Master Real Estate Course

Lesson #15 Value Oriented System

Objective:

• School's out. Get to work.

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:

In this final lesson, let's begin with a review.

Realize that this is a value-oriented system. You study to understand value. You become an expert by studying a small, very specific investment area.

You've learned that it is better to buy a poor property in a poor area that is worth $80,000 that you can buy for $40,000 than it is to pay a million dollars for a million dollar property in a beautiful neighborhood. You make money on the poor property and no money on the great property. When you are ready to own your dream house, then you buy the great property. The poor property is a buy/sell opportunity. This means that the common real estate success mantra of Location, Location, and Location is not always accurate. From Donald trump, "Location, location, location. That cliché is preached by know-nothings who fail to think. You're looking for the most profitable deal that might exist in any location. Plus, do what I do. Use your property to boost the value of the location." Eventually, you want those six properties to be the best properties in the best locations. As you build toward this portfolio, you buy and sell based on value.

Attitude

Have a realistic plan. Know that you can do what many others have done, and that is to become financially independent through local real estate investing. You keep studying, talking, seeing and making offers on real estate in your area. You have confidence from your research. You ONLY need six properties. You ONLY need to work actively on buying and selling until you have your six long-term properties.  

The best real estate investors are entrepreneurs. They understand business and customers and act they act accordingly.

Most people are doing nothing. Even if you use this system to buy your own home, you will come out ahead. But, reject being average, you are a warrior. You have the style and the attitude to accomplish much more for yourself and your family.

Education through research is your edge. If you follow the steps in this course, you will become one of the few real estate experts in your area. Buying and selling will become more and more instinctual. You will see a property and know immediately how to structure the deal for maximum profit.

Income Property

You can achieve financial independence by buying six properties. Your first property is your primary residence, then four small income properties, and then a second home for a total of six properties. Real estate is just like most other businesses. You can buy wholesale and sell retail. You can buy property for 10% to 20% under market value and you can often sell property for 10% to 20% over market value. Since real estate is expensive, the profit potential is high.

You may consider buying a two-family as your first purchase and later buy your single-family house and keep the two-family for investment.

The type of income producing property isn't important. What is realistic for your area? For your four long-term investments, it doesn't matter if they are condos, co-ops, single-family houses, multi-families or stores.

Raw Land

If you own raw land, you still want that land to produce an income, especially if you have to pay taxes and service debt. Servicing debt means to pay a mortgage. Raw land income can come from several sources including: farming, parking, mining, drilling, hunting, fishing, camping and/or cutting timber. Of course, you would buy land if you could resell at a profit to a builder or other raw land user.

Location, Location, Location

Yes, you absolutely want the best properties in the best locations for your six long-term investments. However, when you are wheeling and dealing and flipping properties to raise investment capital, location is not as important as value. Would you buy a toxic waste dump for $100,000? Of course not. Would you buy a toxic waste dump for $100,000 if you knew that it would cost $250,000 to clean up and that the government will give you $400,000 to do the job and that the property would be worth $500,000 when the clean up is complete? Of course, you'd want that dump and ten more. You don't know if a deal is a good deal until you have all the facts and have had the time to analyze them.

Real Estate Agents

You've learned the importance of dealing with a successful, experienced real estate agent and that many agents are neither experienced nor successful. The best agents realize that the best way to make money in real estate is to buy properties for themselves and not sell properties to others. The best agents often become investors and/or office owner/managers because being a real estate agent is a really tough job. The primary reason for being a real estate agent is to have early access to the best listings and to buy those properties.

Many real estate agents have little to offer except access to listings and a car ride. Unfortunately, the demands of the business force many agents to tell a home seller any price, however high, in order to get the listing. The plan would be to reduce the unrealistic price at a later date by blaming the economy or whatever.

   Since you are learning so much about real estate in your specific investment area, you may consider getting your real estate license. If you are an agent, you may be able to make money on all the properties that you buy, since you will act as your own agent. And, if you are an agent, you can sell your own properties. And, when you find opportunities that do not fit your objectives, you can sell them to others.

Ninety percent of buyers use the Internet to find properties and agents.

Real Estate Buyers

   Most buyers are not value-oriented, but dream house oriented. They want to fall in love with the house they buy. When they see the house of their dreams, they are willing to pay the listing price to get it. Except for a little Internet surfing, most buyers do little or no personal research before looking at properties. Most residential property owners move every seven years.

Real Estate Sellers

   Even though the equity in their homes represents by far the largest percentage of their financial holdings, most sellers do little independent investigating. They trust their fortunes to real estate agents. Most sellers are driven to get top dollar for their properties, but not all. For some sellers, personal or career situations may necessitate a fast sale or special selling circumstances which you can accommodate. For example, sellers may want to sell and get their equity out of their home, but remain as a tenant for some period of time.

Handyman Specials

   You don't have to be a contractor, builder or developer to make money in real estate. In fact, many major remodeling projects are losing propositions. Painting, papering, cleaning and raking are realistic and important. Make your money with your knowledge and your willingness to make offers.

Government Officials

   Gaining permission to construct or convert can turn an average opportunity into an extraordinary deal. Pay your homage, dues, contributions or whatever to be seen as a positive force for change in your community. You will not regret making friends at City Hall. You may long regret making an enemy.

Extra Special Deals

   No money down deals and foreclosures sound like excellent opportunities, but they rarely prove lucrative for average investors. Ask yourself how many people knew about this great deal before you? If the deal is that good why aren't the lawyers and bankers and agents buying the property themselves, rather than selling the property to you?

Tenants

   Tenants are your customers. Give them good customer service. As Nardo taught, Love your tenants. Here is the real estate business in a nutshell: You borrow money to buy real estate to get rich and your tenants pay back the money you borrow. You borrow money and someone else pays back that money. Is this a good business or what?

   Your rental units are your tenants' homes. The overwhelming majority of tenants will treat your property with respect as their homes.

   Don't overlook the possibility of selling the house to one of your tenants. If you know value, then you know a price at which you will sell any of your properties.

Mastermind Alliance

   There are many people in your area that can assist you in developing your investment program. Find them and sincerely ask for their help. Keep your Mastermind Alliance list current. Do favors for each other. And, always follow-up with a thank you when any type of help is given.

Other Investors

   You don't have to own a lot of real estate to become financially independent. There is plenty of room in your specific investment area for you and several other active investors to operate. Befriend them and hopefully work together to your mutual benefits. Remember that all wealth is passed from old hands to young. If you are young, you will have the chance to purchase almost any and all of the properties in your investment area.

Highest and Best Use

   Look at every property through your new investor eyes. Should this building be a McDonald's or a nursing home or apartments? Is there extra land that can be built on or sold to an abutter? Can you move a house on a lot to create another building lot? Can you add units to the existing structure or convert to condominiums?

Management

   Charge market value rents. Keep your properties in good repair. Treat your rental units as you would your own home. Credit reports are your best tenant-screening tool. Get rid of bad tenants, even if you have to pay them to move.

Primary Financing

   Don't lose a good deal while worrying about interest rates. Acquire the property and you can refinance on better rates and terms at a later time. After you buy your first or second property, arrange a line of credit so that you are ready to avail yourself of new opportunities.

Secondary Financing

   You or Nardo should always ask the seller if they are offering any type of secondary financing. In some cases, you can negotiate with the seller delayed payment loans that allow you to increase cash flow to cover loan payments. You don't know what is negotiable if you don't ask.

What happens from here?

   What happens from here is entirely up to you. This course was easy to read, but the words and ideas will have little lasting impact without your hard work. Think of real estate investing as your part-time job. Get to work! Define your area. Study it from all angles. Find the best agents and agency in your area. Look at lots of properties and start making offers. Every property doesn't have to be your dream house. Try to buy at 10% - 20% below market and then resell at 10% - 20% above market. All the people who will tell you that you can't do this are the people who aren't doing it. You can buy low and sell high in real estate the same way you can in any other business. Knowledge through research is your tool. Think highest and best use. Make lots of offers.

 In the next five years, as a part-time real estate investor following the Action Principles^® and the advice in the Master Real Estate Course, you can put yourself on the direct path to financial independence. Others will wonder. You now know. Be a person of action and make it happen for yourself, your family and all the others who will benefit from extra time and resources.

Internal Revenue Service Publications

Of Interest to Real Estate Investors

All available free online

# 334 Tax Guide for Small Business

# 535 Business Expenses

# 583 Starting a Business and Keeping Records

# 587 Business Use of Your Home

# 1779 Independent Contractor or Employee

P.T. Barnum's Rules for Success

The World's Greatest Showman

1. Select the kind of business that suits your natural inclination and temperament.

2. Let your pledged word be sacred.

3. Whatever you do, do it with all your might.

4. Sobriety. Use no description of intoxicating drinks.

5. Let hope predominate, but be not too visionary.

6. Do not scatter your powers. Engage in one type of business.

7. Engage proper employees. Never hire a man of bad character.

8. Advertise your business. Do not hide your light under a bushel.

9. Avoid extravagance; and always live considerably within your income.

10. Do not depend on others. Rely on yourself.

Library

The Real Estate Investor's Handbook: The Complete Guide for the Individual Investor, Steven D. Fisher

Confessions of a Real Estate Entrepreneur: What It Takes to Win in High-Stakes Commercial Real Estate, James A. Randel

The Real Estate Coach , Bradley J Sugars

Property Management 101

Be sure that all contractors prove that they have adequate proof of insurance including workmen's compensation.

Be mindful of the legal and social implications that may be associated with hiring illegal immigrants.

Encourage all of your residential tenants to purchase renter's insurance to protect their personal belongings.

Operational Limitations:

The strong and continuous pull of the status quo to do little or nothing about your financial future.

The well intentioned but meaningless advice of average people around you.

Jargon:

Assessed value - The valuation placed on property by a public tax assessor for purposes of taxation.

Commission - The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

Covenant - A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Investment property - A property that is not occupied by the owner.

Individual retirement account (IRA) - A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.

Late charge - The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

Money market account - A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

Mortgagee - The lender in a mortgage agreement.

Private mortgage insurance (PMI) - Mortgagee insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

Rent Loss Insurance - Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

Underwriting - The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

Question and Answers

What does meditation have to do with real estate investing?

One of our most important Action Principles^® is "Give Yourself The Gift Of Quiet Time." Take twenty minutes a day to think about where you have been, where you are now and where you want to go. As you do your research, you will identify the local investors. You will find that many of them are ordinary hard working men and women of action. Most do not come from privileged backgrounds. Most have not earned advanced degrees from prestigious universities. Most are tradesman and housewives and local business owners.

Your life is formed by your choices. You can choose to be model yourself after these self-confident winners or you can choose to identify with the complaining slackers.

I am a first time buyer and I've heard that sweat equity is the best way to buy. Could you explain this?

The Master Real Estate Course is based on a non-sweat equity strategy. You find your value by doing your research and making reasonable offers.

Sweat equity refers to finding value by sweating over a property that needs major or cosmetic improvements. This is fine if there is value in the deal first. It is the deal that is important. If you can buy a property in good repair, why would you buy a property in poor shape? Please rent and watch the move, The Money Pit.

Most of my friends don't think they can buy first houses and never ever six properties. Do I need new friends?

Exactly. If you want to achieve, hang out with achievers. Yes, most people have friends who earn within a range of 20% of their earnings. You need richer friends.

Real estate is a people business. Do you want to rub shoulders with the millionaires who already own a lot of the income producing property in your area? Yes. Do you want a quiet place to push your next proposal with appropriate politicians and town officials? Yes. Do you want to buy a beer for the head of the sanitation department or the town surveyor? Yes. Being a social person, an extrovert, rubbing shoulders with the powerful people, can pay BIG dividends. Join the Rotary Club or the Chamber of Commerce or the Country Club. Go to the bars and social clubs and coffee shops where the local power elite of your specific investment area meets.

I was told that as a landlord that I have to be careful not to be accused of social engineering. What does this mean?

Social engineering would be to impose your personal beliefs on your tenants. Obviously, you can't order your tenants to go to church or to vote for certain political candidates. Simply, you cannot discriminate. You may not like same sex or unwed couples or people of foreign birth but these are not real estate issues. You may be able to ban smoking in common areas but not in individual units.

I'd like to run for public office some day and I worry that if I get involved in real estate that my opponent might be able to label me a slumlord. Does this sound crazy?

Yes. If you are a slumlord, you should be labeled a slumlord. So, don't be a slumlord. You should be a man of respect bringing quality housing to your community. If you are ashamed of your properties, shame on you.

I am interested in buying a condominium and I'd like you to explain about common areas? For example, if I not going to use the swimming pool do I still have to pay for it?

Common areas are those buildings, land and amenities that are owned in common by all the unit owners of a condominium. Common areas typically include parking lots, hallways, meeting rooms, lobbies, swimming pools, gyms, tennis courts, and other recreational facilities.

Yes, you still have to pay your monthly condo fee, your share of common charges, whether or not you use a particular amenity. Your common area charges are based on the square footage of your unit compared with other units.

Don't some investors invest in real estate simply for the tax benefits?

Yes, it is possible to shelter some or all of your ordinary income since you will be depreciating your investment properties. Depreciation is a "paper loss" required for estimated wear, tear and obsolescence. However, land value is not depreciable. Investment condominiums do not have a land element and 100% of the purchase price can be depreciated. The accountant member of your Mastermind Alliance should be consulted on all of your tax matters.

How am I most apt to find good deals?

Real estate evaluation is an imprecise science. Prices vary from one neighborhood to another from one street to another. Is there a demand for a large lot or a fourth bedroom or a third bath or two-car garage? There are endless variables.

From your research and in your opinion, some properties will be listed at prices that are high and some that are low. If the below market properties are of interest to you, make an offer. Even the above market priced properties may be worth an offer if they languish on the market.

Remember that the actual homeowner maybe someone who paid $35,000 for house that an agent is now giving an opinion of value of $260,000. The homeowner might think that the agent is crazy but goes along with his valuation. However, when the property doesn't sell in a month or two and you offer, $220,000, the owner may be satisfied with that offer and accept. At that point also, the agent may have tired of the property and advise the owner to sell.

There is a wealthy builder in my area who makes money using real estate options. What is he doing?

He is a smart guy who wants his cake and to eat it too. Let's say that the builder identifies a house with extra land. His plan is to knock down the existing house and build two or three new houses on the lot. He knows he can build two but would love to build three. The difference between two and three houses could be tens of thousands of dollars in profits.

The builder buys an option from the owner to purchase the property for a specific price for a specific term. The option price is negotiated. If the builder does not exercise his option to buy, he loses his deposit. The advantage to the builder is that he may be able to control many different parcels while he goes through the varying approval stages.

Another option approach would be a short-term partnership proposition. If he succeeds in getting three building permits, he will pay a higher price to the owner/seller than if he only receives two building permits.

What is escrow?

Escrow is the depositing of money or documents from a real estate transaction with an impartial third party, to be disbursed to the rightful party when all conditions of the transaction have been met.

When you make an offer, you will usually put down five hundred or a thousand dollars with that offer and your money will be held in escrow usually by the real estate agency or by the seller's attorney. The escrow agent usually keeps your escrow money in a separate low interest bank account.

What's the best way to get rid of a bad tenant? I mean someone who owes you back rent and is nothing but false promises and lies. I would evict him but doesn't an eviction take six months? I can't afford to lose six months rent.

Yes, if the tenant contests the eviction, the process can take six months. The tenant will probably not pay rent under the threat of eviction. He will probably seek representation from a legal aid lawyer. You pay for your lawyer. A vindictive tenant could cause damage to the rental unit and then turn you into the housing authority for the violations. You lose and you lose.

Here is a good test to find our whether you are a good candidate for the residential rental business or not. The above tenant is a very bad tenant.  He might owe you several thousands dollars in back rent and he could easily cost you thousands more. Would you give this bad tenant a thousand or two thousand dollar incentive to vacate immediately? Would you be willing to reward bad behavior?

You are not a social worker. You are a businessperson.  You meet with the bad tenant and explain his options. Yes, he can fight eviction but he will still owe you all the back rent and he will be responsible for your legal bills. You explain that this legal judgment will ruin his credit forever. Also, an eviction will mean that he will have a very difficult time every renting another apartment. He is going anyway so why not leave with his credit in tact and you will be willing to forgive all the back rent and give him a five hundred dollar moving allowance if he will move this Saturday. He gets the money when he is out and the locks are changed. The bad tenant may counter that he needs seven hundred to move or a thousand. Even if you give him two thousand, you are still ahead of the game. He goes and you get possession of the apartment back. This isn't pretty.  This is business.

What is an appraisal?

An appraisal is a written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes in the same neighborhood. As part of the process of obtaining a mortgage, you will usually be required to pay for the lender's appraisal of the subject property. You will still have to pay for the appraisal even if the mortgage is not approved.

Foreclosures seem like an excellent way to get a good deal. Why don't you talk more about them?

Generally, foreclosures are like Handyman Specials. They are best left to experts and suckers.

Think about it. Before a foreclosure auction, many people are aware of the homeowner's precarious financial situation. Many people at the bank and the lawyer's office have a chance to negotiate with the homeowner. The property will be advertised in the newspaper several times before the auction. These published announcements gives lots of foreclosure specialist a chance to approach the distressed homeowner with an offer. All of this has happened in advance of the auction. Lots of people have had a chance to buy the property and, for some reason or reasons, haven't.

It is also important to realize that without the owner's permission, which is rarely granted, you will not have an opportunity to inspect the inside of the property. You will be bidding on an unknown. Caveat emptor. Buyer beware.

What is appreciation?

Appreciation is the increase in value of your property over time. If your property appreciates by 5% and the value was $200,000, the new appreciated value is $210,000.

What is the home reinvestment method?

You buy a house. You move in. You immediately put the house back on the market. You rehab or redecorate or not. You sell. You profit. You buy another house. Repeat. You invest in real estate without owning any absentee tenanted property.

Reinvestors put their personal housing preferences aside. They don't look for their dream house. Instead, they look for a house that is listed or can be negotiated to an excellent price, for instance, a transferred executive who wishes to sell his home quickly.

When I was a kid, there was a wealthy family in our town. I knew the family moved often but I never knew what the father did to earn a living. Years later, I learned that the father really didn't work except that he'd buy and sell the family home over and over again.

If you were good at picking houses, you did your research; it would not be unreasonable to think that you would double your yearly income. You could use your profits to invest or you could use your profits to live a better life. As always, the choice is your choice.

What is an assessment?

Assessment is the placing of a value on property for the purpose of taxation. If a property is assessed at $200,000 and the tax rate is $20 per thousand, then the annual property tax is $4,000. The assessed value of a property may have little or no relation to fair market value.

Action Plan:

Again, read through all of the missions.

Again, watch the DVD.

Continue your real estate program with a goal of reading 40 books on real estate investing.

Join the real estate discussion forum on MasterSuccess.com or Dojo.com.

Commit to watching the weekly video seminar update on MasterSuccess.com or Dojo.com.

This is your defining moment. Do what you know how to do. You are a warrior. You deserve this. Buy six properties. Pay off the mortgages. Retire as a multi-millionaire.

Support:

• From the Insurance Information Institute: http://www.iii.org
• Information on the insurance industry: http://www.nationalunderwriter.com
• For state by state insurance departments: http://www.naic.org/state_web_map.htm

Inspirational Insights:

My father offered a top product to working people who had lived their whole lives in cramped, crowded rental apartments: modestly priced, suburban-style brick houses. His buyers bought faster than he could build them. He knew his customers just as well as I know mine.

Donald J. Trump, b. 1946, billionaire developer

You cannot have a proud and chivalrous spirit if your conduct is mean and paltry; for whatever a man's actions are, such must be his spirit.

Demosthenes, 384 BC, Greek orator

Winners take time to relish their work, knowing that scaling the mountain is what makes the view from the top so exhilarating

Denis Waitley, self-help author

Ability will never catch up with the demand for it.

Malcolm Forbes, b. 1919, founder of Forbes Magazine

What you get by achieving your goals is not as important as what you become by achieving your goals.

Zig Ziglar, b. 1926, motivational speaker

Martyrdom... is the only way in which a man can become famous without ability.

George Bernard Shaw, b. 1856

Success in business requires training and discipline and hard work. But if you're not frightened by these things, the opportunities are just as great today as they ever were.

David Rockefeller, b. 1915

The great things a man does appear to be great only after they are done. When they're at hand, they are normal decisions and are done without knowledge of their greatness.

General George Patton, b. 1885, WWII military leader

Strong reasons make strong actions.

William Shakespeare, b. 1564, English playwright

Character consists of what you do on the third and fourth tries.

James A. Michener, b. 1907, American author

No enemy is worse than bad advice.

Sophocles, b. 495 B.C., Greek playright

Life is a great big canvas and you should throw all the paint on it that you can.

Danny Kaye, b. 1913, American comedian

Hard work never killed a man. Men die of boredom, psychological conflict and disease. Indeed the harder your people work, the happier and healthier they will be.

David Ogilvy, b. 1911, Advertising executive

There's no right price for a wrong property.

George Ross, Attorney to Donald Trump

Obstacles don't have to stop you. If you run into a wall, don't turn around and give up. Figure out how to climb it, go through it, or work around it.

Michael Jordon, b. 1963, Pro basketball legend

The final test of a leader is that he leaves behind in other people the convictions and the will to carry on.

Walter Lippmann, b. 1889, Journalist

If you buy the same stocks as other people, you'll have the same result as other people.

Sir John Templeton, b. 1912, Stock investor

Seek the lofty by reading, hearing and seeing great work at some moment every day.

Thornton Wilder, b. 1897, American playwright

You shouldn't gloat about anything you've done; You ought to keep going and try to find something better to do.

David Packard, b. 1912, Founder, Hewlett-Packard

The last, if not the greatest, of the human freedoms: to choose their own attitude in any given circumstance.

Bruno Bettelheim, b. 1903, Child psychologist

There is more to life than increasing its speed.

Mahatma Gandhi, b. 1869, Indian spiritual leader

Great ability develops and reveals itself increasingly with every new assignment.

Father Baltasar Gracian, b. 1601, Spanish writer