Table of Contents
Contents
About the Author vii
1. How Real People Can Get Rich In America 1
The Road to Riches…A True Story 3
In Every Seed of Failure…There Is a Seed of Success 8
$1,000,000 Cash and Equity…In 26 Months 14
2. 24 Real Estate Deals…A Preponderance of Evidence 17
Real Estate Deals 1-8…The Learning Curve 19
Real Estate Deals 9-16…The Middle Ground 23
Real Estate Deals 17-24…The Sprint to the Finish Line 27
3. How to Buy Nice Houses in Nice Areas…Nothing Down 33
Ugly House, Pretty House, Junker House, Nice House…It's Your Choice 35
Motivated Sellers…The First Key to Finding Houses for Your Real Estate Investing Business… Price Is Second 37
Motivated Sellers Will Give You Their House…If You Ask 40
4. Buy Real Estate Subject To the Existing Financing…Getting the Deed 43
The Deed…Gives You the Position of Power in the Deal 45
He Who Has the Deed, Gets the Depreciation…The Last Tax Shelter 49
The Elements…Buying Subject To the Existing Financing 51
5. Sell Real Estate Quickly…To a Tenant-Buyer With a Lease Option 95
Tenant-Buyers…A Vested Interest in Your House 97
The Awesome Power of Seven…Money Almost Growing on Trees 100
The Elements…Selling With a Lease Option Contract 103
6. Marketing…The Juice for Your Real Estate Investing Business 121
Marketing…Get Motivated Sellers Calling You 123
The Green Letter…The Letter That Bought $4,800,000 Worth of Real Estate in 26 Months 124
Calling All Tenant-Buyers…The Yellow Sign, the Simple Newspaper Ad and the Internet 127
7. Exit Strategies…How to Line Your Pockets With Cash 137
Sell to Tenant-Buyer…Collect $5,000 to $15,000 Option Consideration 139
Get Tenant-Buyers Financed…Ka Ching! 141
Use The MLS, Sell to The Open Market…An Alternative to the Tenant-Buyer Scenario 144
8. Land Trusts…Protection From Financial Predators 147
Land Trusts…You Have the Right to Protect Your Assets 149
Why You Should Not Be on Title With Your Properties… Asset Search…The Attorney's Favorite Game 153
The Elements…Of Land Trusts 155
9. The LLC…The Perfect Entity for Your Real Estate Investing Business 175
LLC Says It All…Limited Liability 177
List of Deductions for Your Real Estate Investing LLC…179 of Them 181
The Elements…Of The LLC 191
10. Conclusion and Final Thoughts: 227
Continuing Real Estate Investing Education…To Sharpen Your Skill 229
Appendix 233
Glossary 236
Index 247
Excerpt
Chapter 1
How Real People Can
Get Rich in America
The Road To Riches…
A True Story
There has never been a better time in history to be investing in real estate. The real estate market has been appreciating nicely and there are more housing units than ever before, and therefore, more potential sellers to sell their house to you.
Some might say that there is a real estate “bubble,” but I don’t think so for many reasons. One reason is that a bubble is something that bursts and goes completely away. Home value will never vanish into “thin air,” because a home has underlying value that can never be taken away.
Another reason, real estate has made its owners money is by increasing in value seventy-three of the last seventy-five years. Real estate prices will never completely devalue, because land has an intrinsic value and there will always be value in a house, building or structure. Real estate is just like gold, the price may go up and the price may go down, but the price will never completely evaporate. There is intrinsic value in the gold and there is intrinsic value in the real estate.
A third reason that I don’t believe there is a national real estate “bubble” is what I call “The Multiple of Threes.” Let me explain.
My father was a real estate broker in California in the early 1970s. Our house in Mokelumne Hill, California, a small town in the foothills of the Sierra Nevadas was valued at $21,000. A comparable house in the San Francisco Bay Area was valued at $63,000. This is a multiple of three in property valuation between the Sierra Nevada foothills and the San Francisco Bay Area.
The Bay Area is approximately 120 miles west of Calaveras County, where my father’s house was located, so the economics are not really linked in any way. Today the average house price in Mokelumne Hill is $250,000 and the average house price in the Bay Area is $750,000. So, you can see the same 1:3 ratio at work in 2006 just the same as it was back in 1970.
The average home price here in Colorado Springs, Colorado, where I am at the time of this writing, is just under $200,000. Factoring out the “California Effect” of higher prices, Colorado Springs and Mokelumne Hill are pretty even pricewise.
When considering the three communities mentioned above, the Bay Area, Mokelumne Hill, and Colorado Springs (whose real estate market is tied to the Mid-West), you can see that same 3:1 ratio at work. Therefore, the real estate prices we were experiencing in 2006 was a market peak and not a market “bubble” getting ready to burst.
Real estate and the stock market fluctuate roughly on a ten-year cycle. When the stock market is up, real estate prices are down. The converse of this is also true. When real estate prices are up, the stock market is down.
The reason for this is when people are putting their money in the stock market they are not buying real estate; this makes real estate prices go down. And when people are putting money into real estate, they are pulling money out of the stock market, which makes stock prices and the market fall. You get the idea, when one is up the other is down.
Can you see that in the 35 years that have passed since the early 1970s there have been three complete cycles of the real estate/stock market? In those 35 years, Bay Area real estate prices have kept in lock step with the Sierra Nevada foothills real estate prices.
Crash of the real estate market? No, a market peak with a pull-back coming. A buying opportunity is in store.
Just for fun, let’s look at the appreciation in those same 35 years in Mokelumne Hill, California. We start with $21,000 in 1970, and it grows to $250,000 in 2006. That is a gain of $229,000 over the last 35 years. If you divide, $21,000 into $229,000 you get 11 times your money or a 1100% return on your money. Not bad for a 35 year investment. You can work the numbers for the property in the Bay Area and the return will be the same because of the 3:1 ratio. The numbers are a lot higher because of your original $63,000 investment, but the ratio is still the same.
So, is real estate investing risky? Maybe to the inexperienced or under-educated investor and maybe in some areas of the country that have had runaway, highly-inflated home values. But, in Colorado Springs (as mentioned earlier) we have not experienced runaway inflated values in the real estate market. So, just like stock market investing, prudence and education are paramount when considering real estate transactions.
Have you ever wondered if you could acquire real estate like the big guys? The wealthy have always made lots of money buying and selling real estate.
Big names like Donald Trump and McDonalds Corporation have made huge sums of money investing in real estate. Ray Kroc of McDonalds said that he sells hamburgers for a living, but his business is real estate. McDonalds is the largest private holder of real estate in the world.
I had aspirations toward the field of real estate at an early age. Growing up the son of a land surveyor, land developer, builder, real estate broker and real estate appraiser, real estate was “in my blood” early on. I could see that there was money to be made in real estate, but at that young age it didn’t seem like things were happening fast enough and there were too many “rules of convention” to be followed.
I opted to pursue a career in the medical field where the real money was being made. My desire was toward the helping professions of dentistry, medicine, chiropractic or osteopathy, real jobs where prestige and the satisfaction of accomplishment could be found.
After graduating from chiropractic college and buying into a practice in Nashville, Tennessee, the old thoughts of the real estate business began to come back to me. I had a wife, two young children, a mountain of school and business debt and a rented house. It was the late 1980s, and something told me that there had to be a way to buy a house creatively, using little or no money, even with that mountain of school and business debt.
I bought my first “creative” real estate course nearly twenty years ago from a fellow by the name of Ed Beckley. Ed was a high-pitched, energetic kind of guy who taught his students to buy low and sell high. This is good information as long as you can find someone who will conventionally sell you their property at a discount. If you want to be in the real estate investing business you must buy your property wholesale, so you can sell it retail and make a profit.
My wife Barbara and I bought our first house soon after acquiring Mr. Beckley’s course. Our first house was beautiful and in a nice area of Brentwood, Tennessee, a suburb of Nashville. Brentwood and Franklin, Tennessee are home to many Country Music stars so you can imagine that this was truly a very nice area.
We used a real estate broker who located a house with an asking price of $127,000. The house needed a few repairs and some updating. What I did not know was that the man had some health problems and needed to move to the East Coast to be near his family. We offered $103,000 for the house, and he accepted our offer. One thing is for sure, you will never know if someone will sell you their house at a discount if you don’t ask. By all means ask, you have nothing to lose and everything to gain.
I used my veterans’ benefits to buy that first house. Not a very creative way to purchase a house, but since it was available to me I used it to buy that house with “nothing down.” We moved out of our rented four-plex apartment in a congested part of town and moved into a beautiful 2,700 square foot, four bedroom, two bath house on one acre of secluded land. We lived in this house for eighteen months, put $10,000 into upgrading it and sold it for $142,000. A nice $29,000 profit after subtracting money spent for repairs.
During this time, we were introduced to our next real estate teacher, a fellow by the name of Carlton Sheets. Carlton was a lot like Ed Beckley in that he taught his students to aggressively go for a discount when talking to sellers about their properties. We employed Carlton’s methods in our next real estate purchase. We bought a home on a golf course for $159,000, put $35,000 into repairs and sold it for $210,000 approximately eighteen months later. Not bad, we were two for two in the real estate business.
In Every Seed of Failure…
There Is a Seed of Success
On our next real estate deal things had changed. We had more money than when we purchased the other two houses, and we became motivated home buyers. If you want to make a profit on anything you buy, you never want to be a motivated buyer. Motivated buyers, who are in love with a home, always pay too much. We offered $10,000 below the inflated asking price, they accepted it, and we got the traditionally average real estate deal.
This was a beautiful house on two and one half acres in the North Nashville suburb of Hendersonville, Tennessee. Little did we know that this “beautiful”house would turn out to be a very costly and painful learning experience that would almost destroy us financially. This was because we did not have the knowledge to turn the situation around. If you think education is expensive, try ignorance.
This real estate deal had Murphy’s Law all the way through it; anything that could go wrong did go wrong. This deal changed the way we looked at real estate investing forever. If you have ever been in a bad situation that you were just not sure how to change, then you understand the pain that we went through. It took two long years to remedy the myriad problems surrounding the purchase of this house.
For starters, I am a chiropractor and soon after we bought this house, the medical doctor I was practicing with went through an upheaval in his life and our relationship abruptly came to an end. So, on the run and running out of time and money, we put the house on the market and headed to what we thought was safe ground in Colorado to start our own health-care business.
Surely the house in Hendersonville would sell quickly. After all, the house in Brentwood had sold in two weeks. The unthinkable happened, and it took two years to sell that house in Hendersonville, Tennessee.
In the mean time, we were trying to lead a normal life in our new community of Glenwood Springs, Colorado. The town took us in with open arms, and we quickly established our new chiropractic practice. We started this practice from the ground up, locating equipment, tenant-finishing the office space and marketing for patient number one. Yes, we did get patients coming to our office and had a successful practice in Glenwood Springs.
After six months in Glenwood Springs, we turned the house in Hendersonville over to a management company to rent. This would help cover the $2,200 monthly note. We were able to rent the house for $1,600 a month minus the ten percent management fee. We were still $760 per-month negative on the payment. But what is better, $760 or $2,200 per month over and above other living and practice expenses?
We put the renters in the property with the understanding that we were intending to sell the house, and it would stay on the market. It proved to us that renters who don’t want you to sell the house won’t have it show well when the prospective buyers show up. So, here we are, 1,350 miles away, trying to balance this juggling act and stay sane.
Oh, I almost forgot to mention that at some point within the first six months we were away in Colorado, our home owners’ insurance went from $50 dollars a month to over $600 dollars a month because of having a vacant property. Wonder who leaked that information? As you go along in life, you learn to keep your mouth shut so you don’t add insult to your own injury.
Complicating the matter more, when we moved to Glenwood Springs, we “creatively” lease-optioned a beautiful property on ten acres, large enough for our seven person family. The property was up in the mountains out of town, a virtual, secluded Shangri-La.
So, let’s see now. We still have not been able to sell the house in Hendersonville, Tennessee. We have a new practice that is about a year old. We have a lease option on the ten acre property on “The Hill” in Glenwood Springs, Colorado that I put up $25,000 to secure. And, we have a $1,600 per- month payment on that property. We also have five children still living at home. That is a huge “nut” for two people and a new practice to cover. Needless to say, we were “up to our ears” in debt. Something needed to change.
After about fourteen months of dealing with the property manager in Hendersonville, he and I had a falling out. I fired him, long distance, over the phone. His reply to me was, “You can’t fire me.” Imagine that, I hired him and now I can’t fire him.
I contacted the renters and instructed them to pay me instead of the agent. After a cordial conversation with the tenants, they related to me that they could not pay me because Mr. Agent had threatened to take them to court if they did not continue to forward the money to him. After all, he was the one who had put them in “his” house.
Okay. Enough of this. In comes the real estate attorney and, of course, the attorney fees.
To make an even longer story shorter, we got rid of the property manager, sold the new practice to a “home town” returning doctor, bailed out on the lease option on the beautiful ten acres on “The Hill,” and moved back to Tennessee to take possession of the house in Hendersonville. Yes, believe it or not, this is a true story.
By now, certain people who knew us were sure we were finished, but surprise, we weren’t dead yet. You really find out who your friends are when you are down like we were.
After moving back to Tennessee it took us six months to sell the house. This time we had good luck and found a real estate agent who had good knowledge of the area and the market.
During this time, I was trading in the stock market for a living. I was not exactly a day trader but was a very active trader. The only problem was, it was 1999, and you know the rest of the story; in the year 2000, investors lost three trillion dollars in just a few short months.
With the stock market in shambles, no jobs to be had with local chiropractors, and our finances ruined from the preceding two years, we decided to return to Colorado where I took a job at a new chip plant Intel was building in Colorado Springs. What the heck, we didn’t have anything to lose so we packed up and moved to “The Springs.” I had worked as a union electrician before becoming a chiropractor, so I decided to return to this trade while we were weighing our options for the future.
Working to construct a chip plant for Intel was a very interesting experience, as I had never been involved in this aspect of the electrical business. Working through the Union at Intel was interesting, to say the least, as I worked for three different contractors in an eight-month period. My oldest son was also able to get a job on the Intel Project, and he learned some very valuable life skills during this time.
Being laid off due to “lack of work” or companies going bankrupt doesn’t give you much security. In consideration of this, my wife took a job at a local mortgage company so when the “last layoff” came, we would have something to keep us afloat. She did an awesome job at the mortgage company and within the first year was promoted to manager and earned $65,000 that year. Not bad for someone who had never worked in that field before.
And that was fortunate, because I did get laid off for that final time from Intel when the 1.5 billion dollar retrofit of an existing chip plant came to an end. We were grateful to have something to fall back on when my earning power came to an end. Money is not everything, but it rates right up there with air.
$1,000,000 Cash and Equity...In 26 Months
It was during this time that we met Ron LeGrand through one of his late night infomercials. He was a different sort of real estate guru. He was teaching, “If you can’t make money without money, you can’t make money with money.” This interested us greatly, because we had just filed bankruptcy, and obviously, with a seven-person family, we did not have an abundance of money.
Ron, within the next six months, was going to have a seminar in Denver, and he offered a payment plan. The payment plan was one-third now and the other two-thirds later. The total price was $2,995, and our son could attend for $500. That was a big chunk for us at that time, but we were used to taking calculated risks, and his advertising was very captivating.
Barbara was doing well at the mortgage company, but she didn’t care much for the cold calling from old “worn out” lists. At that time, the media was telling everyone that the mortgage refinancing “bubble” was about to burst.
So, in May of 2002, we attended Ron’s three-day Pretty House Boot Camp in Denver. A fellow by the name of Ray Rach taught the boot camp, and we came away with our heads packed with what I call “truly creative” real estate buying and selling concepts.
The quantity of information that was presented at that event was like drinking from a fire hose. We came away from that event with the belief that “we can do this.”We can finally buy those houses that had eluded us for so many years using all the other real estate guru’s conventional wisdom.
There was so much information at that three-day event that there was no way we could absorb it all, so we registered for a follow-up event held in Chicago in June of 2002. We could not afford the air-line tickets or the cost of the hotel room, so our oldest son, who had been working as an electrician, paid for himself and his mother to attend the event in Chicago. After that event, the information was ours and we ran with it.
After attending Ron’s event in Denver, we creatively, with no money out of our pockets, bought our first house. We bought that house with a lease option and a $10 binder fee. Not bad, I was starting to like this “new style” of real estate investing.
The seller was the wife of a sergeant in the Army who had been transferred to Fort Hood, Texas. They had been apart for six months, and she was ready to be with her husband in Texas.
We enter the scene, with our new-found creative real estate knowledge, and she was able to go on her way while we found someone to lease-option her pristine home. That’s right, pristine, not a junker, and she was an imma- culate house-keeper.
We were new to the game so it took a little longer than usual to find someone to “lease” this beautiful home. When we found the buyer, we collected $5,000 in option consideration and took back a $5,000 note. From that point forward, we were on a profit-making basis in our new real estate investing business.
Over the next 26 months, from that May of 2002 when we creatively bought our first house, we bought a total of 24 houses worth over $4,800,000. The good part is that we also created $1,000,000 in cash and equity for ourselves. What an awesome feeling! You can do it, too! Read on.
