and still make investment sense?

What uses are permitted under current zoning?

If zoning must be changed, how realistic are chances for rezoning, a special permit or a variance?

Approximately how long would the approval process reasonably be expected to take and at what cost?

Is the price fair and comparable to the sale price of similar parcels?

Does the acquisition cost reflect a fair anticipated return?

Are land preparation cost estimates reasonable?

Is seller financing available?

Is development financing available for the intended development?

Are adjoining parcels available for present or future expansion?

Management Advice for Landlords

1. Screen tenants properly.

2. Make sure all agreements are in writing.

3. Handle security deposits properly.

4. Make repairs promptly.

5. Provide secure premises, change locks between tenants.

6. Notify tenants before entering their units.

7. Disclose and resolve environmental hazards immediately.

8. Hire competent managers and contractors.

9. Obtain both fire and liability insurance – consider an umbrella policy.
10. Resolve disputes without rancor; it's business not personal.

Jack Welch's Secrets to Success

Voted Greatest Manager of the 20^th Century

Former CEO General Electric

1. In bucking the status quo, be prepared to face massive resistance.

2. You've got to be hard to be soft. If you can't make the tough decisions, no one is going to listen when you make the easy ones.

3. Every organization needs to be based on values.

4. Keep to a single message and keep hammering it home.

5. Make your messages simple and understandable.

6. Your goal as boss is customer satisfaction, employee satisfaction and cash flow.

7. Leaders at General Electric:

Have a passion for excellence and hate bureaucracy

Are always open to new ideas

Live quality and drive for cost

Have the confidence to involve everyone without boundaries

Create a clear, simple realty based vision

Have enormous energy and can energize others

Set aggressive goals and reward progress

Sees change as an opportunity and not a threat

Build diverse global teams

Success Secrets of J.C. Penney

Founder of J.C. Penney

1. Preparation wins. Study, research and know more than the other man.

2. Hard work wins. Luck comes to those who work.

3. Honesty wins. Never give less than your best.

4. Confidence in men wins. With common sense, believe in yourself and trust your fellow man.

5. The spirit wins. Be an enthusiastic pioneer for your company.

6. Applying the Golden Rule wins.

Library:

Building Wealth through 1031 Exchanges, Thomas Moylan & Moore McLaughlin

1031 Exchanges: How They Work, Professional Exchange Accomodators

The Tax-Free Exchange Loophole, Jack Cummings

Investing in Duplexes, Triplexes, and Quads: The Fastest and Safest Way to Real Estate Wealth, Larry B. Loftis

Modern Real Estate Practice, Robert Kyle

How to Buy Real Estate Without a Down Payment in Any Market: Insider Secrets from the Experts Who Do It Every Day, Susan Smith Alvis

Real Estate Debt Can Make You Rich: What You Owe Today Is What You Will Be Worth Tomorrow, Steve Dexter

2 Years to a Million in Real Estate, Matthew A. Martinez

Property Management 101

It is much easier to say "No, thanks," to a rental agent than directly to a prospective tenant. Let the rental agent do the hard work.

This is the test which is repeated throughout this course. It is repeated for a reason. A bad tenant owes you money. Would you pay this bad tenant enough money to motivate him or her to move? If you say, "No," and take bad tenants and bad debts personally, you might want to reconsider the residential investment business. If you can say, "Yes," and see this money as a cost of doing business and a way to regain control, then you are headed to success. Yes, pay good money to a bad tenant to make this bad tenant someone else's bad tenant.

Operational Limitations

You will be tempted. Brokers will tempt you. Advertisements will tempt you. Friends will tempt you. As you become increasingly successful, you will be flooded with great, unbelievable once in a lifetime tempting opportunities that are outside of your specific investment area. You are a warrior.  Be strong. You are successful for a reason. You are an expert. You are an expert at a small specific investment area. It may not be much but it is all that you need to become a multi-millionaire and retire in twenty years or less. Remember this: in all small specific investment areas, there are always opportunities for knowledgeable investors willing to put in the study time to find them. You do not have to stray from your area of expertise to be successful. So, why do it?

There is always a temptation to improve properties to your personal standard. Yes, do unto others, except if you are buying a property to flip. Then, you should stick to small cosmetic repairs: paint, paper, landscaping and, most of all, cleaning. Sell the sizzle. Sell the potential. You are not in business to win civic beautification awards. You are in business to make money.

Jargon:

Appreciation - An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Bridge Loan - A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."

Community Property - In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Earnest Money Deposit - A deposit made by the potential homebuyer to show that he or she is serious about buying the house.

Income Property - Real estate developed or improved to produce income.

Interest Rate - The rate of interest in effect for the monthly payment due.

Liabilities - A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

Lifetime Payment Cap - For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Lock-In - A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

Promissory Note - A written promise to repay a specified amount over a specified period of time.

Second Mortgage - A mortgage that has a lien position subordinate to the first mortgage.

Seller Take-Back - An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.

Survey - A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

Question and Answers

I love watching the decorating shows on TLC and the Discovery Channel. Is it realistic to think that you can transform a house for a few thousand dollars?

No. It might look good on TV but trying to transform a room with a $300 or $500 budget is going to get you a very ugly room especially if you try to do more than paint. Sorry, but you can't learn contracting from watching a television show or reading a book.

Yes, cleaning, painting and landscaping are inexpensive improvements and are almost always worth your effort if your intention is to buy and immediately resell the property. However, if you are buying to resell, in most cases you want to avoid major rehab projects like new kitchens and new bathrooms. Unless you are a contractor, the immediate payback usually isn't there for major renovations. Again, "The money is in the deal. The money is in the deal."

I have told a story in the Master Real Estate Course about buying a house without a kitchen and bathroom. The handyman owner was on the verge of a nervous breakdown. He had read a do-it-yourselfer's book on remodeling and had begun his project by tearing out the kitchen and bath. Unfortunately for him, the pictures in the book did not match the reality in the house. He had to go to restaurants to relieve himself and was washing with a backyard garden hose. In total frustration, he called several realtors who told him that he'd have to hire professional contractors and reinstall the kitchen and baths before the house could be sold.

My super agent heard about the house and called me. I quickly negotiated and signed a Purchase and Sale Agreement with the happy seller. I then sold the Purchase and Sale Agreement to a young architect. I never actually owned the house but still made a very nice profit.

At the closing, the not-so-handyman seller was actually babbling to himself trying to figure out how I was making so much money from not owning the house while he was taking a significant lose. My friend, the architect, also did very well on the deal. This would be a lose/win/win deal.

I am interested in owning my six properties and becoming a multi-millionaire. You say twenty years but I'd like to do that a lot sooner. I intend to buy and sell until I achieve my objective. Should I be looking at properties in good or bad condition and in what price ranges?

There are five separate components, which will affect a property sale. They are condition, price, location, economic conditions and your marketing efforts. You have to give careful consideration to each component.

I am sold on real estate investing but my brother still say that in this market you are better off renting. What arguments should I give him?

More money has been made in real estate than in all other investments combined. The "average" homeowner has $50,000 in "unrealized wealth" in his or her home. Those families with incomes over $75,000 averaged $100,000 in "unrealized wealth." Families with incomes less than $40,000 averaged $40,000 in unrealized wealth.

It's a fact. Just do the math. Homeowners are wealthy. Mention that in the last forty years, real estate has appreciated an average of 6.34%. If your brother thinks the market is down, isn't this a good time to get a good deal?

In my town, several of the firefighters moonlight as contractors. I've asked around they do good work. Is there a conflict of interest that I should be aware of?

There is only a conflict of interest if they are on the town clock while they are working on your properties. This would be their problem and not yours.

Yes, many firefighters moonlight in the building trades and do excellent contracting work. Certainly, give them a try. However, with all contractors, whether they are firefighters or friends, or anyone who is working on your property, be sure that they are properly bonded and insured.

You recommend having four to six months of research under your belt before you start making offers but what if you find a good deal in two or three months?

Don't be rushed into making an investment decision. It may take you four to six months to complete your initial research to become an expert on values in your specific investment area. Work at your own pace and on your own schedule. The deals will always be there.

With that said, you know your financial situation better than anyone. If you find an excellent deal in two months or two weeks, and you have the confidence, go for it. In real estate, it's hard to make a serious mistake because even if you overpay, time will bail you out.

You know better than most people that real estate prices are too high and a price adjustment is coming. Doesn't it make sense to wait and buy when prices drop?

I have a very good friend who also happens to be a multi-millionaire real estate investor. He told me that he got interested in real estate from listening to his grandmother who told him:

1. You get rich by owning lots of real estate.

2. You can't listen to other people because other people will always tell you that real estate costs too much today and that you should have bought five years ago – and other people will be saying the same thing five years from now.

And, you know, grandma was right!

Why is a zoning map of my investment area so important?

Because it is more than a zoning map; it is a treasure map. You may find a zoning map for your area posted online or you should be able to buy one at your town hall.

Your investment area is changing. It has always and will always be changing. Active investors with imagination will look at a site or building as is and envision a higher and better use. Does your investing area look now as it will look in five, ten, or twenty years? The zoning map gives you a kind of aerial view of your area and can lead you to investment treasures. Here are the kinds of opportunities that you look for:

Sites for single-family residential construction or expansion
 Sites for multi-family construction or expansion
   Sites for condominium development
   Sites for commercial construction or expansion
   Sites for office/professional construction or expansion
   Sites for rehab/improvement in historic areas
   Sites for industrial construction or expansion
   Sites for cluster development
   Sites for recreational development
   Sites amenable to subdivision
   Sites with conversion potential due to non-conforming use
   Sites abutting a zone line with rezoning potential
   Sites owned by the municipality, which can be purchased
   Sites in the path of anticipated development

Is Donald Trump the greatest real estate man who ever lived?

Even with The Donald's giant ego, he would still probably tip his hat to William Zeckendorf. Zeckendorf rebuilt Montreal, Washington, D.C. and especially New York City.

Zeckendorf was a flamboyant genius. He was a master at assemblage or buying small parcels of land to create one large parcel. He was a master visionary. Zeckendorf could picture an area not as it was but as it will be in five or ten or twenty years. He was a master at parceling which was an early form of condominium conversion. For example, he saw the Empire State Building with not one owner but three owners: one owner for the land and a second owning the building and a third owning the leases on the building.

If you can find it, his autobiography, Zeckendorf, is an enjoyable and informative read.

You have said that partnerships complicate real estate investing. Is this true for a husband and wife partnership?

Traditional partnerships often involve conflicting interests. However, this should not be the case for marriage partners who invest with a common interest. Spouses should be involved in investment decisions to the extent that they feel comfortable. In my early investing years, my wife was actively involved on the crew. She painted and repaired and cleaned with the rest of us.

To make a deal happen, a seller offered me a second mortgage with a balloon. I didn't know what he meant. Could you explain what a balloon is?

A balloon mortgage is loan that requires payments that are insufficient to pay the entire principal due before the loan expires. In other words, at the end of the loan, a large payment or balloon payment remains.

As an example, a seller gives you a second mortgage but only requires a small monthly payment on the second. This increases your monthly cash flow and makes the deal more appealing. The reasoning is that the property will appreciate in value during the term of the second mortgage allowing you to refinance and pay off the balloon.

I'm not very handy and I worry about having to make repairs.  Can I seriously consider investing?

This is where your Mastermind Alliance plays a role. You call the expert from your list.

Think of your own home. If you need a plumber, you call a plumber. If you need a carpenter, you call a carpenter.

A tenant calls with a complaint. You put down your coffee and you call the appropriate contractor. You follow through by calling the tenant back with the repair information. You finish your coffee. It is still hot.

You can wear a suit and tie and sit at a desk, never get your hands dirty and be a very successful real estate investor. You just use the speed dial on your cellphone.

I was looking at a six family house and four of the apartments were nice and two were a real pigsty. The condition of these units gave me second thoughts about making an offer. What should I do?

Make an offer. You can factor in the cost of repairs and, if necessary, relocating the problem tenants.

When you look at a property, do not look at it from the present owner's perspective but from your own perspective. Yes, you can negotiate based on present condition and then professionally manage the property under your ownership.

Your first step would be to look at the rental agreement. It will say that the property must be kept in a sanitary condition. Then, you can talk to the tenant. You can explain that you will not be renewing their lease. If this doesn't work, you can contact the Board of Health to issue them a citation. The final resort would be legal action.

Yes, this will take time and money, which you will factor into your offer. In a short period of time, you will end up with a nice property with nice tenants owned by a nice investor.

Why do you say that "Handyman's Specials" are for suckers?

I say that Handyman's Specials are for suckers because usually they are. If a broker advertises a property in dire need of repair, a gaggle of contractors and wannabe contractors will inevitably bid up the property to the point of little or no profit.

Why buy a disaster with all the inherent risks of a major remodeling project when you can buy a nice property ready to rent or resell? If you can find very good deals with persistence, hard work and a willingness to make offers and negotiate, why take on someone else's problems and obvious neglect?

Repeat. The money is in the deal. Repeat again.

Would you please explain a bridge loan?

A bridge loan is used when you want to buy a second property before you sell a first property. The bridge loan becomes the source of funds for the down payment on the second property. The bridge loan is usually a temporary or short term loan which is repaid when the first property sells.

What if a lot of different people read this course and start using the same investment system?

When I was teaching real estate investment seminars, I would always be asked, "Aren't you worried that other people are going to take your ideas and take all of the best opportunities away from you?" No. First, most people aren't going to do the research. Second, very few of the people who do the research are going to translate their knowledge into action. Third, it doesn't matter. I wish them luck, because there are too many opportunities and possibilities in any investment area for any individual or even any group of individuals. There are between twenty and thirty real estate real estate investment multi-millionaires just in my specific investment area.

What is amortization?

Amortization is a payment plan that enables, you, the borrower, to reduce your mortgage debt gradually through monthly payments of principal. If you have a twenty-year mortgage, you would pay off the mortgage month by month to a zero balance over the twenty years.

I live in Southern California and the prices are through the roof; even a small condo is three hundred thousand and a starter home is more than four hundred thousand. I don't know where to start.

You have to start where every one else starts with research and hard work.

If one bedroom condo is $300k, maybe you can make offers at $260k or find one in need of cosmetic upgrading for $240k? I'd say probably, yes. If the property is your first purchase and is to be owner occupied, you may be able to make the purchase with as little as 5% down.

How do you make the payments? You work sixty hours a week. You drive an inexpensive car. You do what you have to do to make your investment plan a reality. Everybody in your area must be in the same boat. If prices are this high, then rents must also be high and rental payments are getting you nowhere.

Now for the good news; while people in other areas may need six properties to become a multi-millionaire in twenty years, you may only need three or four properties. It isn't easy but it is worth it.

Maybe, you buy your first condo at a good price and resell it and have increasingly large downpayments as you move forward. Renters are running on a treadmill. Investors are moving forward. What are you doing?

Action Plan:

"It ain't personal, Sonny, its business." [Godfather I] You will be making offers. You will be making lots of offers. You will be making offers until you get exactly what you want which is a great deal. Get used to hearing the word, "No." It isn't personal. It isn't permanent. It is just, "No." Some will, some wont, so what, next. To succeed with our system, you don't have to make a lot of deals, just a few deals. You buy, rehab, flip and exchange until you have your six properties. You pay off the mortgages. If you are aggressive, you continue to buy and flip to raise funds for rapid debt repayment. Still, you are only making a few deals.  Maybe to buy your first property, you make ten offers. Maybe, to buy your second property, you make six offers. Maybe, to buy your third property, you make fourteen offers. You make a many offers as you need to get the deal you want. In most cases, it costs you nothing to make a real estate offer.

Support:

• For 1031 exchanges: http://www.realtor.org/libweb.nsf/pages/fg408
• For property management: http://www.mrlandlord.com
• For National Association of Independent Landlords: http://nail-usa.com
• From both landlord and tenant perspective: http://www.rentlaw.com
• See the other side: http://www.badlandlords.info

Inspirational Insights:

Don't let anyone tell you that you can't price yourself higher than the competition. We break the comps on all of our projects.

Donald J. Trump, b. 1946, billionaire developer

Individual commitment to a group effort--that is what makes a team work, a company work, a society work, a civilization work.

Vince Lombardi, b. 1913, NFL coach

Most of the self-made millionaires in this country made their money in real estate. You should start now.

Dorothy Herman, President Douglas Elliman RE

Unless commitment is made, there are only promises and hopes...but no plans.

Peter Drucker, b. 1909, Management expert

Think of yourself as on the threshold of unparalleled success. A whole clear, glorious life lies before you. Achieve! Achieve!

Andrew Carnegie, b. 1835. industrialist

We choose our joys and sorrows long before we experience them.

Kahlil Gibran, b. 1883, Lebanese writer

We know what happens to people who stay in the middle of the road. They get run over.

Ambrose Bierce, b. 1842, American writer

One that desires to excel should endeavor in those things that are in themselves most excellent.

Epictetus, b. 55, Greek philosopher

It is better to conquer yourself than to win a thousand battles. Then the victory is yours. It cannot be taken from you, not by angels or by demons, heaven or hell.

Buddha, b. 563 B.C., Spiritual teacher

Make small commitments and keep them. Be a light, not a judge. Be a model, not a critic. Be part of the solution, not part of the problem.

Stephen R. Covey, b. 1932, self-help author

Achievement is largely the product of steadily raising one's levels of aspiration ... and expectation.

Jack Nicklaus, b. 1940, Golf legend

If you don't make a total commitment to whatever you're doing, then you start looking to bail out the first time the boat starts leaking. It's tough enough getting that boat to shore with everybody rowing, let alone when a guy stands up and starts putting his life jacket on.

Lou Holtz, b. 1937, College football coach

If we don't change, we don't grow. If we don't grow, we aren't' really living.

Gail Sheehy, b. 1937, American writer

To choose is also to begin.

Starhawk, b. 1951, American writer

It is one of the most beautiful compensations of life, that no man can sincerely try to help another without helping himself.

Lao Tzu, b. 600 B.C., Chinese philosopher

Again and again, the impossible problem is solved when we see that the problem is only a tough decision waiting to be made.

Dr. Robert Schuller, b. 1926, Televangelist

The notion of looking on at life has always been hateful to me. What am I if I am not a participant? In order to be, I must participate.

Antoine de Saint-Exupery, b. 1900, French writer

In reading the lives of great men, I found that the first victory they won was over themselves...self-discipline with all of them came first.

President Harry S. Truman, b. 1884

Not being able to govern events, I govern myself.

Michel de Montaigne, b. 1533, French writer

War is not run on sentiment.

General George Patton, b. 1885. WWII military leader

If you fear making anyone mad, then you ultimately probe for the lowest common denominator of human achievement.

President Jimmy Carter, b. 1924

The wise young man or wage earner of today invests his money in real estate.

Andrew Carnegie, b. 1835, American industrialist

Suburbia is where the developer bulldozes out the trees, then names the streets after them.

Bill Vaughan, American writer

The greatest enemy of tomorrow's success is today's success.

Rick Warren, b. 1954, Evangelist

Know your marketplace before you invest.

Norman Sturner, Principal, Murray Hill Properties

You must truly believe in your product and it ability to satisfy your customers if you are going to succeed in marketing.

Donald J. Trump, b. 1946, billionaire developer

This, then, is the test we must set for ourselves: not to march alone, but to march in such a way that others will wish to join us.

Vice-President Hubert H. Humphrey, b. 1911

There's a great deal of talk about loyalty from the bottom to the top. Loyalty from the top down is even more necessary and is much less prevalent. One of the most frequently noted characteristics of great men who have remained great is loyalty to their subordinates.

General George Patton, b. 1885, WWII military leader

When you work seven days a week, fourteen hours a day, you get lucky.

Armand Hammer, b. 1898, American industrialist

If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability.

Henry Ford, b. 1863, industrialist

The cover-your-butt mentality of the workplace will get you only so far. The follow-your-gut mentality of the entrepreneur has the potential to take you anywhere you want to go or run you right out of business--but it's a whole lot more fun, don't you think?

Bill Rancic, b. 1972, Trump apprentice

Money is one of the most important subjects of your entire life. Some of life's greatest enjoyments and most of life's greatest disappointments stem from your decisions about money. Whether you experience great peace of mind or constant anxiety will depend on getting your finances under control.

Robert G Allen, financial author

If you work just for money, you'll never make it, but if you love what you're doing and you always put the customer first, success will be yours.

Ray Kroc, b. 1902, developer of McDonald's

Wealth flows from energy and ideas.

William Feather, b. 1889, Publisher

Your most unhappy customers are your greatest source of learning.

Bill Gates, b. 1955, Richest man in the world

Cherish your visions and your dreams as they are the children of your soul; the blueprints of your ultimate accomplishments.

Napoleon Hill, b. 1883, American self-help author

We are built to conquer environment, solve problems, achieve goals, and we find no real satisfaction or happiness in life without obstacles to conquer and goals to achieve.

Dr. Maxwell Maltz, b. 1899, Self-help author

I find it fascinating that most people plan their vacations with better care than they plan their lives. Perhaps it's because escape is easier than change.

Jim Rohn, Motivational speaker

When defeat comes, accept it as a signal that your plans are not sound, rebuild those plans, and set sail once more toward your coveted goal.

Napoleon Hill, b. 1883, American self-help author

You cannot expect to achieve new goals or move beyond your present circumstances unless you change.

Les Brown, b. 1945, Motivational speaker

You control your future, your destiny. What you think about comes about. By recording your dreams and goals on paper, you set in motion the process of becoming the person you most want to be.

Mark Victor Hansen, b. Self-help author

Buy land. They've stopped making it.

Mark Twain, b. 1835, American novelist

No decision has been made unless carrying it out in specific steps has become someone's work assignment and responsibility.

Peter Drucker, b. 1909, Management expert