How To Be A Real Estate Investor

How to be a

Real Estate

Investor

Discover how you can make

fast cash and

build wealth

investing in real estate

Phil Pustejovsky

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DISCLAIMER:

This publication is for informational pur-

poses only. Please consult qualified attorneys, accountants

and other professionals regarding business and investment

decisions.

iii

This book is dedicated to anyone who has ever dreamed big.

You are capable of far more than you could ever imagine.

Contents

Introduction 7

Part 1: Why Be a Real Estate Investor 25

Part 2: How to Think Like an Investor 35

Part 3: Real Estate Investing 101 55

How to Make Fast Cash 57

How to Build Long Term Wealth 72

Part 4: Advanced Investing Techniques 87

Wholesaling 87

Pre-Foreclosures 97

Short Sales 101

Foreclosures 106

Tax Lien Certificates & Deeds 123

Creative Financing 128

Traditional Purchase 141

Notes 147

Part 5: Your Real Estate Future 149

Appendix A: Building Your Team 173

Appendix B: Recommended Reading 191

About the Author 194

How to be a Real Estate Investor

Introduction

While bored out of my mind, sitting behind a desk one

day, I considered how to be a real estate investor. I was fresh

out of college with a degree in mechanical engineering from

Vanderbilt University. Many well intentioned adults tried to

convince me that the American dream was to get a 9 to 5 job

with a Fortune 500 company. But, it sure didn’t feel that way

once I got one! I was falling asleep at my desk and had no

freedom. It quickly dawned on me that I didn’t want this for

the rest of my working life. In fact, it was about that time that

I heard someone refer to the word “job” as an acronym

standing for, “Just Over Broke.” I wanted the exact opposite.

I wanted to be financially free.

I began researching how to become financially free at

the library and at book stores. Real estate investing surfaced

as a common thread amongst many economically successful

people that I studied. That’s when I began to consider how to

be a real estate investor. What fascinated me about real

estate was that there were techniques for making money that

didn’t require investing cash or using my credit, which was

perfect for me at that time because I didn’t have any money

or any credit.

I devoured every book I could get my hands on and at-

tended free tele-seminars, webinars and local live seminars.

A whole new exciting world was opening up to me and it

appeared to be exactly what I was looking for. It was a way to

become financially free. Before I could begin to truly educate

myself on the subject, however, my boss and I had a dis-

agreement at work one day that led to me quitting my For-

tune 500 job.

Rather than go get another job, I decided to focus my

full time efforts on real estate. It was quite a gamble consid-

How to be a Real Estate Investor

ering I had very little money saved up, no money coming in,

and no experience in the field. But, I was determined to

make it work. My parents weren’t all that pleased with my

decision because they had just spent a substantial amount of

money on my college education. They reasoned that I didn’t

need to go to one of the most expensive colleges in America

to be a real estate investor. They recommended I get a job

and do real estate on the side until my real estate endeavors

were paying me more than my job. It was sound advice that

went through one ear and out the other.

The books and seminars made real estate investing

sound so easy. I thought to myself, “If I have all day, every

day, to devote to real estate, how hard can it be?” In hind-

sight, that one thought was a major miscalculation. I had

failed to consider the fact that I absolutely did not know what

I was doing. Real estate, as I discovered, is a business that

has tremendous potential, but you really have to know what

you’re doing to be successful with it. At the time, I didn’t

have any money to invest in my education, so unfortunately,

I was learning every important lesson of real estate the hard

way…through the school of hard knocks.

I burned through my savings. Because I had no money

coming in, I couldn’t pay my bills. When I couldn’t pay my

rent, I literally went homeless. I was forced to live out of my

truck. Some have asked me why I didn’t move back in with

my parents when this happened. Maybe it was pride, or

stubbornness or embarrassment, or just plain geography

(since my parents were over 1000 miles away), but I didn’t

tell them how bad it had gotten and I didn’t consider moving

back home.

Just imagine what it felt like to be me back then. My

only credit card was maxed out, my bank account was over

drawn, and there was no cash in my wallet. I was living out of

Introduction

my truck, eating off of a case of Bush’s baked beans. To open

the can, I used one of those cheap can openers that hurts

your fingers when you turned the knob. The blade seemed to

always slide off the edge and it took several minutes just to

open one aluminum can. The beans were cold because I

didn’t have any way to heat them up. I used a plastic spoon

from Wendy’s to dig out the beans. Those were some dark

days. I would cry myself to sleep each night, wondering how

I ever got myself into that mess.

A friend, who knew my situation, recommended I go to

church. At first reluctant, I changed my tune when I consid-

ered that they may have free donuts or snacks for new

guests. So with the few ounces of gas left in my truck’s tank, I

drove to Christ Church on Old Hickory Boulevard in Brent-

wood, TN. Not having frequented church as a kid, I didn’t

really know what to expect. At first I was very nervous about

the experience because people were singing, raising their

hands, and as I later learned, were in the “praise and wor-

ship” part of the service. I settled into the far back row of the

second floor of the sanctuary, wondering when the donuts

would arrive. The pastor got behind the pulpit and began to

preach. It felt like he was speaking directly to me and my

situation (even though there were more than 500 people in

attendance at that Sunday morning service). By the end, he

asked for anyone looking to make a change in their life to

walk down to the front of the stage and give their heart to

Christ. I was sold on what he was offering so I walked all the

way down and gave my heart to Christ. At the time, I didn’t

know exactly what I was agreeing to, but I knew I needed

help and I was desperate. I thought to myself, “Nothing else

has been working out lately so maybe this will?”

With the hubbub of walking down that aisle, I forgot

about the donuts, the original reason why I attended church,

How to be a Real Estate Investor

but, I did walk out of there a new man. With my new lease on

life, I reassessed my situation and decided I needed some

money coming in. I got a job as a valet because it paid imme-

diate cash and a friend recommended I referee pee-wee

football because that also paid instantaneously. Soon I was

eating food other than cold beans. What’s more, this experi-

ence of going homeless had taught me that I needed help if I

was going to succeed in real estate. I discovered that pulling

oneself up by his bootstraps was not what truly successful

people did. Successful people don’t go it alone, they reach

out for help. I needed to truly educate myself with more than

just books from the library. I needed the help of another

person who had done what I wanted to do. I began searching

for a mentor, someone who could take me by the hand and

show me the ropes. Have you ever heard of the saying,

“When the student is ready, the teacher arrives?”

Right about that time, I had located a property well un-

der value. I had put it under contract to purchase for

$30,000. The value of the property could be as much as

$90,000 if it was all fixed up. I didn’t have the time, money

or expertise to renovate the house though. A local investor

recommended I “flip” the property, or re-sell the property to

another investor. This technique would provide me with

quick cash and I wouldn’t need the time, money or expertise

required to fix up the property.

I put the word out and the details of this deal found its

way to a gentleman who was randomly in Nashville because

his mother was battling cancer. This guy had come from five

generations of real estate investors. He was a Nashville

native, but had been living on the beach in Florida for the

past several years. He was a street smart person and knew

how to make money.

Introduction

In fact, he was so common sense intelligent that he

made more than $180,000 on his first real estate deal when

he was only 18 years old. He put a corner lot owned by Exxon

under contract for $100,000 and then flipped the parcel to

an adjacent property owner for $280,000. How many 18

year olds do that? This person knew business and he knew

real estate.

As I was showing him the property I wanted him to buy,

he began asking me questions about what I was doing. It

didn’t take long for me to spill the beans and share with him

how bad things had gotten. He was shocked to find out I was

a Vanderbilt graduate with a degree in mechanical engineer-

ing choosing to go homeless for my dream of becoming a real

estate investor. He said, “If you have enough determination

to stick with your goal of being a real estate investor to the

point of going homeless, I can show you how to make real

money in real estate.” He went on to propose, “If you agree

to split profits with me, we can do something together.” And

before he finished that sentence, he chimed in with, “Oh, and

also don’t do anything to get me sued. I don’t need the

hassle. I can live on the beach with my dog and my Bible, not

work and be just fine, so don’t do anything that would tie me

into a lawsuit.” I agreed to his terms.

My arrangement with him was such that he agreed to

take me by the hand and show me step by step how to be a

real estate investor. My job was to listen to him, however

outrageous I thought his instructions were, and do all the

legwork and then we would split the profits 50/50. I’ll never

forget what he told me that first day. He said, “50% of some-

thing is a whole lot more than a 100% of nothing.” That

lesson right there changed my life and it will also change

your financial life too. As I later discovered, the principle he

was sharing stretches to almost every type of business. The

How to be a Real Estate Investor

greatest fortunes were built by sharing the profits. Did you

know that at the height of Standard Oil, John D Rockefeller

was only a 1/6th owner in the company? Wealthy people

don’t try to own 100% of a small pie; they instead, align

themselves with great people and together take a portion of a

much larger pie. 50% of something is a whole lot more than a

100% of nothing.

Here was that principle in action. Our first deal together

didn’t at first appear to be a good deal at all. It was a very

well built country house on sixteen acres in the rolling hills

of Franklin, TN. The owner had built the property to be his

family’s dream home and for several years it was just that.

But, his financial situation had changed and he began to

struggle to make ends meet. He hired a real estate agent to

sell the property and for more than one year, the property sat

on the market at a list price of $300,000. The total mortgage

balance on the property was about $275,000. The seller had

two loans. The first mortgage was an interest only loan with

a principal balance of $225,000 and the second mortgage

was a home equity line of credit (also known as a HELOC)

with a balance of $50,000. Together, his total monthly

payment was about $1,500 and at the time, he was falling

several months behind.

When the deal first crossed my path, it had come to me

through another real estate investor in town. I had spread

the word out among other investors in my area that if they

had any potential deals they didn’t want, to send them to me

and if I could turn these discarded deals into money, they

would get a referral fee when they closed. In other words, I

was asking for their junk leads they were already throwing in

the garbage. The concept did generate some leads for me, but

most of them were of no value.

Introduction

I mentioned this lead to my new mentor thinking it was

worthless, but to my surprise, he said, “Go sign it up. I smell

an opportunity.” That was his way of saying, “Get the prop-

erty under contract.” One of the beautiful aspects of real

estate is that you can control property without having to own

it so long as you use the right paperwork. Furthermore, if

your contracts have the appropriate clauses in them, you can

make the process of getting a property under contract virtu-

ally risk-free. On his recommendation, I made the drive to

the property, met with the sellers and offered to purchase

their property for the amount they owed. I gave the sellers all

the cash I had for earnest money, $1.

Rather than turning me down, I was pleasantly sur-

prised to see the sellers agree. They were a bit suspicious

since the property had been listed for over a year with a very

well respected real estate agent and wasn’t selling and here

was a young kid ready to buy it after only viewing the prop-

erty for a few minutes, but they needed to sell and were open

to just about anything. I, however, was somewhat indifferent

since I had experienced so many real estate failures up until

that point that I wasn’t going to get all that excited until the

money was in my bank account. I was still impressed though

that I could tie up a piece of property so easily.

“OK, what next?” I asked my mentor. He reviewed the

details of the deal and determined we needed to see if the

second mortgage would take less than their full payoff to

release their lien from the property. This is now a much more

common phrase in real estate, often referred to as a “short

sale”, but at the time, there wasn’t a name for it. Back then,

you simply contacted the department that handled the loans

that were in default and you negotiated a reduced payoff

(nowadays, it is far more organized and most lending institu-

tions have entire departments that just handle short sale

How to be a Real Estate Investor

requests). Since the seller had not paid the second mortgage

for several months, the loan was already assigned to the

default department.

My mentor told me to offer 10% of $50,000, or $5,000.

I took his advice but didn’t think the bank would accept. Sure

enough, they did! The mortgage company faxed a letter

stating they would accept $5,000 for their $50,000 second

mortgage. Jackpot! Or was it? Where was I going to come up

with $5,000?

Rather than give me $5,000, my mentor wanted me to

learn how to be self-sufficient, how to be a real estate inves-

tor, even though I didn’t have money to invest or the ability

to qualify for a real estate loan. He introduced me to the

concept of offering a “rent to own.” The key ingredient to this

concept was locating a “tenant buyer,” someone who wanted

to be a homeowner but was struggling to qualify for a home

loan. To round up some candidates, he instructed me to put

out hand written signs on a Friday afternoon at busy street

corners near the property that said “Rent to Own” as well as

a phone number (this was before Craigslist and other online

classifieds).

Then, another shocking result occurred. The phone

rang off the hook, literally. I fielded incoming calls for sev-

eral days. It had worked. Some simple, handwritten signs

had generated an overwhelming response. After a few meet-

ings with tenant buyers that went nowhere, my mentor told

me I needed to concentrate on people who had a down

payment above $10,000 since we had to payoff the second

mortgage of $5,000 as well as catch up the back payments on

the first mortgage which amounted to $4,800. He also said

that although there would be far fewer of these people, they

would be a better use of my time and I only needed one

tenant buyer to do this deal. There’s a great lesson in real

Introduction

estate. You only need one buyer to make a deal happen. You

only need one.

After pouring through a large number of callers who

didn’t fit that description, I finally discovered someone who

said they had $20,000 to put down. A bit skeptical, I set up a

time to meet, but thought to myself, “Who, on earth, has

$20,000 available in cash but can’t buy a home the tradi-

tional way?” Since cell phone coverage was spotty out in the

country where that property was situated, we met at a nearby

McDonalds and they were to follow me to the actual prop-

erty.

While on the drive, I prayed for a miracle. I was still

struggling to survive, living day by day. The gas tank was so

empty that I was almost certain I wouldn’t be able to get back

home. I was so broke there wasn’t even any change in the

glove box. I didn’t know what I would do if I ran out of gas.

Trailing behind me was a slightly beat up Tahoe with a

couple inside who had said they did contract work for

Lowe’s. They brought in what banks consider self employed

income which made it very difficult for them to get a tradi-

tional mortgage. Banks far prefer the W2 income that is

generated from having a normal job. We drove out past the

developments and into the countryside that Tennessee is

known for. There were large horse farms bordered by white

wooden fences stretched as far as the eye could see. We

moved deeper and deeper into the country as we headed

toward the property.

I had shown this home before to a few other couples but

they had all commented that the property was too far out in

the country for them. So I thought its rural setting was a

negative. The further we drove into the sticks, the more

concerned I got that I would look in the rear view mirror and

that Tahoe would be gone. But thankfully, they stayed in tow.

How to be a Real Estate Investor

We arrived at the entrance to the driveway. On one side

of the road was an old, half full, completely dilapidated

garbage truck. The neighbor across the street ran a garbage

business and this foul smelling landmark was one of their

latest equipment failures. So if you had your window down,

on your way in, you’d get a fresh whiff of trash. Since my AC

was acting up, I definitely got a whiff.

The actual sixteen acres was not square in shape, but

more of a long, rectangular parcel. The house was situated at

the highest point of the plot of land, far back from the road.

The dirt driveway hugged along the left edge of the property

and wound slowly upward before ending at the left side of

the home. My truck began to crawl down the long driveway

with the crunching sound of tires rolling over gravel filing

the air. The truck began to distance itself from the Tahoe

behind me, not only because I had been there a few times

already and felt more comfortable navigating the winding

dirt road, but also because they were inspecting every detail

of the property.

I had already parked and was looking back at their pro-

gress when something magical occurred. Three small deer

pranced across the driveway, right in front of their vehicle. It

was as if I had staged the experience, with a walkie-talkie in

hand, telling an associate, “Queue the deer.” But it wasn’t

planned. I had nothing to do with 3 deer running across the

property. It was a miracle.

The husband and wife emerged from their vehicle with

a gigantic smile on their face. They took in a deep breath, the

way vacationers do when camping in the mountains. As it

turns out, this was exactly what they were looking for in a

home. They wanted to be out in the country with lots of land.

After briefly reviewing the inside of the home, they came

Introduction

back to me and said, “We’ll take it. Who do we make the

check out to?”

I was speechless. It worked! This actually worked! Right

before my very eyes, this couple wrote out a $20,000 check

to me personally. I said to myself, “What do I do now?” After

catching my breath from all the excitement, I knew I needed

some cash that day just to survive, so rather than deposit the

check and wait several business days for the check to clear, I

went to the bank the check was drawn on and cashed it. Have

you ever had $20,000 cash in an envelope before? It’s a

unique experience. I was paranoid someone was following

me and was going to nab that money. When I got to my bank,

the teller, to which had seen my average account balance the

past 12 months on her computer screen, looked with amaze-

ment (and suspicion) as I handed over $20,000 in cash for

deposit. And just like that, there was real money in my bank

account.

Since the property was vacant by this time, the rent to

own tenant buyers moved in right away. $5,000 was sent to

the second mortgage to pay off the loan and then $4,800 was

sent to the first mortgage to catch up the back payments. The

tenant buyers agreed to pay $1,800 per month and our total

monthly payment which included the first mortgage pay-

ment, taxes and insurance, was $1,300 each month. So we

profited about $10,200 immediately plus $500 per month.

Meanwhile, I didn’t have to qualify for a loan or use any of

my own cash to purchase the property. I was becoming a

real estate investor!

We referred the tenant buyers to a mortgage broker to

help them get on the path to being able to get a loan to payoff

the rest of the property. In 3 months, the mortgage broker

had qualified them for a loan. She had found a special loan

program for self employed people. The tenant buyers had

How to be a Real Estate Investor

agreed to pay $275,000 for the property and since they had

already put down $20,000, they only needed a loan for

$255,000. The first mortgage balance we had to pay off was

$225,000. After closing costs, we were looking at earning

about $25,000 when the tenant buyers’ loan went through.

Right before the closing, there was another twist. The ti-

tle company had noticed a very odd detail in the recorded

loan paperwork. The legal description on the paperwork

described the neighbor’s property. In other words, the first

mortgage was on the little neighbor’s home, not the sixteen

acres and beautiful country home. I was not sure how this

was going to help anything but my mentor had a plan. He

reasoned that we could potentially negotiate a lower payoff

since the attorneys fees the bank would incur to correct the

paperwork could run into the tens of thousands. With a few

phone calls, sure enough, the first mortgage reduced their

payoff to $206,000. This last minute first mortgage payoff

reduction put another $19,000 profit in our pockets.

In all, this deal netted more than $56,000. I didn’t bor-

row any money, didn’t qualify for a loan, didn’t use any cash

to acquire the property and everyone was happy with the

outcome. The sellers were happy to have sold the property

without owing anything, the new buyers purchased their

dream home and we had made a ton of money!

Had it not been for my mentor, I would have received

100% of nothing. Instead, I was $28,000 richer, an amount

some people work an entire year at their job to earn. That

was the largest amount of money I had ever put into my bank

account up to that point in my life. I would go to the ATM

just to check my balance because I couldn’t believe my eyes.

Interestingly enough, about a year later, I followed back

up with those rent to own tenant buyers who had purchased

the property and innocently asked how they were getting

Introduction

along with all those deer running across their property. She

replied, “Since that day you showed us this property for the

first time, we’ve only seen deer here one other time.” Do you

believe in miracles?

Think of all the different parts of my first deal with my

mentor that most people would never have imagined would

have worked. First, that a seller would so easily have sold

their home to me with $1 earnest money. Second, that the

second mortgage would have accepted $5,000 for a $50,000

loan. Third, that I could sell a property in a few weeks that a

top notch real estate agent couldn’t after over a year. Fourth,

that there would be people out there who can’t qualify for a

traditional mortgage but have money to put down and can

afford the monthly payment. Fifth, that a first mortgage

would reduce their payoff due to incorrect loan paperwork.

That’s one of the powerful aspects of having a mentor. They

teach you things you didn’t know you didn’t know. It turns

out that all of those details can be fairly common in real

estate under the right circumstances. While most people may

never imagine that such series of events could ever come

together, for experienced real estate investors, they are

considered everyday occurrences.

After that first deal together, we were off to the races.

He guided and mentored me to more money than I could

have ever dreamed. We did all types of deals: short sales,

foreclosures, wholesales, rehabs, lease purchases and crea-

tive finance deals. You name it, we did it all. Life was good.

With my new found freedom, I traveled, enjoyed life and

then met the woman of my dreams and got married.

One day, my wife and I asked ourselves, “Since we can,

if there is any place in the world we could live, where would

we live and why?” Have you ever asked yourself that ques-

tion? It’s not as easy of an answer as you may think. After

How to be a Real Estate Investor

several years of deliberation, we decided on a beachfront

community in Florida where we bought a mansion on the

water (it was a distressed property that we got for about half

of its value, of course). It’s paradise for us and I surf and fish

as much as my wife will allow. Side note gentlemen: Happy

wife = Happy life.

Each time I would be in an airplane, I would see thou-

sands of homes scattered in all directions. On one particular

flight, this thought popped into my mind, “How can I do

deals all across the country?” I could see that there were

thousands of cities and thousands of homes in each one of

those cities. How could I be a part of making money on all

those deals?

My first approach was to build a company with employ-

ees. Since I could do deals long distance, without ever seeing

the property myself in person, my plan was to train my

employees on what to do. I began hiring people. Soon, I

noticed that my plan was not working out well. What I

learned was that employees did about 75% of what I would

do, despite how well I trained them. In real estate, 75%

doesn’t cut it. For a deal to close, someone had to be on top

of the details and I found that 9 to 5 employees didn’t have

any major incentive to take care of the little details to ensure

deals closed. They were paid to show up, not to perform.

Then, I had an “ah-ha” moment. I reasoned that per-

haps the best way to expand across the country would not be

to hire employees, but instead, to mentor those interested in

becoming real estate investors the way my mentor did for

me. We could split the profits 50/50 and now, instead of a

75% employee that did just enough to not get fired, I would

have a business partner that was 100% committed to the

financial success of each deal. Plus, I would be passing on a

set of skills that could benefit the people I mentored. Not

Introduction

only could I gain economically from this new approach, but

also I could pass on a legacy of having helped others achieve

their dreams. In hindsight, it seems like such an obvious

solution, but at the time, it was a revolutionary idea for me.

As always, great ideas include great challenges. Being a

successful real estate investor is much different from being a

great real estate mentor. It’s one thing to be able to do

something yourself. It’s a completely different challenge to

be able to teach someone else how to do it. There were many

years of trial and error as I crafted a system for teaching

others how to be a real estate investor. Not only did each

task, technique, and strategy have to be simplified, it also

had to work most, if not all of the time. Anytime you teach

someone else a subject, you have to know it so much more

thoroughly. It was like being mentored all over again; only

this time, my mentors were the students I was teaching.

Mentoring someone outside of your own backyard, in a

completely different area with different laws, demographics

and market dynamics was another huge challenge for me

too. There were many mistakes made, but I grew from them.

And, eventually, I made some breakthroughs. Although, the

majority of real estate investing is universal, each area is also

unique. Some strategies work better in some areas, but not

as well in others. In the beginning, I looked at this as a

handicap, but now, it has become a strength. I mentor from a

nationwide perspective so I see more opportunities often-

times than those that only see the narrow, local view. You

also have more resources at a nationwide level, such as

closing companies, mortgage brokers and many other critical

team members that allow us to complete creative transac-

tions that oftentimes a local closing company or mortgage

broker is unable to do. Sometimes in life, what you think is

How to be a Real Estate Investor

going to be a hindrance to your success becomes one of the

reasons for your success.

I so appreciate all those students in the beginning who

endured the kinks and glitches first hand. Thankfully, de-

spite those initial growing pains, my students experienced

extraordinary results. And, as luck would have it, teaching

others comes naturally to me. At least that is what my stu-

dents have told me.

In addition to the success of my early students, a few

rose above the crowd and truly impressed me with their own

creativity and ingenuity. They had taken what they had

learned from me and then added their own entrepreneurial

touch to it. I was always told to surround myself with great

people and so for those students that truly shined and had a

heart for teaching, I invited them to coach with me. To-

gether, spread out across the country (but connected by

phone and internet), we efficiently and effectively mentor

and coach budding real estate investors to success.

Today, we operate one of the most innovative and re-

sults producing real estate education companies ever cre-

ated. We offer stand alone training courses as well as

coaching and mentoring programs where we split profits

with our students. Each year, people from all walks of life

experience true financial breakthroughs as a result of our

educational programs. They become independent, highly

successful real estate investors, living their dreams. What an

honor and privilege it is to be a part of transforming people’s

financial lives.

Now you know where the author is coming from when

you read this book. Not only have I personally experienced a

rags-to-riches journey with real estate, I have also proven

that it wasn’t a fluke by teaching others to be successful real

estate investors as well. Amidst thousands of deals and

Introduction

thousands of students through up and down markets, this

book comes from the real world of real estate investing. It’s

the book I wish was available and I would have read when I

first got started. It’s a book that tells the real story of how to

successfully invest in real estate.

Although I haven’t read EVERY published real estate

investing book, I can safely say that most of the ones I have

read don’t tell the whole story. For some, I don’t blame the

author. He or she simply didn’t have the distinct opportunity

to be as fully immersed in as many different types of deals,

with as many people in as many different areas over such a

long period of time as I have. For others, like the ones I read

when I was first getting started, they focused entirely on the

positive aspects of investing but failed to communicate the

challenges as well. The goal of this book is to tell the whole

story, the good and the bad.

You’ll find that success in real estate is not dependant

on the area you live in, or the current market conditions, or

your cash position, or your credit score, or the way you talk,

or how charismatic you are, or anything like that. Instead,

you’ll discover that becoming a successful real estate investor

involves thinking like and doing what other successful

investors do. Real estate is rarely a get-rich-quick endeavor,

but when you stick with it, it is usually a stay rich long term

experience. Apply what you learn in this book and you’ll have

a set of skills you can take with you the rest of your life that

can help you live the life of your dreams.

Welcome to the wonderful world of real estate invest-

ing!

How to be a Real Estate Investor

Part 1: Why Be a Real Estate Investor?

“90% of all millionaires become so through owning real estate.”

– Andrew Carnegie

Why should you become a real estate investor? There

are, after all, many different ways to make more money in

life. Statistics released by the foremost authority on personal

finance, the Internal Revenue Service, revealed that the

majority of personal wealth of US taxpayers is held in real

estate. Has the thought of running your own business, being

your own boss, or calling your own shots ever crossed your

mind? The IRS further points out that the most likely way for

anyone to become independently wealthy in one lifetime is

through entrepreneurship and through owning your own

business. Opportunity seekers can spend countless hours

researching the best paths for making money. If you are one

of those people, you can stop your research. Becoming a real

estate entrepreneur provides you with the highest probability

for economic prosperity.

One of the reasons why real estate is so good for making

money is that it is the IDEAL investment.

Income: Real estate can provide you with steady, tax

advantaged income, often referred to as cash flow.

You can rent real estate to a tenant. Overtime, rental

payments from that tenant can payoff your mortgage,

cover any property management and maintenance

costs, and can still leave enough for you to have a

steady income as well. Although there are other in-

vestments that provide steady income, such as bonds,

and stocks that offer dividends, real estate typically

provides a larger amount of income than bond coupon

How to be a Real Estate Investor

payment or stock dividends and is more tax advan-

taged.

Depreciation: This term is used for tax purposes and

is of great value to real estate investors. To illustrate

the concept of depreciation, think of the life span of a

t-shirt. After being worn and washed, over the course

of several years, it deteriorates. Although you may

have t-shirts that have lasted decades, the average t-

shirt probably lasts a couple of years. For determining

how much you will pay in taxes on your real estate in-

vestment, the IRS has recognized that the structure of

a property (not the land, just the structure) deterio-

rates too, and they set the life span of a residential

rental property at 27 ½ years. Does a well maintained

house simply crumble to the ground after 27 ½ years?

Of course not. But for determining how much you will

be paying the IRS, whatever you bought the property

for (minus the land), can be depreciated over 27 ½

years.

Example: You buy a $100,000 single family home and

the land is worth $10,000. That means, for tax pur-

poses, your tax basis (what you bought the structure

for) is $90,000. When you divide $90,000 by 27 ½

years, you get a tax deduction of $3,272.73 per year

for depreciation. If that same single family home has a

positive cash flow of $270 per month, or $3,000 per

year, you get to add an additional expense to that

property in the form of depreciation for $3,240 and

therefore, in this example, you don’t have to pay any

income taxes on the $270 per month you were bring-

ing in! This is how real estate rental income is so in-

credibly tax advantageous.

Why Be a Real Estate Investor

With all the tax increases and unfair taxing rules, why

would the government continue to allow this deduc-

tion for real estate investors? The government is giv-

ing people an incentive to be real estate owners. They

want you to be a real estate investor.

Equity: When you buy real estate, you have the oppor-

tunity to purchase property at a price lower than its

market value. When you get a good deal, the differ-

ence between what you bought it for and what it is

worth is called equity. The old saying, “In real estate,

you make your money when you buy,” applies here.

When you buy a property well below market value,

you instantly get equity.

By comparison, publically traded stocks are purchased

at market value. The market may be undervaluing or

overvaluing the stock at the time of purchase, but ei-

ther way, at the exact moment a stock is purchased,

the price paid is what the market will pay for it. With

real estate, however, you can buy a property well be-

low market value and literally turn around and resell

that same property for tens of thousands of dollars

more a few moments later. We do this quite often, ac-

tually.

Appreciation: Over the course of the last hundred

years, studies have shown that overall, residential real

estate has kept pace with inflation. In some areas,

residential property values have even appreciated

above and beyond inflation. For wise and educated in-

vestors, appreciation is an added financial bonus to

being a real estate owner, not the reason to buy prop-

erty. Since predicting the future has proved to be a

How to be a Real Estate Investor

difficult task, buying real estate based on the other

factors outlined earlier is a far better decision then

betting on if or when a property will appreciate. You

can only benefit from real estate appreciation if you

own it. Therefore, owning as much real estate as you

can, as wisely as you can, can give you the best prob-

ability of gaining from appreciation. And if it comes

your way, be appreciative.

Leverage: When you borrow money to buy real estate,

you are using leverage. The people and companies of

this world that control the majority of the money,

such as banks, mortgage companies, hedge funds, mu-

tual funds, pension funds, insurance companies and

private individuals, want to lend you money to buy

real estate. That’s how many of them make their

money; by lending money to you on real estate. There

are all different types of real estate lenders, from

those that require good credit, lots of money and a

great loan application all the way to those who simply

lend money on real estate based on the market value

of the property. If, for example, you buy a $100,000

property and you put down $10,000, you are using

leverage to own a $100,000 asset with only $10,000

of your own money. The ability to borrow money to

buy real estate is the use of leverage and it allows you

to buy more real estate with less money.

Real estate truly is the IDEAL investment. That is just

one of the many reasons why real estate is so attractive. Here

are several other reasons why real estate investing may be

exactly what you have been looking for in a business oppor-

tunity or investment vehicle.

Why Be a Real Estate Investor

Real estate investing doesn’t discriminate based on your

age, background or ethnicity. You’re not too old or too young

(although you must be 18 years old to own property.) Re-

gardless of where you come from, how old you are, or what

nationality you are, you’re on a level playing field with

everyone else.

Real estate investing requires no resume. It doesn’t

matter where you went to school, how many jobs you have

had, the lack of professional skills you may have, or the color

and texture of your resume paper. Successful investors come

from all walks of life. You’re not inferior if you lack higher

levels of education. My mentor never went to college. If you

have a college or post college degree, that’s not a handicap

either. Everyone is on a level playing field, regardless of what

you’re resume looks like.

Buying and selling real estate does not always involve

the use of your cash or credit. There are several strategies

that you will learn in this book that allow you to not only

make fast money but also own real estate for long term

wealth accumulation without having to put down any cash or

borrow any money. Certainly, when an investor has cash

and/or good credit, they will have more ways to invest in real

estate, but as you learned from my personal story, it is

possible for you to get started from absolute economic

ground zero.

Real estate is a basic human necessity. As the saying

goes, “Everyone needs a roof over their head.” This book will

focus on residential real estate investing. Living quarters

come in all shapes and sizes too, from single family homes,

to duplexes, condos, townhomes, apartments, co-ops, and

much more. Real estate, unlike many other businesses and

investments, provides something that absolutely everyone

needs, shelter.

How to be a Real Estate Investor

Real estate is everywhere, including where you live. A

common misconception beginners have is, “Real estate

investing doesn’t work in my area.” Non-sense! There is

opportunity right under your nose. There are diamonds in

your own backyard. In fact, once you learn and apply the

techniques and strategies described in this book, you will be

shocked at how much money you can make with real estate

right within your own community. Believe it or not, you have

been driving past real estate opportunities everyday. Real

estate opportunities are everywhere, including where you

live.

You can invest in real estate close to home or far away.

You are not confined to just your area. Although we recom-

mend beginners start in an area they are very familiar with,

you have the ability to buy and sell real estate anywhere.

Disclaimer: This book will focus on techniques that work in

the United States and Canada. I’m not familiar with invest-

ing in countries other than those two.

You can make money in up and down markets. When

the real estate market is up, certain strategies work very well

and then in down markets, other techniques become more

productive. Regardless of the market, you can be successful

investing in real estate.

Becoming a real estate investor does not require much

in the way of equipment to get started. If you have a com-

puter, a printer and a phone, you have all the equipment you

need to begin. You can work from home, a coffee shop, or

even your truck! Compare this to starting most any other

business, which usually requires commercial space, a lease,

staff, inventory, equipment, etc.

Launching a real estate investing operation is far sim-

pler than starting the majority of businesses that have the

Why Be a Real Estate Investor

potential to create comparable financial rewards. It doesn’t

require venture capital, a board of directors or even a de-

tailed business plan. In fact, your investing plan could be

sketched out on a napkin.

Investing in real estate doesn’t have to be a full time ac-

tivity. You can invest on the side, in your spare time. Over-

time, you may come to enjoy it so much that you want to do

it full time, but it’s not necessary. In other words, you don’t

have to quit your day job to give real estate investing a try.

You can invest with the limited spare time you have avail-

able.

And perhaps most important to most people, real estate

can make you very rich and/or provide the lifestyle you have

always wanted. Reviewing the list of the world’s richest

people, many on the list created their wealth in real estate.

Many of the people with the biggest houses in your area

made their money or maintain their wealth from real estate.

Also, many of the people you meet on the street that are

financially free come from a real estate background.

You may be asking, “So if real estate is so good, how

come everyone isn’t doing it?” That is a very good question.

Real estate has some barriers-to-entry (a fancy business term

to describe what makes a business difficult for competitors to

break into).

Real estate investing, like any business, requires very

specific knowledge. This knowledge is rarely taught in

school. Most people simply do not know how to be a real

estate investor. And, the education process requires both

study and application. Much like chemistry in high school,

where you had the lecture and then the laboratory, gaining

the specific knowledge of real estate investing requires both

absorbing educational materials as well as applying what you

learn and experiencing it in the real world. Some concepts

How to be a Real Estate Investor

and ideas can rarely be acquired simply by reading about it.

You have to get out there and experience it.

Investing in real estate requires patience. We live in a

world obsessed with instant gratification. Real estate is not

instant gratification. Usually the efforts you put forth several

months ago reward you today. Some half-committed would-

be investors give up when they are just a few days from

collecting a huge payday. I have seen this phenomenon over

and over again. Some people simply do not have the patience

to see their real estate investing efforts turn into extraordi-

nary financial returns.

Becoming a real estate investor means that you are

starting your own business. And like any business owner will

tell you, financial rewards from a business come from re-

sults. This is quite different from the way most people are

compensated in life, which is based on activity; either an

hourly or salary wage. Business owners are paid based on the

results their business provides in the marketplace. Successful

business owners think differently from wage earners.

For most people, the biggest hurdle in starting their

own enterprise is not the physical aspect of completing the

tasks, but the mental work of re-wiring their brains to think

like a productive business owner. As Henry Ford said,

“Thinking is the hardest work there is, which is why so few

people do it.” Understanding how to think like an investor is

so important, I have devoted the entire next chapter to it.

Real estate is truly the most powerful vehicle that any-

one can use to produce financial prosperity. In order to take

advantage of the many opportunities real estate presents you

must have the right education and your mind must be wired

for productive real estate business ownership. The remain-

der of this book will be devoted to providing an extension of

knowledge regarding those two aspects of real estate: having

Why Be a Real Estate Investor

an investing mindset and educating yourself in the specific

areas that will lead you to prosperity.

How to be a Real Estate Investor

Part 2: How to Think Like an Investor

“Man’s greatness lies in his power of thought.” - Blaise Pascal

In my early years of teaching real estate to budding en-

trepreneurs, I would skip over the mental aspect of investing

and get right into the meat of real estate. It was a mistake.

What I discovered was that mentoring people on the me-

chanics of real estate investing was fairly straight forward.

Once they had the instructions on what to do, the difference

between those who succeeded and failed was largely due to

what was going on inside their head.

Having all the knowledge on how to invest will be

worthless unless you have your head straight. Before you can

be a real estate investor, you have to think like one. That

little space between your ears is extremely powerful and

unfortunately, it doesn’t come with an instruction manual.

The following chapter is your instruction manual on how to

operate your brain so that you can be a successful real estate

entrepreneur. Plus, at the end of this chapter, you will have

an opportunity to test your mental skills with an Investor IQ

exam.

Your Why

Why should come before what. Why you want to do

something is far more important than what you are going to

do. We humans tend to get excited about new endeavors and

then after the new-ness wears off, we tend to move onto

something else. Most great achievements in life do not

happen overnight. In fact, it’s usually the exact opposite.

Your greatest triumphs probably took time to come together,

right? Real estate investing is no different. After the excite-

How to be a Real Estate Investor

ment dulls and new-ness of real estate fades, what is going to

be the reason, or reasons, for you to continue pursuing your

goal of being a successful real estate investor?

When I first got started, I wanted to work from any-

where, have control over my time, be my own boss, call my

own shots, earn what I was worth, make a whole lot of

money and become financially free. That’s not to much to

ask, is it? At my j-o-b, I had to show up at the office, I

couldn’t work from anywhere. I had no control over my time.

I didn’t call my own shots. The boss told me what to do. I

wasn’t able to earn what I was worth, make a whole lot of

money or become financially free. I earned what my salary

was and the only way to improve that was to hope for a raise.

These were strong reasons for me when I began. I didn’t

want to go back to that life again and this drove me to do

what it took to succeed.

Why do you want to be a real estate investor? Are you in

a similar situation as I was when I first got started? Or are

you happy with your job and simply want to invest your hard

earned money into an investment that produces better

returns than you are currently getting? Are you concerned

that your current financial plan will not create enough

money for retirement? Do you want more time with loved

ones? More money? More freedom to travel, explore and

enjoy life? Your reason for becoming a real estate investor is

your Why.

In order for your Why to be effective, it must be emo-

tional. Emotions drive our behavior. When you harness this

power, you can achieve extraordinary feats, well beyond

what you may think is possible. Rather than relying on

others to motivate you, the beauty of finding your Why is

that any motivation you would ever want is already inside of

How to Think Like an Investor

you. You simply need to discover what your Why is to gain

access to this unlimited resource of power.

You’re looking for what you really want for your life that

you don’t already have. It can be positive or negative. Maybe

you want to live everyday in a tropical paradise, lounging in a

hammock between two palms trees, staying cool from a

gentle island breeze. That may create significant positive

emotions in you and the thought of creating that life for

yourself may be the needed drive behind your success. But,

perhaps, what’s more important to you right now is getting

out of debt and paying for your children’s college. The pain

you may feel for not being debt free and not currently having

the financial resources to pay for your child’s college educa-

tion may be weighing on your heavily. These negative emo-

tions can drive you to succeed as well.

In fact, psychologists tell us that negative emotions are

stronger motivators than positive ones. Believe it or not,

most people will be more driven to leave their job than to

strive for a goal of financial freedom. You can use this knowl-

edge to your advantage by first thinking about all the parts of

your life that you don’t like that you feel becoming a real

estate investor could solve. A negative and very emotional

Why can be all the motivation you’ll ever need to succeed in

real estate.

Take a moment to write down your Why. The more

emotional you get about this Why, the better your outcome

will be. This needs to burn inside of you every time you think

of it. It could be as simple as how frustrated you are with the

way your retirement fund investments have been performing

and just the thought of lackluster results gets you boiling

mad. Or, it could be as significant as not being able to be

with your loved ones nearly as often as you want to because

of your current financial condition. If nothing is coming to

How to be a Real Estate Investor

mind right now, spend some time each day for the next few

weeks thinking about it until you find it.

Without a Why, chances are, you won’t take the actions

necessary to becoming a successful real estate investor. It’s

that important. When someone is completely comfortable,

they rarely have strong enough reasons to do anything

different than what they are already doing. Finding your hot

buttons, what really makes you uncomfortable about your

current situation, is the fastest and easiest way to have and

maintain consistent motivation. You need to find your Why.

Make this your first priority for becoming a real estate

investor.

Pain and Pleasure

The two basic motivating forces in our lives are pain

and pleasure. We choose to do something either because of

the pleasure we think we are going to gain from the action or

the pain we believe we are going to avoid by taking that

action. For example, your Why may be something along the

lines of wanting to fulfill the dream of living everyday on the

beach with the sun and the sand. That is an example of

striving to gain pleasure. On the other hand, your Why could

be that you never want to be poor and have to barely get by

in life again. That is an example of wanting to avoid pain. As

simple as this concept may sound, this is precisely how our

brains work.

Applying this simple but extremely powerful concept

can open up an entirely new world for you. You can learn to

motivate yourself in ways you never thought possible. For

example, most new investors struggle with the paralyzing

affects of fear. They fear talking to a motivated seller, getting

a contract signed, asking for non-refundable earnest money

from a buyer, etc. The problem is that so much advice cen-

How to Think Like an Investor

ters around thinking positive. Simply thinking positive can

sometimes push you to ignore reality in an attempt to elimi-

nate fear. There is no need to blind ourselves to the realities

of life. On the contrary, fear can be very useful to us. Fear

can be a great counselor and guide.

Rather than eliminate fear, why not use it as a motiva-

tor? Instead of worrying, “What do I say to this home-

owner?,” use fear as your motivation and think, “If I don’t

call this person, it could cost me $30,000 and that would

absolutely devastate me and plus, I need the money.” Avoid-

ing pain is a much stronger motivator than striving to gain

pleasure. Most people will fight much harder to get back

$20,000 that someone stole from them than to save little by

little until they have built up $20,000 in their bank account.

You are far more driven to avoid pain than to gain pleasure.

Use this knowledge to motivate yourself to take action.

Specifically, when you hit a juncture in your investing

journey whereby fear begins to slow you down or even

paralyze you, immediately begin to think of all the things you

will lose by not taking the action. Really think deeply about it

until you start to feel the pain that will occur if you don’t take

the action. For example, for some beginners (and some

seasoned investors, sadly), asking for non-refundable earnest

money from buyers is very nerve racking and scary, even

though it shouldn’t be. (Ironically, once an investor is burned

once by a buyer who walks away from a deal and leaves the

investor high and dry, never again is that investor concerned

about demanding non-refundable earnest money.)

Here’s how to utilize the power of avoiding pain to drive

a new investor to get non-refundable earnest money from a

prospective buyer. They can have the following conversation

in their head, “If I don’t demand non-refundable earnest

money from this buyer, I will potentially allow this buyer to

How to be a Real Estate Investor

back out of the deal scot-free and that will cost me $37,000

as well as the time I have spent getting this deal to where it is

at and not to mention hurting the homeowner who is count-

ing on me to help him.” Do you see how you can use fear and

pain as drivers to help you take action? Rather than ignoring

pain and fear, take control of it and it will change your life.

Your Comfort Zone

Have you ever known someone that knew what to do

but simply wasn’t doing it? Has that person ever been you,

maybe, at times? If so, why did you fall into the trap of

inactivity when you absolutely knew what you were supposed

to do? The answer is somewhere deep down in your mind.

You linked up or associated pain to that action step so that

even though you knew how to do the task, you didn’t do it

because your brain didn’t want you to. Our brains are always

linking positive and negative emotions to our thoughts. Your

mind is constantly attaching labels of “pleasure” or “pain” to

each action you take.

For example, many new real estate investors have a fear

of talking to property sellers. Instead of getting on the phone

with the owner right away to get an understanding of the

person’s situation, many new investors will take part in the

following scenario:

Get in their car, drive over to the house, check out the

outside of the home, drive around and study the neighbor-

hood, head back home and finally, do all sorts of research

online about the property all before ever having spoken to

the property owner.

This eats up hours of time, tons of energy as well as

travel expenses and the crazy part is that the property owner

may not even want to sell their property or maybe completely

unrealistic in their demands! Why would anyone in their

How to Think Like an Investor

right mind spend all that time, energy and expense before

picking up a phone and making one simple phone call and

asking a few simple questions? This person obviously associ-

ates more pain to making that one simple phone call than the

pain of all the time, energy, and expense they exerted. People

will do far more to avoid pain than to gain pleasure.

To take the above example one step further, the one ac-

tion that was most out-of-this-person’s comfort zone was

talking on the phone to the property owner. Driving around

and researching online were both well within his/her com-

fort level. Your money zone will always equal your

comfort zone. To continue to be successful in life, you’ll

have to be continually stepping out of your comfort zone.

Your money zone will always equal your comfort zone.

Everyone has a different comfort zone. What if this per-

son was unable to drive a vehicle? Then, the phone call

would be far more comfortable than driving. What if this

person had trouble navigating the Internet? Then, the phone

call would have been far easier than researching online.

Hopefully your comfort zone encompasses all of the ac-

tions in this book. If not, resolve in your mind to be willing to

step outside your comfort zone. That may involve getting

better at communicating over the phone. That may include

using the computer to organize your business online as

opposed to just in paper files. The list could go on and on.

You need to be willing to stretch yourself. Be open to the

concept of stepping outside of your comfort zone. Why?

There’s that Why again. If you have already discovered your

Why, you should have had an answer to why stepping out-

side of your comfort zone is so important. Moving from

actions that are outside of your comfort zone to more actions

outside your comfort zone is where you’ll experience your

greatest breakthroughs.

How to be a Real Estate Investor

Attitude

Extremely successful real estate investors have a unique

attitude on life. They view every experience as a test and then

every result as a learning lesson. This attitude creates a

mindset that does not recognize failure. It never produces

phrases like, “Well, that was a waste.” Nothing is a waste to

an investor with the right attitude. Every experience is a test

and every result is a lesson.

This attitude doesn’t always create a positive, pleasur-

able feeling though. In fact, sometimes the lessons successful

investors learn are painful, and rather than ignore the pain,

they experience it so that they don’t have to learn the lesson

again. If a test produces a result you didn’t expect, don’t

immediately assume it was bad. It could be frustrating and

not enjoyable at the time, but later, you may look back and

realize that the lesson you learned was so incredibly valuable

and necessary for you to close the next deal that came along.

Successful investors have an attitude of gratitude as

well. They are thankful to have the opportunity to invest.

They are appreciative of the lessons they learn and the

experiences they gain. When problems arise, they consider

them as challenges and rather than complain, view such

situations as opportunities to learn.

Action Over Analysis

The main reason why so many people don’t take action

is fear. It’s the fear of the unknown, fear of making a mistake,

and fear of moving outside of their comfort zone. Instead,

what they should fear most is not taking action at all! Keep in

mind that everyone has made mistakes when first embarking

on a new journey. The more mistakes you make, the faster

you learn. Your biggest fear then should become inaction. In

How to Think Like an Investor

fact, do you know what most successful investors’ only real

estate regret is? They wish they would have gotten started

sooner.

A very common behavior amongst new investors is

analysis paralysis. Rather than take action, the person

analyzes, analyzes and then analyzes some more, to the point

where they become paralyzed. It stems from the fear of

making a mistake. These people also tend to read book after

book and attend seminar after seminar but never actually

buy a property or do a deal. They tell themselves that they

are waiting until they know enough to be confident in order

to start actually investing. In actuality, what these prospec-

tive investors fail to recognize is that they will never reach

the level of knowing enough about real estate to be truly

confident until they take action. The confidence that is

gained from truly knowing what you are doing won’t come

from a book. It will come from taking action.

Continually educating yourself is vital to your long term

success in real estate, but only if you are taking action while

you are educating yourself. Investors are always learning

new techniques, new distinctions, and new ways of investing.

They never reach a point of complete understanding in all

aspects of real estate. Therefore, waiting to take action until

the point of complete confidence in knowing what to do will

keep a person paralyzed indefinitely. Interestingly enough,

we have discovered that investors with less knowledge but

far less fear in trying new things and taking action actually

produce far better and faster results than those investors

with much more knowledge but less action. Action is far

more powerful than analysis.

How to be a Real Estate Investor

Commitment

Sam Walton, the founder of Wal-Mart, the largest re-

tailer in the world, was quoted as saying, “Like every over-

night success, it’s usually 20 years in the making.” His point

was that success is a long term commitment. The greatest

real estate investors the world has ever seen have all had one

characteristic in common; they stuck with it until they

succeeded. Simple, isn’t it?

In order to ensure you reach your goals, you must be

willing to make a sincere and binding commitment to stick

with it until you are success. By contrast, what you should

not say to yourself would sound something this, “I’ll give this

3 months. If it works, then I’ll keep doing it. If not, I’ll go do

something else.” That is the opposite of a commitment and

it’s a surefire way to fail in any endeavor in life. Instead, if

you really want to succeed, you must make a commitment

that you will stick with real estate for as long as it takes until

you are successful. The key word in that sentence is, “until.”

That’s a commitment.

You want to be a finisher in a world of starters. Once

you achieve success in this endeavor, once you finish, then

choose to re-evaluate. That is how successful people think.

They say to themselves, “I’ll do this for as long as it takes

until I am a success, then I can re-evaluate.”

If you are serious about becoming a real estate investor,

right here, right now, make a commitment to stick to this

until you are successful. If you can make such a commitment

to yourself, your family and your future, then you are on the

road to greatness. Congratulations!

You can begin putting this new commitment into prac-

tice by finishing the reading of this book!

How to Think Like an Investor

Possibility Thinking

Successful investors know that there are typically sev-

eral reasons why a deal won’t work and the real big money is

made when they are able to discover at least one reason why

the deal will work. I call this Possibility Thinking. It’s the

habit of asking yourself, “How can it work?” rather than

dwelling on why something won’t work. Unlike simply

thinking positive, which can ignore reality and actually

prevent growth, possibility thinking involves assessing the

cold, hard facts of a situation and then coming up with

creative ways to solve the problem. Here’s a quick way to

begin building your possibility thinking muscle. The next

time you are negotiating or making a decision with another

person, avoid using the word “no,” and instead, replace with,

“yes, but.” This will force you to begin thinking creatively so

that you can come up with more ways to solve problems. To

be a successful real estate investor, you need to think in

terms of possibilities.

An analogy to illustrate this point involves an experi-

ence I had while my wife was swimming with dolphins in the

Florida Keys. The dolphins lived in a lagoon that connected

directly to the ocean so that the dolphins were provided a

completely natural habitat. The only barrier to the open

ocean for these dolphins was a chain-linked fence that rose

about 4 feet above the water. These dolphins, as part of their

routine, performed choreographed jumps of up to 12 feet out

of the water. I asked one of the trainers why the dolphins

didn’t just jump over the chain-linked fence into oceanic

freedom? His response was, “I guess they have never been

taught that trick.” With real estate, any temporary road-

blocks you may face will be much like the dolphin fence.

They can be overcome because you have the ability to over-

How to be a Real Estate Investor

come them. Don’t make the tragic mistake of allowing a

simple four foot fence stop you from freedom.

Repetition

Repetition is the mother of skill. In order to get good at

anything, you have to do it over and over again. Regardless

of how well you think you learn, or how quick you feel like

you retain new information, the key to mastery is repetition.

You’ll find that reading the same information more than

once can be remarkably enlightening. Plus, as your perspec-

tive changes, you will recognize concepts and ideas that

never occurred to you before.

As you repeat the skills and techniques you learn from

this book over and over again, eventually, they will get buried

into your sub-conscious mind and then, you will be able to

apply them on autopilot without even having to think about

them. That’s when real estate investing becomes easy, when

you can basically do it in your sleep. The most successful

investors have programmed their mind to think like an

investor on autopilot. That comes with repetition.

Humility

Humility is an important part of an investor’s mental

toolkit. Throughout history, the list of famous people who

have had great falls due to pride and arrogance are many.

Being humble involves doing more listening than talking and

being perceptive. It requires removing one’s ego and avoid-

ing making assumptions. Humility avoids being easily

angered or troubled. It means that you embrace change, you

welcome challenges, and you recognize that everything will

not work out as you had planned.

How to Think Like an Investor

Humility also allows you to learn from your mistakes

and to open your mind to new ideas. It can be very difficult

for someone who thinks they already know everything to

allow new ideas into their minds. Some have referred to this

behavior as having a cup that is full. You want to your cup to

be empty. You want to allow new ideas in. Those with full

cups fail miserably in real estate. Those with an empty cups

give themselves the opportunity to learn new ideas and

ultimately, to succeed.

Humility means that you don’t blame others for your

shortcomings in business. Instead, you blame yourself. This

is how you grow as a successful investor; by taking responsi-

bility for your successes (or failures) and having the charac-

ter to grow from it.

Humility is not weakness. In fact, humility is a sign of

strength. You can be humble and yet still be a poised, confi-

dent and assertive leader. However, there is a fine line

between confidence and arrogance, between being sure of

oneself and being full of oneself. Successful investors are

confident and humble.

Taking Advice

Advice is a peculiar thing. Almost everyone has an opin-

ion. But who is right? The simple answer is that the person

who has already produced extraordinary results in a given

field is usually the person most accurate in their opinions on

that subject. For beginner real estate investors, the first few

months are a very critical and fragile time in their develop-

ment. It is here that many well intentioned friends, family

members and associates will see the beginner embarking on

this new journey and may express their opinions. If the

beginner listens to the negative voices in their life, they may

quit or at least pull back from giving it their full effort. The

How to be a Real Estate Investor

simplest way to avoid this devastating outcome is to always

ask yourself if the person providing the advice is a reliable

source on the subject. Has the person who is providing the

opinion on real estate made an absolute fortune investing in

real estate? If so, listen to that person. If not, don’t. Ask

yourself if the person providing the advice is a reflection of

someone you want to be.

Ironically, sometimes the people most willing to advise

new investors on the business of real estate are those who

have failed miserably at it. Such as a local real estate agent

who is barely making ends meet, or a friend who invested in

a course and never used it or even a family member that

heard of someone who had tried real estate and supposedly

real estate didn’t work. The only people you should ever take

advice from on a subject are those people who have mastered

that subject and are very successful with it.

For example, parents can be a great resource for advice

on raising children but if your parents struggled financially

their entire lives, they may not give the best advice on be-

coming financially free. Oftentimes, well-intentioned author-

ity figures, such as parents, provide career and financial

advice when they are not the most qualified to provide the

assistance. Since we are raised to follow our parents’ direc-

tion, it is natural to take money advice from parents. But are

they qualified to provide advice on financial freedom? You

may have a close friend that you confide in with life’s biggest

challenges. That person may be a wonderful shoulder to cry

on, but are they fit to give you solid advice on becoming a

successful investor? Beware of financial advice from broke

people. It isn’t rude or disrespectful to avoid heeding the

advice of those who are not qualified to give the advice.

Instead, it’s responsible.

How to Think Like an Investor

Therefore, as you begin this journey, make sure you ver-

ify the credentials of whoever is trying to advise you on real

estate investing. If that person is not a master in the field in

which they are speaking, do not act on their advice. They

may, in fact, lead you astray. On the other hand, if a local

attorney in your area who has successfully worked with real

estate investors for the past half century advises you on your

local market, this person may be a good source to get advice.

Once you have verified that the advice giver is a credible

source, you now need to assess their reason for giving you

the advice. Understanding where the advice giver is coming

from is also an extremely important skill. Let’s take the local

real estate attorney example. What if, at the time you were

seeking out the advice, that attorney was concerned about a

new law that may be passed which would drastically alter the

way he could advise his clients. He may be very cautious in

his advice and not provide you all the details because of his

underlying uncertainty. Or what about the unscrupulous real

estate agent who wants to buy the property you located and

tries to persuade you that the deal you found is not a good

one but meanwhile, is planning to try to buy it as soon as you

walk away.

It’s like asking the barber if you need a haircut. Regard-

less of whether you need a haircut or not, you are asking a

barber, who gets paid to cut people’s hair. When you ask a

barber if you need a haircut, his answer will usually be,

“Precisely.”

How do you combat bad advice from very well qualified

advice givers? Align their interests with yours. If your local

attorney stands to make money from you on deal after deal

by closing your real estate transactions, he/she has a vested

interest in giving you advice that will encourage you to do

more deals. If the local real estate agent you are working with

How to be a Real Estate Investor

gets compensated for helping you buy the property or in

helping re-sell the property once you buy it, you are aligning

both of your interests. Successful real estate investors align

the interests of all parties involved in a deal because they

know that in the real world, most people do what’s best for

themselves. When the parties to a deal operate in their own

best interest, it also helps everyone else because everyone’s

interests are aligned.

That’s how we built our apprentice program, on mutu-

ally aligned interests. My students split their profits with us

50/50. When they win, we win. This ensures that my team

and I give the absolute best advice in every situation because

the student and the mentor have aligned interests. When the

student makes money, the mentor makes money.

Let’s discuss the elephant in the room, shall we? You

are probably more than convinced by now that I am an

extremely credible source for advice on real estate investing.

But how can you be sure that the advice I am giving you in

this book is good advice for you?

I make money when my students close deals, plain and

simple. The only way for my students to close deals is to

apply the right techniques and strategies. Therefore, this

book has to be the absolute most accurate advice on real

estate investing because my profits with my students depend

on it. Some of the readers of this book will go on to work with

my team and in order for us to produce the best results; they

need to have the right education and the proper foundation.

That is how all of my courses, articles and trainings have

been created; with the end in mind. You’re getting the best of

the best in this book because of mutually aligned interests.

My incentives to teach you are aligned with your aspirations

to be a successful real estate investor.

How to Think Like an Investor

Unfortunately, not everyone reading this will qualify for

my apprentice program. We are a small team that can only

work with a handful of people at any one time. Our focus is

on quality, not quantity. We are looking for people who

exhibit those character traits that we have found to produce

extraordinary results, such as; honesty, trustworthiness,

open-mindedness, coach ability and a strong desire to be a

real estate investor. The good news is that you do have a leg

up on the competition because you have purchased this book

and have actually read it all the way to here! I want to en-

courage you to go to the special webpage I created just for

readers of this book: www.FreedomMentor.com/bonus

You will have the opportunity to apply for my appren-

tice program there and our system will recognize that you are

a “How to be a Real Estate Investor,” book reader which will

help you with your apprentice application. This is one of the

many bonuses hidden in this book to help you become a

successful investor.

Who is Your Mentor?

No successful person has ever done it alone. Every great

individual in history has had a mentor. So often we see

highly successful people in life and assume that they are self

made. The truth is; no one is self made. Behind every suc-

cessful person is a mentor, or mentors, that have inspired,

coached and trained that person. Consequently, it’s also the

fastest shortcut to success. When you have a mentor, you

reduce your learning curve by decades and put yourself light

years ahead of where you would have been on your own.

Successful real estate investors have mentors.

Like most important decisions, you must choose your

mentors wisely, though. Oftentimes, new investors will align

themselves with the first person they meet and the only thing

How to be a Real Estate Investor

worse than no mentor in real estate, is a bad one. Thankfully,

determining the value of a mentor is not complicated. It is

quite simple. As we discussed earlier on taking advice, you

want to align yourself with people who are very successful

and know far more than you do about the subject. You will be

able to tell their value by what they have done personally in

real estate and also who they have mentored before. In most

cases, it’s better to avoid the person who has never mentored

someone before, even if they are extremely successful in their

own right, because mentoring is a skill unto itself. You don’t

want to be someone’s mentee guinea pig. Life’s too short to

be someone else’s experiment. Go with the person who has a

track record for mentoring others to success.

You’ll need at least one mentor and the time to begin

searching for that person is sooner rather than later.

Partners

A peculiar step some investors take when they first get

started is adding on a partner to their fledgling endeavor.

Perhaps new investors fear investing alone and want com-

pany? Maybe they assume the person they partner with

brings tremendous value and is essential to the operation?

Partners are very helpful in business, so long as you partner

with the right people and you set up the partnership cor-

rectly.

First, you want to partner with someone for a definite

period of time. Oftentimes, when two friends partner up in

business, they do not set a specified time for their partner-

ship and over time, when the inevitable happens and they

each want the business to go in different directions, sadly

they end up at odds with each other and the business falters.

The way to eliminate that from the get-go is to have a speci-

fied ending point to the partnership.

How to Think Like an Investor

Second, you should partner with someone who is pro-

viding tremendous value. The conflict that can most likely

plague a partnership is when one partner is doing all the

work and/or providing all the value and the other one is not

pulling his/her weight. The way to eliminate this problem

before it starts is to make sure that each partner is bringing

value above and beyond simply working in the business.

Further, defining the roles of each partner and what each

person is responsible for is also very helpful.

With partnerships, you must begin with the end in

mind. It may feel uncomfortable to start a relationship

already thinking about what happens when it ends, but with

business partnerships, that is exactly how you need to enter

one.

What if you are already in a partnership right now as

you are reading this? Make sure your partner is providing

tremendous value. Put together a timeframe when the part-

nership could end and have a plan for who is responsible for

what. If your partner will not participate in this exercise, you

may have the wrong partner on your hands.

What’s Your Investor IQ?

Congratulations! You now know how to think like a real

estate investor. How would like to test your progress? How

would like to determine your Investor IQ? I have created a

fun and educational test that will help you gauge how well

you think like an investor. This is another bonus for reading

this book. To claim this bonus and determine your Investor

IQ, go to: www.FreedomMentor.com/bonus

How to be a Real Estate Investor

The 7 Habits of Highly Successful Investors

In addition to the important principles you discovered

in this chapter, as well as the lessons revealed while assess-

ing your Investor IQ, you also can download a special audio

training called, “The 7 Habits of Highly Successful Real

Estate Investors.” Go to:

www.FreedomMentor.com/bonus

Part 3: Real Estate Investing 101

“Success is neither magical nor mysterious. Success is the natural

consequence of consistently applying the basic fundamentals.”

—Jim Rohn

Are you certain that real estate investing is right for

you? Do you have a powerful and motivating Why that will

drive you to succeed? Are you confident you now know how

to think like a successful investor? Now you are ready for the

right real estate education. When the student is ready, the

teacher appears.

Real estate investing encompasses a vast ocean of in-

formation that can be very intimidating and extremely

difficult to consume all at the same time. The goal of this

section is to simplify the many different facets of real estate

investing and to show you how to understand such a large

topic quickly and easily.

To use a fishing analogy, when trout fishermen are try-

ing to assess where the fish are located at on a very wide

river, they separate the wide river into many small streams.

Some parts of the river may be fast and shallow while others

slow and deep. Whereas looking at a very wide river can be

very intimidating and confusing, when mentally separated

into several small streams, evaluating the river and finding

the fish becomes much easier.

We’re going to take that same approach here and seg-

ment real estate investing so that it is much easier for you to

understand the different facets, starting with the simplest

segmentation of all. The purpose of investing in real estate is

to make money and you make money in real estate either

now or later. Therefore, real estate investing can be summa-

How to be a Real Estate Investor

rized into two groups; fast cash techniques and wealth

building strategies.

Fast cash, or making money now, provides you with

cash in your pocket. For many people, extra money is very

important to them right now. Wealth accumulation, or

making money later, may provide cash flow and/or a big

chunk of cash years into the future, which also has its own

benefits. Most notably, making money later in real estate is

usually very tax friendly. The IRS has enacted numerous

provisions that can reduce the tax liabilities of cash later real

estate profits.

A very important question to ask yourself is, “What do I

want out of real estate?” If you are overflowing with liquid

assets (cash) right now, either in a retirement account, an

inheritance, a business you just sold or simply the steady

accumulation of money overtime in a bank account, the

prospects of having that money working for you in real estate

in a very tax friendly way may be exactly what you want.

Conversely, if you desperately need cash right now, maybe to

stay afloat or to pay pressing bills, fast cash may be the

smartest course of action for you. And in some cases, you

may be in the middle of those two extremes and would like

both, fash cash and wealth accumulation. Real estate can

provide cash now, cash later or both.

Real Estate Investing 101

WISDOM KEY: The purpose of real estate investing

is to create financial returns, plain and simple. Can

your investing actions help people? Certainly! In fact,

the way we teach investing is to always do deals that

benefit all parties involved. Therefore, it should be a

given that when you complete a transaction and make

money, you are helping all parties involved. The prob-

lem is that sometimes people get so caught up in do-

ing, doing, doing, that they forget to make a profit.

Sounds silly, doesn’t it? It happens quite often.

Whether you are going to make cash now, cash later

or both, the purpose of real estate investing is to pro-

duce profits (this already assumes that every deal you

do is a win-win-win.) Don’t allow yourself to fall into

the trap of being very active but producing very little

economic results.

How to Make Fast Cash

Real estate provides several ways for you to create cash

quickly. This section will describe the vast majority of ways

to accomplish this. In many cases, you can generate this

money without using your own cash or credit. Instead, the

reason why you would make money in most situations is

because you are putting a deal together or providing a service

for a deal.

Plato said, “The beginning of knowledge is the defini-

tion of terms.” Along with providing you with the techniques

that produce cash for you right now, it’s also important you

understand how each is defined. The world of real estate has

its own language and understanding real estate lingo will

help you get a better picture of this whole business.

How to be a Real Estate Investor

Flipping / Wholesaling / Buying and Re-selling

Although there are numerous terms or ways to describe

this action, the concept is quite simple. When you flip, or

wholesale, or buy and resell a property, what you are doing is

getting a property owner to agree to sell you their property

and then you are re-selling the property to a new buyer for

more. The original owner signs a contract with you and then

as soon as you have the deal under contract (whereby you

have in writing, a contract stating the exact terms of the

agreement), you then find a buyer who will pay more for the

property than the agreement you have with the owner. You,

then, make the money, or the spread, in the middle.

Although this is quite simple in concept, the actual

process of how you get paid from this arrangement can be

somewhat complicated at times. For example, once you have

a contract in place between you and a property owner,

instead of closing on the property the traditional way and

then re-selling to another buyer, in certain situations, you

can actually assign your contract to a new buyer. Then, at the

closing, this new buyer will purchase the property from the

original owner and you will step out of the way for an as-

signment fee.

In other scenarios, as in the case of some short sales

(which will be discussed in detail later), you would first buy

the property from the original owner, close on it using

transactional funding, and then immediately re-sell the

property to the new buyer. Both of these examples fall under

this same category of flipping / wholesaling / buying and re-

selling, but the way in which you obtained the spread, or the

money in the middle, were quite different. The concept is

simple but the way in which you get paid can be more com-

plicated. To avoid confusion, focus on the concept for now.

Real Estate Investing 101

The foundation for successfully applying this investing

approach is being able to find properties that can be put

under contract at an amount substantially lower than the

current value (or with favorable terms). And the property

must also be attractive enough to another buyer that he/she

would be willing to pay you more for it than what you have it

under contract for. When these two requirements are met,

you can make very good money being the middle person and

putting the deal together.

If you are getting paid to buy (or put under contract) a

property for less than you can immediately re-sell it for, is

that immoral, unethical or otherwise bad? Absolutely not! In

fact, these deals can be an incredible win-win transaction for

all parties involved given the right circumstances. But unfor-

tunately, the word flipping has actually taken on a very

negative connotation. In fact, the dreadful word illegal has

actually been paired with flipping. To set the record straight,

it’s important to recognize that a large portion of the busi-

ness world has functioned on the wholesale – retail model

for centuries.

Real World Example: Look around your home at

the many items you purchased from a retail store. The

majority of those items wound up in your home from

the following process: First, the manufacturer created

items and sold them to a wholesaler. The manufac-

turer made a profit by charging more for the items

than it cost him to manufacture them. Second, the

wholesaler sold those exact same items to the retail

store for more than what the wholesaler bought the

items for from the manufacturer. The wholesaler

made its profit by being the middleman; buying low

and selling higher.

How to be a Real Estate Investor

Third, the retail store sold you the exact same items

they bought from the wholesaler for more than what

they paid. The retail store made their profit being the

middleman and buying high and selling higher. Ex-

cept for the manufacturer, everyone else made their

money buying and re-selling the exact same item for

more money to the next customer down the line.

Is it illegal to buy an item at one amount and then re-

sell that same identical item for a larger amount? If it is, then

the vast majority of businesses are built on an illegal whole-

sale-retail model. When you flip, or wholesale, or buy and re-

sell real estate, you are operating under the same model that

many of the most well respected businesses in history have

operated. You are buying and then reselling an identical item

for more money to the next customer down the line.

DISCLAIMER: On any legal related issues always consult a

qualified attorney.

The reason why the word illegal appears in conjunction

with the word flipping has to do with a very dishonest trick

that unscrupulous people have been employing for a very

long time. It is a dirty scam that involves re-selling a prop-

erty to an unsuspecting buyer for far more than the prop-

erty’s true value.

Here is how the crime is conducted. First, an unscrupu-

lous person finds an equally unscrupulous appraiser to

appraise, or value, the property for far more than the true

market value. Second, the unscrupulous person finds a naïve

and unsuspecting buyer to purchase the property for an

amount that is above-the true market-value. Third, the

buyer obtains a loan that is based on the inflated and higher-

Real Estate Investing 101

than-true-value appraisal. Fourth, the buyer becomes the

owner of a home that is worth far less than what he/she paid

for it because the seller and the appraiser operated dishon-

estly.

That is where the word flipping got paired with illegal.

It was originated from dishonest people selling real estate to

a buyer for far more than its true market value. That is NOT

the type of flipping we will be describing in this book. In-

stead, you will be learning how to morally, ethically and

legally negotiate win-win transactions whereby you buy real

estate at wholesale prices and sell them at true-market-value

retail prices.

WISDOM KEY: When dishonesty is introduced into

any venture, trouble ensues. Therefore, be honest with

all parties all the time. You will be far more successful

being truthful anyway. One of the most infamous

mobsters in American history was Lucky Luciano. At

the end of his life, while spending his last few breathes

in a prison, when asked what he had learned from his

life experiences, he said something along the lines of,

“It took more work to make money dishonestly than it

did to do it honestly. I wish I would have just done it

right from the beginning.”

In any real estate market, there are legitimate opportu-

nities to get properties under contract at an amount less than

the true market value. Here is a real world example, one of

our students stumbled across a situation involving a very

motivated seller. The owner of the property was about to lose

her property to foreclosure in less than two months and she

owed $50,000 on a home that could be valued at $150,000

or more once it was all fixed up. The owner didn’t have the

How to be a Real Estate Investor

money to do any repairs and even worse, the tenants in the

property would not allow her to show the property to per-

spective buyers so there were no real estate agents willing to

help her.

Discouraged, this seller gave up and prepared for the

worst possible outcome, foreclosure. Meanwhile, our student

was marketing for motivated sellers and their advertisements

caught the attention of this seller. Shortly after connecting,

the two parties had a written agreement for our student to

buy the property for $85,000. The seller was more than

pleased with the agreed upon amount because the property

was in such disrepair, all previous attempts to get help had

failed and there was very little time left before it went to

foreclosure.

Our student promptly marketed for an all cash investor

buyer since the buyer had to be willing to purchase the

property without a full and complete inspection due to the

tenants not allowing anyone in the property. A local doctor

and part-time investor was located who was willing to pay

$100,000 cash and buy the property before the foreclosure.

Let’s breakdown why this deal was a win-win transac-

tion for all parties and why our student deserved a profit.

Our student located a motivated seller that needed help.

Other real estate professionals had turned her down when

the seller had reached out for a solution. Our student solved

the seller’s problem. Further, our student found a buyer

willing to purchase the property as-is (in its current condi-

tion of disrepair), prior to foreclosure for all cash. Finding

that kind of buyer was something the seller did not know

how to do. Our student deserved to earn a profit because she

applied specific investing skills and knowledge to put to-

gether a win-win deal.

Real Estate Investing 101

This deal exemplified how to do a win-win-win

flip/wholesale/buy and resell transaction. Everyone in the

deal benefited even though our student got the property

under contract for less than the current market value. And

moreover, our student didn’t take advantage of the seller

either. This person was in a real bind and other real estate

professionals were unable to help her. Had it not been for

our student, this seller would have gone into foreclosure.

Instead, she had the ability to sell the property for $85,000,

a full $35,000 above what she owed.

The fast cash approach to real estate investing allows

you to make quick cash with the limited resources (no cash

or credit required) and little or no risk (if the deal doesn’t

work out, you’re not out anything). However, the profits are

usually taxed more heavily than wealth building real estate

income. Plus, in some cases, the profits can be slightly

smaller than if you employ other techniques.

Flipping/wholesaling/buying and re-selling has been

the foundation of many investor’s careers. It is extremely

popular, easy to get started with and can make you very, very

wealthy if you do it over and over again.

Buying, Improving, Re-selling

This differs slightly, but significantly from the previous

section because here, you are not only reselling the property

for more than you bought it for, but you are also improving

the property. This is what many people envision when they

think of real estate investing. People often picture investing

as purchasing a beat up, run down foreclosure, fixing it up

until it sparkles and then re-selling to a first time home-

buyer. This model has produced many millionaires through-

out history and it will continue to because it works.

How to be a Real Estate Investor

A very common example of this technique is that of a

builder. The typical builder purchases a lot from a developer

and then builds a property on that lot. Then, the builder re-

sells the newly built property.

In fact, the developer is an example of this model as

well. One approach that has created many real estate mil-

lionaires is to purchase raw land and then to improve it by

adding roads and utilities, possibly having to change the

zoning and then selling individual lots to builders. You may

have heard the old saying, “The two most profitable busi-

nesses are buying whiskey by the bottle and selling it by the

shot and buying real estate by the acre and selling it by the

lot.” Although this approach to real estate investing of buy-

ing, improving, then re-selling may sound wonderful, it has

it’s drawbacks too.

Improving real estate, whether it be turning raw land

into buildable lots, empty lots into new built properties or

rundown homes into renovated houses, involves far more

risk and resources than flipping/wholesaling/buying and re-

selling. First, money is required to purchase the un-

improved property as well as to fund the improvement.

Second, improving a property requires extensive specialized

knowledge. Third, anytime you improve or build, most

municipalities have rules that must be strictly adhered to in

order to pass inspection. Fourth, a whole new level of liabil-

ity is introduced when people are on the property working

who may injure themselves while improving the property.

Fifth, just because you improve the property does not mean

the market is going to pay enough to compensate you for

your improvement efforts. Developers are among the most at

risk of such an outcome. Sometimes they make a gamble on a

city growing in a certain direction only to see the population

shift in an opposite direction just as they are finishing their

Real Estate Investing 101

development project. Therefore, improving a property as

opposed to simply buying and re-selling a property without

making any changes, is a significant responsibility.

But in some cases, with much risk comes much reward.

For example, many builders make less than 10% profit on

any one property. In isolation, that would appear risky, to

put in all that time, effort and resources to build one prop-

erty and get less than a 10% profit. Just a few mistakes and

that profit could easily be eaten away. But most builders

don’t make their money on one deal; their money comes

from the volume of properties. For example, if they build

500 homes in one subdivision, then 500 properties times

10% profit per $200,000 house equals $10,000,000. That’s

good money.

For a house renovater (or also referred to as a “rehab-

ber”), someone who is going to turn an ugly house into a

beautiful home, the typical minimum profit target is 20%.

This is substantially more than you will usually make simply

wholesaling or flipping a property without doing any im-

provement to the property. To profit 20% on a $200,000

house is $40,000. That’s good money.

For a developer, they may purchase farm land at

$10,000 per acre and then sell off 4 lots per acre at $20,000

a piece. Assuming some expense for land improvement, this

example still yields a huge return.

In each of these cases, by taking on the risk of improv-

ing the property can bring a much more substantial reward.

Most investors do not start with this investing approach

due to the capital and skill level required. Some progress to

it, while others choose to stay away and continue to make

their money being purely a middleman. However, some

people have extensive experience in building or renovating

How to be a Real Estate Investor

and therefore would far prefer this approach over simply

being a flipper/wholesaler.

WISDOM KEY: When in comes to deciding whether

to make some money now or far more money later,

my philosophy is that a quick nickel beats a slow

dime.

The most successful investors are flexible and allow

each deal to dictate the best course of action for the most

profit. Oftentimes with really good deals, you will have the

option to either earn a smaller amount quickly by selling

immediately without improving the property or take on the

risk and resources outlay required to renovate the property

for a bigger profit down the road.

Real World Example: One of our students found a

really beat up home in a not-so-good neighborhood.

The seller had moved out months prior and vandals

had further trashed the home which was already in

serious disrepair. Our student got a contract in place

with the sellers at a price of $55,000. It needed about

$20,000 to bring it up to the level that a retail home

buyer would want to purchase it and move in. Judg-

ing by what the other homes in the area had recently

sold for, it appeared $130,000 would be a possible

sales price but more realistically, it would probably

sell to a new buyer at $120,000.

This student had a number of investor buyers come

by and most offered between $55,000 and $60,000

for the deal. As investor buyers often do, they made

our student feel like the home would require $40,000

to fix up and would only sell for $100,000

Real Estate Investing 101

(An example of asking the barber if you need a hair-

cut.) When attempting to re-sell a property to an in-

vestor buyer, it is common for the prospective buyer

to point out the negatives of a property in an attempt

to negotiate a lower price.

Our student was wise and didn’t succumb to this

negative feedback. Instead, he sought out the opinions

of a few hard money lenders, people who lend money

to investors to fix up property. The hard money lend-

ers all liked the deal and therefore our student de-

cided to borrow the money and fix up the deal

himself, weathering the potential risks in search of

more than the measly $5,000 profit he would have

gathered had he immediately resold it to an investor

buyer.

It took a few months longer than he would have

liked, 6 months altogether, from start to finish, but his

profit ended up being just under $25,000. His biggest

mistake turned out to be that his initial asking price of

$130,000 was too high and had he listed it at

$120,000 from the beginning, he would have found a

buyer immediately and the deal would have closed in

less than 4 months. However, he was still really happy

and made a great profit for his efforts; far more

money than if he would have simply resold it to an-

other investor buyer. In this case a slow quarter beat

a quick nickel!

When you take on the higher level of risk and responsi-

bility to actually improve a property, you can potentially

make more money than by simply re-selling it. Also, in some

cases, a deal will only make money if you improve it so you

won’t have the option to immediately re-sell it anyways. The

How to be a Real Estate Investor

drawbacks are that money is required to purchase the un-

improved property and to fund the improvement. Specific

knowledge about renovating/building is required and knowl-

edge of codes and zoning is necessary. Plus, there is more

liability involved. But with much risk can come much re-

ward.

WISDOM KEY: Some may assume that simply hav-

ing a good contractor will bridge the knowledge gap

necessary to improve real estate. Experience has

taught us that a good contractor is only as good as the

person who hires him/her. Herein lies another reason

why you need to make sure you align yourself with

mentors that can bridge the knowledge gaps for you.

Renovating, improving or building a home is a whole

lot more technical than simply hiring good contrac-

tors to do the work. Oftentimes, asking a contractor

about a project is like asking a barber if you need a

haircut. His opinion may be biased toward him get-

ting paid to do the work.

Commissions / Fees

The final technique that can bring you cash now in real

estate is through commissions or fees. In most cases, you will

need to have a license in order to collect this money. Real

Estate Agents typically make a 3% commission when they

either represent a buyer or a seller in a transaction. That

commission percentage can really add up fast and there are

many agents that make 7 figures per year.

For some strange reason, as a general rule, the real es-

tate investing community has balked at the idea of investors

having a real estate license. They usually site issues about

Real Estate Investing 101

how it limits and restricts an investor’s options. On the

contrary, having a real estate license is like having a license

to print money. Sure, it does hold you to a higher standard in

your business practices, but isn’t that the kind of business

person you want to be anyways? Being held to a higher

standard is a great thing for honest people. You can get more

money from each closing by not giving that money away to

an agent. You can have that commission money come back to

you.

Real World Example: Here’s an example of where

an investor can earn extra money from a commission

or fee. One of our students had been investing for

sometime and most of the people around him, friends

and family included, thought he was a real estate

agent. He happened to have his license but had never

operated as a traditional agent. A friend approached

him and asked if he could help him buy his first

house. Since our student had bought numerous prop-

erties over the years, he thought it would be a good

way to help his friend out and make a little money for

the effort. His friend purchased a $350,000 house

and our student earned a 3% commission, or $10,500.

It only used up a few hours of his time and he helped

his friend buy their first home wisely. As you can see,

commission income can be a very profitable addition

to your investing endeavors.

The drawback to having a real estate license is the ex-

pense and time associated with obtaining and maintaining

one. It’s not cheap. By the time you finish the testing, the

continuing education, the E&O insurance, the Realtor®

dues, etc, it costs thousands of dollars and consumes large

How to be a Real Estate Investor

amounts of time to be a licensed agent. The benefit is that

you can earn commissions on all the deals you are already

doing (more profit per deal) and you can earn commissions

on deals that don’t fit as an investing type deal. Plus, you get

access to your local Multiple Listing Service (MLS) system

which allows you access to the most important database in

real estate. Unfortunately, only real estate agents are allowed

full access to the coveted MLS system.

So you may be asking yourself, “should I go get my li-

cense?” The answer is; it depends. For most people, the plan

should be to go make some money in real estate investing

first and then consider getting your real estate license using

some of the profits. If you have a license in retirement al-

ready, you may be able to file one document and pay a small

fee and you are an active agent again. If getting your license

out of retirement is that easy, you may want to re-activate.

Otherwise, be patient with taking on such a huge commit-

ment as getting your license until you have made some

money and experienced real estate investing first hand.

There are other ways to earn fees or commissions be-

sides being a real estate agent too. Some investors are also

appraisers, or inspectors, or mortgage brokers. All of these

professions can be great ways to put cash in your pocket

from real estate.

You may even be able to simply send the contact infor-

mation of potentially motivated sellers to other investors or

agents and get a small fee for passing along the data, also

referred to as “bird dogging”. Bird-dogging is when someone

finds a good real estate deal and rather than getting it under

contract, they simply send the information along to an

investor or agent who handles the deal from there. The

business plan of a bird-dog is to simply send along a name

and number, or an address, to a more experienced real estate

Real Estate Investing 101

profession in exchange for a small marketing fee. It can be a

great way to earn quick money in real estate with little or no

experience.

However, the marketing expertise required to find

highly motivated sellers is oftentimes more difficult than

negotiating a deal and getting a property under contract.

Therefore, in most cases, a bird dog can earn far more money

by simply taking the extra time to educate him/herself on

how to negotiate with seller, what contracts to use and how

to complete them properly. Instead of making a few bucks as

a bird dog, the extra effort to get the deal under contract

could be the difference between a few hundred dollars and a

few thousand dollars.

Earning commissions and fees in real estate can be a

great way to add extra cash to your pocket. The only draw-

backs, in most cases, is the time and money required to

obtain and maintain the proper licenses.

Those are the three ways people make fast cash in real

estate. You can buy and resell a property with no improve-

ment, you can buy, improve and then resell or you can make

a fee or commission. Now let’s turn to how you can build

long term wealth through real estate.

How to be a Real Estate Investor

How to Build Long Term Wealth

Real estate is not only a fabulous vehicle for putting

money in your pocket now. It can also create long term

financial security. In fact, this is what real estate is known

for, building long term wealth. As you have already learned,

the majority of wealth is stored in real estate. In this section,

you’ll learn how you can build your financial empire from

real estate.

Buy and Hold

This is the technique most associated with real estate

investing. The concept of this approach is that you purchase

real estate and then rent it out to tenants. This is sometimes

referred to as traditional buy and hold investing. It has been

the source of incredible wealth. Anyone who has played the

board game Monopoly knows the power of owning and

leasing out real estate. And as mentioned earlier, this tech-

nique can be extremely tax friendly and therefore you are

able to keep more of what you earn than with the fast cash

approach shared in the previous section.

There are three majors profit centers from buying and

holding real estate. First, if the tenant pays you more than

your costs (mortgage payment, taxes, insurance, mainte-

nance, etc), you profit from a monthly cash flow. Second,

your mortgage payment may include a principle component

so each time a payment is made, the tenant is actually paying

down the mortgage balance on the property and thereby

increasing your equity. Third, in most areas, over a long

period of time, real estate appreciates in value, so you profit

from the increase in value of the property.

Real Estate Investing 101

WISDOM KEY: A noted Yale economist conducted a

study of real estate in America from 1900 to 2000 and

discovered that adjusted for inflation residential real

estate does not appreciate in value. His shocking re-

search points out that residential real estate only

keeps pace with inflation, as a general rule. In fact,

sometimes, real estate doesn’t even keep pace with

inflation. Case in point, Baytown, TX. In 1981, you

could have purchased a single family home on Lariat

Dr in Baytown, TX for $80,000. Thirty years later,

you could purchase a home on Lariat Dr in Baytown,

TX for you guessed it, $80,000. The price didn’t in-

crease in over 30 years, even though a dollar was

worth far less 30 years later. Surprising, isn’t it? The

fact is, real estate is extremely localized and every

neighborhood behaves differently. Even during a

booming market, certain neighborhoods may be

struggling. And during a down market, certain

neighborhoods may be booming. When it comes to

determining which areas will appreciate, the lesson is,

location, location, location.

The secret to successfully applying the buy and hold

strategy is to buy the property below true value so that you

have instant equity and then to profit from the cash flow and

the principle pay down. Appreciation should be a bonus and

an icing on the cake. It should not be the reason for the

investment. Most investors are unaware of this and there-

fore, many have lost their shirts on real estate investments

that they purchased in the hopes of profiting from apprecia-

tion. This is also referred to as speculation.

How to be a Real Estate Investor

The other issue investors have voiced as it pertains to

buying and holding real estate is in being a landlord. Some

even associate, unclogging toilets at 3AM with land lording.

However, not all people dread property management.

In fact, property management has been deemed as one of the

most profitable businesses in America (based on almost any

measure of profitability). Property management is a chal-

lenge if there is not a system in place to handle every issue

that comes up and/or if the property does not cash flow

strong enough to warrant the expenses associated with

leasing. But, property management can also be quite lucra-

tive.

Real World Example: One of our students has a

property that will sell for about $125,000 in today’s

market. It leases for $1000 per month. The amount

owed on the property is about $100,000. The total

monthly payment is $800. This $800 payment in-

cludes principle, interest, taxes, insurance and MI

(mortgage insurance). The positive cash flow is there-

fore $200 ($1000 Rental Income - $800 Expenses).

Property management companies usually charge 10%

of rental income (as well as 1/3 of the first month’s

rent when a new tenant is moved into the property.) If

our student turned this property over to a property

management firm, he would pay $100 per month for

their services (or 50% of the total cash flow). That

would leave $100 per month positive cash flow. Here

you see why property management firms can be ex-

tremely profitable. 10% of the gross rental income can

represent a huge percentage of the overall profit of the

deal.

Real Estate Investing 101

Enlisting a property management firm can be a wise de-

cision. They usually have a very good leasing system already

in place on how to manage properties. They usually have

relationships with vendors like eviction attorneys and main-

tenance men who are needed to run a great management

system. And they typically can handle all the issues and calls

from tenants, even at 3AM in the morning.

The drawbacks with hiring a property management

company can be that they charge 10% of the gross rental

income, which can account for a large percentage of your

positive cash flow. Also, not every property management

company is created equal and some do not have a good

leasing system in place.

Further, and most insidious of all property manage-

ment company hiring challenges, is when the company

profits from repairs. Sometimes, the contractor doing the

work may provide the property management company

referral fees for the work they are given. This incentivizes the

property management company to come up with work to be

done to the property. Since you as the owner pay all the bills

for maintenance, there is no real downside to having you pay

for more work. In fact, the more maintenance is done, the

easier it will be to lease and for the property management

company to collect 10% of gross. They get 10% of gross and

they don’t have to pay for any of the repairs of the asset, but

instead they may get paid as a result of more maintenance!

For some investors who have hired and subsequently

fired their property manager, this one detail was the cause

for the dismissal. Ultimately, these investors learned that

since the property management firm benefited from a prop-

erty’s need for repairs, the property management firm would

not be incentivized to bring in a high quality tenant who

wouldn’t destroy the place. Sadly, the more a tenant was

How to be a Real Estate Investor

likely to trash a property, the more potential revenue that

property management company could earn from that deal.

How does a property management company have the

ability to move a bad tenant into a property? Most property

managers send rental applications of prospective tenants to

the owner for final review. As a way to control what the

owner has to choose from, some property management firms

have been known to only produce one or two potential tenant

candidates. This forces the property owner to make a choice

between a bad tenant and a bad tenant. Next, the property

owner typically asks the property manager if the tenant is

good or not. Herein lies another example of asking the

barber if you need a haircut. The problem is, what may be a

good tenant to a property owner may be a bad tenant to a

property manager. Because when you factor in the 1/3 of the

first month’s rent for re-leasing, it can actually behoove the

property management company to continue to re-lease the

property. Unfortunately, the financial incentives for a prop-

erty management company can sometimes be at odds with a

property owner.

Should a property management firm be hired to man-

age your property? In the previous real world example, our

student actually manages his own property. Why? First, this

student has a very solid property management system al-

ready established, from how to locate quality tenants quickly,

to how to handle 3AM toilet clogging calls. Second, all of the

vendors needed to run a great management system are

already in place for him, from the eviction attorney to the

maintenance person. Therefore, it is worth $100 per month

for the student to manage the property without paying a

management firm.

However, there are excellent property management

firms out there. If the property is located far from the owner,

Real Estate Investing 101

the property owner does not have their system and/or if

there is no team in place, it is far better to have a property

management company. The best of all worlds is a property

management company that you manage who follows your

system and uses your team members! To learn more about

building your team, see Appendix B.

Buying and holding real estate differs greatly between

different types of properties as well. Single family homes can

be very easy to re-sell if a tenant moves out and you want to

realize your equity profits. However, leasing single family

homes can be costly if the tenant stops paying or the prop-

erty goes vacant because you have no way of offsetting the

vacancy and therefore, incur heavy vacancy holding costs

until the property is re-leased.

Income producing properties like duplexes (2 units),

triplexes (3 units), quads (4 units), on up to apartment

buildings have more units to off set your monthly expenses

in the event of a vacancy. However, income producing

properties can be more difficult to sell and may not gain in

value as rapidly. The reason is that income producing prop-

erties are typically valued based on how much income they

produce, whereas single family homes are valued based on

what the market will pay for them. Single family homes are

the most desirable residential properties, have the largest

potential buyer pool and usually gain in value better than

income producing properties. Rental rates, in general, do not

rise as quickly as home prices can. So some investors favor

buying and holding only single family homes because of the

bigger cash payouts they receive when they re-sell.

Income producing property investors opt for the steady

cash flow even during the low vacancy times as well as the

ability to offset any unit vacancies with other rented units. As

you invest, you will find which niche you would rather focus

How to be a Real Estate Investor

your energies on. Oftentimes, investors own both single

family homes and income producing properties as well.

Some even graduate to owning larger apartment buildings

due to the economies of scale that are created from numer-

ous units all contained in the same place with a full time,

onsite manager. One of the great benefits of owning an

apartment building above a certain size is the ability to hire

an onsite manager to handle everything. As opposed to

paying 10% per unit, you can actually put the person on

salary and obtain terrific service for far less total capital

outlay.

But, the potential downside to putting all of your eggs

into one basket is if that basket fails, the results can be

devastating. Using 1031 exchanges, an ambitious investor

will trade up their single family homes, duplexes, and quads

into one large apartment building. At first, all is good. Then,

as can happen in business, things change, and their apart-

ment building begins to stop producing. Their basket begins

to fail. Since this investor has all of his/her eggs in one

basket, his/her long term financial security ebbs and flows by

the behavior of their one property. What’s the lesson? Try to

avoid putting all of your eggs in one basket.

Real Estate Investing 101

WISDOM KEY: There is another set of expenses

that must be calculated when evaluating any buy and

hold deal, whether it be a single family home or a

large apartment building…maintenance. The reality is

that real estate deteriorates over time. As you know,

the IRS allows you to depreciate an equal amount over

the course of time to account for deterioration. That is

certainly a gift considering most buildings are built to

last far longer than the IRS allows investors to depre-

ciate. But many parts of a property are not built to last

long term. Roofs usually only last 10 to 15 years, de-

pending on the material and the location (the desert is

really harsh on comp roofs which is why you often see

clay roofs in places like Las Vegas). HVAC systems

usually last 7 to 10 years before some part or all of the

system fails and tenants that forget to change the

HVAC filters can shorten that life expectancy even

more. Hot water heaters may last 7 years, if you’re

lucky. Carpets and floor coverings oftentimes have to

be replaced every time a tenant moves out, even if

they have only lived in the property for a year or less.

Depending on how rough the tenant lived in your

property, new interior paint may have to be added

every few years too. Therefore, you must account for

the costs of maintenance when evaluating the cash

flow of a buy and hold investment.

The key to successfully owning and holding real estate

is to be very selective in the properties you purchase. If you

buy the property right and manage it correctly, it can be a

rich and rewarding investment. If you buy the property

wrong or manage it poorly, it can be a difficult and frustrat-

ing experience.

How to be a Real Estate Investor

Some experts have said that even if you buy real estate

wrong, given enough time, even a bad investment can correct

itself. As you learned from the Yale professor and from the

example of Baytown, TX, that is not always true. When you

have access to people who have experienced a lifetime of real

estate ownership lessons, you can make more informed

decisions and ultimately, be more successful.

WISDOM KEY: The main reason why some buy and

hold deals are not profitable can be linked to the fi-

nancing on the property. The financing is a very im-

portant component of a buy and hold investment.

Sometimes you can even purchase the property with

very little instant equity but if the loan terms are right,

it can be a terrific investment. Case in point; if you

paid $190,000 for a $200,000 property but the seller

provided the financing of $190,000 at 0% interest for

30 years, every payment would go directly towards the

principal and soon, you would have tremendous eq-

uity and hopefully very strong cash flow. Another ex-

ample would be if you didn’t originate any new money

to purchase the property, but instead, simply began

making payments on the seller’s existing mortgage,

you could become the owner of the property and actu-

ally leave the seller’s mortgage in place. This is a

strategy known as “Subject To” and investors have

been employing this concept for a very long time with

great success. The loan usually has a lower interest

rate than most investors could obtain by originating a

new non-owner occupied loan and also, it’s not in the

investor’s name. You’ll learn more about creative fi-

nance techniques such as these in a later section.

Real Estate Investing 101

The government can actually be a landlord’s best friend

in certain situations too. Section 8 is a program that is linked

to welfare whereby the government may pay the property

owner partial and/or the complete rental payment each

month. As of this writing, the government has not gone

broke yet and therefore pays each month, on time. With

Section 8 (and any of its local derivatives), the government

pays a standard amount per number of bedrooms the prop-

erty has. In some cases, the tenant has to come up with part

of the monthly rent, but in other cases, the government pays

the entire amount.

For most property owners of Section 8 housing, the

government supplying the entire monthly payment is ideal.

The Section 8 department has a strict set of standards that

the property must adhere to in order to be eligible for the

program. Once a property is eligible to accept Section 8

tenants, it allows the owner to rest easy since Uncle Sam will

be paying the rent on time each month (so long as those

government issued checks are good and don’t bounce due to

insufficient funds). Section 8 can be a terrific option for

investors who want the benefits of long term buying and

holding without the headaches of worrying about their rent

payment each month.

With all the apparent benefits, as always, there are a

few drawbacks. First, maintenance on Section 8 properties

can be an issue since the tenant is not very motivated to keep

up the property. Especially if the government is paying the

entire monthly payment, the tenant has no vested interest in

the property. Second, as the old Chinese proverb states,

“those in the free seats hiss first.” As counter-intuitive as this

may sound, the less someone pays, the more they complain,

as a general rule in business. As it relates to property man-

agement, a person who pays $8,000/mo in rent for a luxury

How to be a Real Estate Investor

home will usually give a landlord far less grief than a Section

8 tenant who has the government pay the $800/mo for their

3 bedroom home. Section 8 property management is most

likely to generate the dreaded call at 3AM from a tenant that

needs a small, petty problem fixed. The solution is a great

property management system. It is also vitally important

that a Section 8 investor fully understand the rules, regula-

tions and details about the local Section 8 program where the

property is located since it can vary from state to state and

even from county to county. Government subsidized housing

has the great benefit of almost guaranteed income but the

drawback of increased management requirements.

Buy/Control and Rent to Own / Sell on Terms

Real estate investors have strived to minimize the risks

associated with traditional buy and hold investing while still

sharing in the benefits. In other words, they have sought to

have their cake and eat it too. What they wanted was a

tenant that would be ultra motivated to keep up the pay-

ments on time each month and would also handle and pay

for every maintenance problem that arose. Thus was born

the creative investing techique known as sell on terms, rent

to own or lease with an option to buy.

Selling a property on this “rent to own” basis is rarely

employed on income producing properties and is therefore

most popular with single family homes. The tenant is re-

ferred to as a “tenant buyer” and what makes this type of

renter different is that they are no longer just a tenant. They

are now going to be the owner someday and therefore,

hypothetically, they should be more likely to make their

monthly payments on time and to cover any maintenance

issues that may spring up.

Real Estate Investing 101

There are many ways in which this concept is executed.

Some investors actually sell the property to the tenant buyer

and the investor actually becomes the bank and collects

mortgage payments. Other investors remain the owner of the

property and simply lease the property to the tenant buyer

along with providing the tenant with an option to purchase

the property for a year or two. Still other investors take this

whole concept one step further and instead of buying the real

estate, they actually lease with option to buy the real estate

from the original owner and then re-lease the property to

another tenant buyer, oftentimes referred to as a sandwich

lease option. Each state has different laws as it pertain to

these concepts so what works in one state may not work in

another. But rather than get bogged down with the details of

creative financing (we’ll do that in the next chapter), the key

here is to recognize the concept. Instead of just leasing the

property to a tenant, you obtain a tenant buyer who wants to

purchase the home. The difference is subtle, but can be very

effective.

The profit centers with this technique may include all of

those included in traditional buy and hold investing as well

as the ability to obtain an upfront non-refundable option

payment from the tenant when they first move in (as op-

posed to a refundable deposit) or a down payment if the

house is being sold on terms. Plus, you have the ability to get

a big profit at the end of the option period if the tenant buyer

actually buys the home.

Many rehabbers have been known to employ a combi-

nation of the buy, renovate and re-sell technique with this

sell on a rent to own basis technique. There are three reasons

why this is a good financial combination. First, you can sell a

property for a higher price when you are offering favorable

terms to a buyer than you could on the open market to a

How to be a Real Estate Investor

buyer who is getting their own loan. Second, you may not

have to pay any sales commissions that are normally charged

when you sell a home on the open market which can save you

6%. And third, if the property is held for a least 1 year, as of

this writing, currently, the IRS considers the profit to fall

under the category of long term capital gains as opposed to

ordinary income which can save a tremendous amount in tax

liability.

With all of these benefits though, there must be some

drawbacks, right? For die hard buy and hold investors, they

will argue that if you sell a property, you forever give up the

opportunity to profit from that asset. However, seasoned

creative real estate investors would counter that argument by

pointing out that less than 20% of all tenant buyers ever

exercise their option to buy the home. Therefore, the prop-

erty is actually rarely sold when offered on a rent to own.

In addition, for any property other than a single family

home, this approach can be difficult to apply because apart-

ment dwellers rarely want to become the owner of an apart-

ment building. Also, some investors would make the point

that people actually treat their own stuff worse than the stuff

they borrow from others. Meaning, if you let a tenant think

they own the place, they may actually tear it up more than if

they thought it was a rental.

Outside of these objections, offering your property on a

rent to own to a tenant buyer can oftentimes bring you the

best of all long term wealth building worlds.

Although there are creative ways to curb some of the

inherent risks in owning real estate, at the end of the day,

you are still dealing with people and people don’t always

follow through with their promises. Unlike the fast cash

approach to investing whichs allow you to get in and get out,

when you acquire real estate you are taking on an important

Real Estate Investing 101

responsibility. If the tenant or tenant buyer does not follow

through with their promises, you are still responsible for

keeping up the payments and the maintenance of the prop-

erty.

It has been said that sometimes, it is a whole lot easier

to get into a real estate deal than it is to get out of one. The

way to minimize your exposure to problems is to be selective

and only acquire deals that have lots of room for error.

Meaning, they have tons of instant equity, the potential for

terrific cash flow, very favorable financing terms or all three.

Many people have built their fortune from buying and leas-

ing real estate and it could be your key to financial freedom.

But it also has its own set of challenges that you need to

account for in your endeavors.

Ambitious people can sometimes be in a hurry for suc-

cess and they attribute reaching their goals to owning more

real estate. The goal should not be to simply own more real

estate, but instead, to own solid real estate investments. It is

better to own less and own right than own more and have

made poor buying decisions. Patiently and wisely build your

real estate portfolio. It’ll pay dividends for generations.

How to be a Real Estate Investor

Part 4: Advanced Investing Techniques

“Education is the most powerful weapon which you can use to

change the world.” – Nelson Mandela

Now that you understand the basics of how money is

made with real estate, now it’s time to get a far deeper un-

derstanding of the subject. There are several specific tech-

niques that can be applied, depending on the situation. The

goal of this section is to introduce you to these different

strategies and how to apply them in the real world.

Wholesaling

Wholesaling is the single most popular strategy among

those who are just getting started investing in real estate.

The reason is that it requires little to no resources, responsi-

bilities or commitments and it can generate quick cash. Also

known as “flipping”, the concept of wholesaling is that you

are getting a seller to agree to a low price or favorable terms

and then you are wholesaling, or flipping, the deal to a new

buyer for a higher price or fee.

The traditional wholesale transaction looks something

like this: a homeowner agrees to sell their home for

$200,000 even though the retail value may be $275,000.

Then, as soon as the wholesaler has the deal locked up with a

contract, the wholesaler then finds an investor willing to pay

more than $200,000, say $210,000 or $215,000. Then, at

the closing, the wholesaler makes the spread of $10,000 –to

$15,000.

The general rule of thumb that has been established

with this model is that wholesalers need to find real estate

deals at 65% of true market value (or less is even better) and

How to be a Real Estate Investor

then flip to investors who will purchase that same property

for around 70% of value. That presupposes two very impor-

tant events; one, that there are real estate owners out there

willing to sell their property for 65% of value (or less) and

two, that there are investor buyers out there willing to pay

70% of value for real estate. In the real world, real estate

owners willing to sell their properties for 65% or less of value

encompass a very, very small percentage of the total number

of sellers. And the numbers get increasingly smaller as you

move into areas with higher prices, areas with nicer proper-

ties and areas with newer built real estate. On the other hand

though, the number of potential wholesale deals increases

dramatically as you move into lower priced, older and

rougher areas of town.

Why? First, newer built homes, for the most part, lack

enough equity to allow for a wholesaler to pick up a deal at

65 cents on the dollar because most have mortgages against

the property that are nearly equal to the value.

Second, as property prices increase, the ability to main-

tain the same percentages becomes increasingly difficult. For

example, 65% of $100,000 is $65,000 while 65% of

$1,000,000 is $650,000. It becomes more and more diffi-

cult to maintain such favorable percentages as the price

increases.

Third, nicer areas of town are usually in greater demand

and therefore finding buyers is not nearly as difficult, regard-

less of the property’s condition. Most sellers of properties in

nice areas can simply list the property with a local real estate

agent on the Multiple Listing Service (MLS) and if priced

right, will sell very quickly.

Fourth, nicer properties tend to be easier to sell and

most owners of great condition properties are not as willing

to give up their property for such a low price.

Advanced Investing Techniques

Fifth, as a gross generalization, higher priced and nicer

area property owners tend to have access to more informa-

tion and resources and typically have the wherewithal to get

a property marketed correctly so that they can sell for more

than 65% of value. Unlike at any other time in history, real

estate owners can now go onto the internet and with a few

key strokes, they can find out approximately what their

property is worth, making it that much harder for wholesal-

ers to find deals at 65 or less cents on the dollar. Therefore,

wholesale deals tend to be found in the older and/or lower

priced and/or rougher parts of town and the more in disre-

pair the property is, the more likely the owner may be willing

to give up their property on the cheap.

An ethical issue exists with wholesaling that is rarely

talked about or mentioned. Sometimes, the only reason why

wholesalers are able to get a property under contract for 65%

of true value or less is because the owner doesn’t know any

better or has an inaccurate understanding of what the value

of their property really is. Are you really helping a seller if

you are getting them to agree to 65% or less of value when

you know in your heart that they are unaware of what they

actually have on their hands? This is an ethical question that

you may have to confront in your investing endeavors. The

reality is that for most real estate owners can simply call up a

real estate agent and if that agent spends the time it takes to

get the property marketed on the MLS properly, most sellers

can get at least 80% of value. And in some cases, 90%+ on

the open market.

Some investors take the stance that, “if the seller is

happy with what I’ve offered, then a deal is a deal.” Other

investors think, “If I know that this seller could simply put

this property on the MLS and make $25,000 more than

selling it to me for 65 cents on the dollar, then I need to at

How to be a Real Estate Investor

least share this information with the seller so that they can

make a more informed decision.”

In addition to the ethical issues, there are practical is-

sues that can be argued on both sides as well. The drawback

of not educating the seller of all of their options, such as

putting the property on the MLS with an agent, is that after

the contract is signed, they may begin asking friends and

family about their decision. Soon the owner may realize,

even before you’ve closed, that they are selling their property

for far less than they should. Their next move will be to try to

get out of their contract with you by any means necessary

(legal or otherwise). When a person thinks they are being

taken advantage of, as you learned from the pain and pleas-

ure lesson, they will go to great lengths to get things straight-

ened out.

However, by educating a seller on how they can possibly

get much more for their deal than you are offering, you may

lose the deal altogether. Proponents of educating property

owners of their options would also argue that some sellers

will actually appreciate the information and then still end up

agreeing to work with you to avoid any future hassles with

real estate agents or other people viewing the property. In

such cases, you can feel good that you did provide the seller

with many options and if they chose to sell to you, even

though you were offering less, it’s more likely they won’t

back out before it closes and all parties will be happy. For our

students, we strongly recommend they provide property

owners with all of their options and then allow the sellers to

make the choice that is best for them.

Advanced Investing Techniques

WISDOM KEY: Always do the right thing in busi-

ness and operate in such a manner that if your actions

were ever recorded on the front page of the newspa-

per, you would feel good about the story written about

you.

You can wholesale all types of real estate, from houses

to commercial shopping centers. However, certain properties

create terrific little niches for the traditional wholesale

strategy. One great niche involves wholesaling vacant lots.

There are always local builders looking to pickup vacant lots

to build on. Since the property is very simple with very few

variables (zoning and if it has power, water and sewer going

to it), vacant lots can be among the fastest and simplest

traditional wholesales you can do. Plus, the person you are

trying to sell to won’t easily get connected to the owner

because most people don’t live on a vacant lot. (A real prob-

lem for wholesalers is when the new buyer gets in direct

contact with the original seller thereby removing the mid-

dleman, the wholesaler).

Another great wholesale niche involves older vacant

homes in areas where there are many tear downs and new

luxury homes being built. Luxury home builders may be

buying properties for $200,000 and then bulldozing the

existing structure and building $2,000,000 luxury castles on

the lot. Once again, a vacant property makes wholesaling so

much easier.

A third terrific wholesale niche involves older homes in

an area that is being revitalized. You can spot these areas

easily by looking for a disproportionately large number of

dumpsters in the drive ways of vacant homes in the

neighborhood. That will indicate that rehabbers have moved

into that area and are vigorously buying up older homes and

How to be a Real Estate Investor

renovating them into more modern residences that bring a

much higher price than the neighborhood used to bring.

With this niche, it really pays to know where the next big

area is going to be so that you can get there before every-

body knows about it. As you can see, certain niches are ideal

for traditional wholesaling.

Real World Example: One of our students re-

ceived a call from a property owner who needed some

quick cash. He had a small vacant lot situated in a

nice neighborhood that he had owned for sometime.

The reason for the vacancy was that he had moved his

mobile home to his farm in the country years prior.

This vacant lot owner was in a hurry and without any

negotiation, said he only wanted $6,000 for the prop-

erty. Our student promptly drove to meet the owner

immediately and within the hour had a contract tp

buy the lot for $6,000. Our student then put the

property on the MLS (check your local MLS policies

and procedures because not all allow investors to list

properties that they do not own) and had a buyer the

next day for $18,000. Start to finish, the entire deal

closed in 20 days and the profit was nearly $10,000.

That’s what a traditional wholesale looks like when

everything goes smoothly.

In the end, traditional wholesaling is all about getting to a

deal before anyone else knows about it, getting it under

contract and then getting a buyer as fast as possible to buy it.

When all the pieces of this puzzle come together, these can

be very profitable deals and the money can flow in very

quickly.

Advanced Investing Techniques

Retail Wholesales

The retail wholesale is a phrase coined by our team to

describe when you flip or wholesale a property to a retail

buyer. The traditional wholesale typically involves selling the

property to another investor buyer. There certainly are

instances where this is the most profitable option. Usually

when the property is in complete disrepair with fix up tasks

far exceeding simple cosmetic work or if the property is

vacant land as in the case of the example above.

Our team discovered that oftentimes you could retail

wholesale a deal to a retail buyer and make 10 times as much

in profits for the same amount of work as traditionally

wholesaling it to an investor buyer. Most people would

actually be surprised to discover that some retail buyers are

not picky and can be very flexible with property condition

issues. In fact, some retail buyers actually enjoy painting and

doing light, cosmetic fix up projects to a home they just

purchased. Further, some motivated sellers own properties

in perfect or near perfect condition as well. Thus was born

the retail wholesale strategy, whereby you flip the property

the same way as a traditional wholesale but your buyer is a

person who is going to move into the property (a retail

buyer), creating far larger profits than selling to an investor

buyer.

Another advantage of having this investing technique in

your tool belt is that some deals will not have enough equity

to make money as a traditional wholesale but may still have

enough as a retail wholesale. For example, let’s say the home

has a value of $400,000 but the borrower owes $350,000.

Although there is some equity, there is not enough for an

investor buyer to pay cash for the house and still leave room

for a wholesaler to make any money. Remember the 65%

How to be a Real Estate Investor

rule? 65% of $400,000 is $260,000. In this instance, a retail

wholesale may be the ideal strategy. The concept is that you

are contracting to buy the property for one price and then

selling the property to another buyer for a higher price.

However, in many cases, as opposed to assigning the con-

tract to the new buyer, with a retail wholesale you conduct

two separate closings, or what is also called a concurrent

closing or a back to back closing.

Both traditional wholesale and retail wholesale deals

can be true no cash, no credit investing transactions. Most

purported no cash, no credit investing strategies actually

contain hidden places where real money is required. But with

both of these techniques, you may be able to only put down

$1 earnest money when the contract with the seller is exe-

cuted and you may not incur any other expenses out of

pocket after that. You can literally make a fortune with no

cash or no credit buying and selling real estate through

wholesaling.

A retail wholesale can earn you 10+ times as much as a

traditional wholesale. Whereas you might get $3,000 assign-

ing your contract to an investor buyer, you may be able to

earn $30,000 or more by selling to a retail buyer. But with

the increased in economic opportunity comes a far more

detailed and potentially complicated transaction. The main

reason is that retail buyers typically use standard mortgage

loans to purchase property and the underwriting guidelines

of some of these loans can be quite stringent. In an attempt

to curb illegal flipping, some underwriting guidelines have

not only stopped illegal flipping in its tracks but it has also

prevented legitimate flipping from taking place as well. As

you’ll discover later, having the right mortgage person on

your team will be vital to you successfully completing a retail

wholesale.

Advanced Investing Techniques

Real World Example: A homeowner that had just

relocated approached one of our students with a re-

quest to purchase his home for $90,000. The home

needed a little work, it was vacant and the seller just

wanted out. He owed about $50,000 so he was more

than pleased to get nearly $40,000 in his pocket.

Meanwhile, our student recognized that the home

could sell for as much as $130,000 if he just did a few

quick cosmetic improvements, such as patch a small

roof leak, clean the carpet and thoroughly clean every-

thing else. After getting the deal under contract for

$90,000, our student invested less than $500 to

quickly make those improvements and immediately

put the property on the MLS. He had a buyer quickly

and ended up selling it for $120,000. At the closing,

our student used transactional funding to purchase

the property from the seller for $90,000 and then the

next day, re-sold the property to the new buyer for

$120,000. After closing costs and commissions, our

student earned more than $20,000. xcept for the

$500 to make a few improvements, our student used

no cash or credit and made a very sizable profit.

Options

Very similar to both traditional and retail wholesaling is

optioning real estate. With an option, you are getting an

owner to provide you with an option to purchase their prop-

erty. This is basically the same thing as when you execute a

purchase contract with an owner to sell you their property.

The main difference with an option is that it usually lasts for

a much longer period of time (sometimes years) than the

typical purchase contract (usually 30 to 60 days). Much like

How to be a Real Estate Investor

a wholesale deal, the option investor can then either assign

the option contract to another buyer or buy the property and

re-sell it or of course, buy the property and hold onto it.

Options are often used in commercial deals since they usu-

ally take a whole lot longer to close than a residential deal.

Real World Example: Aristotle Onassis, one of the

world’s greatest entrepreneurs once said, “The secret

to business is to know something that nobody else

knows.” Here’s an example of getting to a spot before

anyone else knows about it. In Middle Tennessee, just

south of Nashville, sits what used to be the sleepy

farming community of Spring Hill. One ambitious op-

tion investor caught wind that General Motors was

going to be building a gigantic manufacturing facility

in Spring Hill. He immediately took up residence at

the local Holiday Inn and for a few weeks proceeded

to contact and meet with every farmer he could, offer-

ing them an outrageous amount per acre for their

land. He tied up these farmers with simple option

contracts that expired after 1 year. The farmers

thought he was the out-of-town fool willing to pay

double for their land and these farmers thought they

were taking advantage of him. Right on schedule, GM

moved in and began buying up land for the enormous

vehicle manufacturing plant they were building. This

ingenious option investor flipped his deals to GM and

earned over $15,000,000 (that’s right, $15M) for less

than 6 months of work. Maybe Mr. Onassis was right,

maybe the secret to business is knowing something

that no one else knows?

Advanced Investing Techniques

Pre Foreclosures

A pre foreclosure can be defined as a property that has a

loan in default and is headed toward foreclosure. The length

of the pre foreclosure phase can vary greatly. The state of

Georgia can be as short as one month whereas New York can

be six months or more. Although the pre foreclosure phase

does not officially start until a foreclosure attorney sends a

borrower correspondence related to their default, for our

purposes, this phase can encompass any time in which a

borrower is late more than 30 days on their mortgage. Most

lenders have a collections process that starts when the

borrower is 15 days past due on their payment.

Typically, if a borrower falls more than 90 days past

due, the lender will issue a default or demand letter request-

ing that the entire outstanding balance be paid or the prop-

erty will be foreclosed upon. Each property is different, each

lender is different and certainly every state has different

foreclosure laws so therefore there is no set time frame by

which a property goes from past due to foreclosure. The best

way to gauge the time period of a pre foreclosure is with the

following two benchmarks:

Benchmark #1 – Default Letter Expiration:

When a demand letter is issued, it usually contains a

date by which the past-due balance must be paid.

This is the expiration date of the demand/default let-

ter. In most states, lenders must issue a demand let-

ter with an expiration date before they can foreclose

on a property.

Benchmark # 2 – Foreclosure Letter: If the

borrower does not cure the past due balance and the

demand letter expires, it is at this point that most

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