Real Deal REInvestor Network

Everybody seems to aspire to the big $100K per year payday.  Look at all the different "make money now" schemes and they all talk of the big "six figure income".  So what are you willing to do to hit the big time?

The traditional method to make a six-figure income requires:

1. Live in a 12 x 15 dorm room with a couple of other people for 4 years.
2. Work for at least 4 years while you pay for the experience.  This work will require late nights and weekends.
3. Live like a pauper and go into debt for 4 years while you learn.
4. Once that experience is over, you start in a job that requires at least 40 hours a week.  On average the six-figure earner works over 60 hours per week.  Do this for at least 10 years and maybe you'll hit that glorious target.

Of course unless you go back to get a master's degree you probably don't have a chance.  Even then, only 5% of wager earners have an anual income in excess of $100,000.  Keep in mind that doctors, lawyers and wall street traders are a part of that 5%.  Do you think you have a shot at it?

There are other methods to attaining the six-figure income.  Almost all of them revolve around owning and running a successful business.  Real estate investing is one such method.  You owe it to yourself to put in the time to learn and develop your business so you can hit the goal.  BUT PLEASE don't fool yourself and think you can get there in 5 hours a week and it will all come together in a few months.  If it were that easy, wouldn't everyone be doing it?  There has never in our lifetime been so many opportunities to make money in real estate.  Now is the time to go to work.

Dana J. Lange
Millionaire in Training

Have you ever had a rich friend, uncle, or neighbor that will not open up their wallet to do business with you?  There may be many reasons they refuse to do business with you.  Let’s look at three common reasons and what you can do to get their attention:

1.        Friends and family do not want money to get in the way of relationships.  Disagreements over money have caused many rich families to become divided.  One way around this is to create a company and make them a partner.  Show them how investing in our company is no different from investing in a company in the stock market (except you both have more control).  Set clear expectations of what each of you will provide to the company.  If you’re smart, you’ll show them all the things you will do and all they have to do is write a check and examine the monthly/quarterly reports you send them.  Your friends and family might also be more comfortable if you have other investors as well.  There are many ways you can ease their fears and finding what those fears are is a good first step.

2.       They don’t understand the investment.  There is an old saying, “A confused mind says no”.  Just because someone has accumulated some wealth does not mean they understand real estate investing.  Here’s where you have to be very clear on what you do.  You can’t overwhelm your investors with the blow by blow details.  They need to know what you will do with their money, how they are protected, what their return will be and when they will receive payment.  That is not to say you should hide any pertinent details, however they don’t care that you will be painting the rooms off-white.

3.        You lack credibility.  Let’s face it, unless you have a huge investment portfolio you are still somewhat unproven.  And for that matter, friends and family have known us at our worst (they remember we got a D on a test back in the third grade).  This is where your board of advisors and partners become extremely important.  While Aunt Susie might be willing to loan you a couple hundred dollars, she wants to know her $100K is going to come back to her.  If you have done some deals, make sure to highlight them in written format.  Additionally, correctly chosen business partners or advisors with experience can also increase your credibility.  To help with your personal credibility put together a professional looking credibility kit.  To help with the credibility of the deal, put together all the numbers, pictures and a summary of the investment in a professional manner.  (Personally I did not invest with a known “guru” because the presentation wasn’t done professionally).  The details in the presentations matter. 

Not all of your friends, family or neighbors with money will do business with you.  If you want to increase your success rate then make sure you are sending out a clear, concise, and professional message.  After you’ve done a few successful investments, they’ll be asking you to get involved.

Dana J. Lange

Millionaire in Training

Jobs and job creation are the life blood of any real estate market.  Jobs provide the money to pay rents and mortgages.  If you are looking to increase your cash flow from your real estate properties and increase appreciation, you had better pay attention to jobs in the area.  It’s really a matter of supply and demand.

 

At any given point in time all real estate markets have a fixed supply of units.  This includes all types of properties – single family, condominiums, apartments, etc.  The number of units only changes over time as it takes time for new units to arrive on the market.  You can determine how many units are currently vacant through a realtor or look at local vacancy rates.  Future units can be determined by reviewing the number and types of permits the local government has issued.  Single family housing generally comes available in three to nine months after permitting.  Apartments and larger projects often take up to two years.  Now you’ve determined the current supply of housing and the intermediate future supply.

 

So when new jobs are created, there is an increase in demand for the housing units as families move into an area.  The more jobs the better.  Employment statistics can be found on the Bureau of Labor and Statistics at http://www.bls.gov/ .  This provides current and predicted jobs for many markets throughout the United States.  If the area you are researching isn’t listed you can use the nearest large city as a proxy.  As always follow up with the local Chamber of Commerce, Economic Development Committee, and review local sources.  You’re looking for markets that are experiences a positive change – stabilization after decline or increasing employment.

 

The types of jobs are also very important.  First, look for a market where there is a diverse mixture of employers.  One only needs to look at Detroit to realize the housing impact when a market is supported by one industry.  Second, review the local newspapers (often online) or set up Google Alerts for new employers or employers adding jobs.  For example, Toyota opened a plant in Princeton, Indiana and many jobs were created.  Fortunes were made for those first in that market.  Manufacturing jobs bring many different jobs: white collar, blue collar, suppliers, and services to support the new population.

 

Job growth increases the demand for housing putting pressure on prices; both rents and housing prices.  Finding a market poised for growth is a good way to make fast money regardless of the types of real estate.  Next time you are looking for a place to invest, check out the employment situation to increase your odds of success.

 

Dana J. Lange

Millionaire in Training

Have you ever looked in your library and found a book you read many years ago?  Did it have a profound significance to your current life situation?  Let me share with you my recent experience in reading an old gem, The Art of Getting Money by P.T. Barnum.  I had read the book at least a dozen years ago, but didn’t remember any of the content.  As I opened the book I wondered, how can a book written in the 1800’s have any relevance today?  Well, I was surprised to say the least…

 

P.T. Barnum outlines twenty rules for gaining and maintaining wealth.  As I reflected on my life, the most difficult times came when I wasn’t following some of the rules.  I have written these rules on a paper and will reflect on them when things are not headed the right direction.  I will not list the rules here as I would encourage you to review this gem on your own.  I’ve outlined two specific rules that were particularly poignant below.

 

Avoid Debt

P.T. Barnum discusses the problems that arise when using debt to increase your lifestyle.  For real estate investors I would also say don’t over leverage your assets.  I think of several properties were I leveraged too much.  The properties were cash flowing and the market appreciating.  Fast forward to today…rents have declined, expenses have increased and cash flow is gone…the market has corrected and the properties are underwater.  Had I had stricter criteria for LTV (loan to value) I would currently have both cash flow and equity.  Prior to making additional acquisitions I have set out strict criteria to avoid this in the future.

 

Additionally, I found when my cash flow was coming in and I had built significant equity, I was more inclined to increase my lifestyle.  While I should have kept more money in reserves, I did not.  That is not to say I ran out and bought toys on credit, however I became a little bit loser with my personal finances.  Prior to making additional acquisitions I have set out strict reserve criteria to avoid this in the future.

 

Be Systematic

Entrepreneurs often find themselves dashing from one task to the next in an effort to put out fires.  There have been many books written about “working on your business vs. working in your business”.  Personally, the lack of systems has lead to long periods without marketing, inconsistent bookkeeping, and missed deadlines.  I am committing to schedule time every week to put systems in place to take care of day to day operations.  Ultimately once the systems are created, then I can delegate some of the responsibilities.  In fact, it is lack of systems for most businesses that keep them small.

 

I recommend you read or re-read P.T. Barnum’s The Art of Getting Money.  As always, read with intent to take at least one thing and implement it into your business/work/life.

 

Dana J. Lange

Millionaire in Training

"As long as I KNOW I'm going to make it happen (a deal, this business, whatever), whatever holds me back (poor credit and/or no money) is immaterial to accomplishing my goals. In fact, I am BLESSED to have this challenge (poor credit and/or no money) because since I KNOW I will succeed that means I will have successfully defeated this challenge and developed skills and attributes (patience, tenacity, faith, creativity) that will take me far FURTHER than someone for whom this (credit/money) was not a problem. Nor will I, when I have bested this challenge (poor credit and/or no money) ever take what I have gained (good credit, wealth, financial independence) for granted and lose it-- as some who never face challenges do."

 

Believe that and you cannot fail.

 

This quote from Danny Welsh takes to the essence of what it takes to be a success.  We must first resolve to achieve success, regardless of challenges.  Once you’ve set your mind toward success the path becomes apparent.  This first step is often overlooked as people try, aspire, and hope.  Only true resolve to a successful end will set you on the right path.

 

Each obstacle we encounter is an opportunity for growth.  Since we have the resolve to see the project through until the end, obstacles are speed bumps not roadblocks.  The skills gained to overcome these obstacles make us stronger.  In fact, it is these very challenges that allow us to appreciate the success we achieve.

 

Often we look at others that have achieved success and say, “They started out with [fill in the blank], they were lucky”.  While the challenges aren’t the same, they have indeed overcome some obstacles to achieve success.  And for those very few that encountered no challenges, they often make mistakes that destroy them.

 

I know at the start of my own investing career I had good credit and money did not seem to be a challenge.  Creditors were all too happy to provide mortgages at 95% LTV.  With the market soaring it seemed impossible to fail.  I had worked out the purchase of three SF houses with two lease option tenants ready to go with 95% LTV loans.    I picked up another duplex with subject-to financing.  During the rehab of the duplex I had another single family house deal with 100% financing.  It was a project I was partnering with the previous investor.  I took an assignment of a master lease option on a local triplex.  All told, I closed on four single family houses, one rehab duplex, and a triplex in less than three months.

 

I did not have the money challenges and I grew careless.  The market corrected and I was highly leveraged.  I had to evict one of the lease option tenants as they got behind.  My duplex rehab went over budget by $10,000.  The partner for the single family rehab disappeared.

 

I look back and wonder, would this have happened if I didn’t have such easy access to credit?

How often do you hear the voice in your head say little negative things?  Things like " I always do that, I'm so stupid" or "I can't do that...".  This internal voice can be the source for good or a source for negative.  Over the next few days listen to that inner voice and write down the negative things.  Then take that list and change it to a positive.  Write it down positively in three ways: I am, I can, I will.  Repeat these positive affirmations at least twice a day and watch for the positive changes in your life.

For example, if you say to yourself, "I can't find good real estate leads." Change it to: I am a deal maker, I can find great real estate leads, I will find a great lead today!

Could it really be that simple?  In a word, YES!  Do this in all areas of your life and your subconscious will go to work to help make it happen.  You will have to do the work, however you will no longer be standing in the way of your own success.  Take a look at the video below to gain additional insights.

Everytime I hear someone say, "I'm a wholesaler", I think of single family houses.  Mostly, I think of ugly single family houses that need repair.  I must confess, I've never wholesaled a property.  It always seemed like a lot of marketing time and effort to find the deal and find the buyer for a couple of thousand dollars.  And the part that always held me back was this technique requires consistent and significant attention to make money.  It always seemed more like work than investing.  My recent need for cash has me looking at wholesaling from an entirely new perspective.  Why not wholesale multi-family properties?

I must confess, this idea is not an original.  If fact, it was fostered and developed by Rick Melero.  I would like to share what this looks like and why I've chosen this as my secondary area of focus.  Using some of the same wholesaling techniques, I am identifiying cash buyers for properties with 2+ units up to 12.  Once identified, I will reach out to them and find out their criteria and interests.  Really, there is no difference in building a buyer's list between single-family houses and multi-family housing. 

With a little market research and building my buyer's list completed, it's on to finding the properties.  There's the usual suspects - MLS, out of town owners, housing court.  Tracking down the actual owner may be more challenging as many of these properties will be held in an LLC or some other legal entity.  No worries, we'll track them down. 

So you might ask why?  These very same cash purchasers of multi-family properties understand the concept of cash flow.  These very same people often invest in much larger projects (which happens to be my primary area of interest).  Not only am I building a wholesale buyer's list, I am also building a list of private lenders or future equity partners.  Now that's what I call doing the work once and getting paid twice.  Thank you Rick for helping me get clarity on wholesaling multi-family properties.

Dana J. Lange
Millionaire in Training
www.MMMChallenge.com

Have you ever heard someone say how difficult their local real estate market is to “find a good deal”.  Perhaps you’ve heard some say this is just not a good market to purchase real estate.  Are they right?  Maybe, maybe not.  Your local area can be a good area to invest, but your strategy is not aligned with the market.  For example, I would not want to buy, hold, and rent single family houses in Detroit using the standard 75% LTV loan.  I might, however look at wholesaling single family houses in Detroit.  Be that as it may, sometimes the strategy you like to pursue is best suited to markets outside your local area.  So where do you invest and how?

 

One of the best ways of identifying areas to invest is to look for future growth areas.  Job growth and employment are both signs of an area that is growing.  For every new job created by a company coming into an area, there are three to four jobs created.  This is especially true of solid white collar jobs.  First come the white collar jobs followed by several service jobs.  You can identify some growing areas by looking at the Bureau of Labor and Statistics (http://www.bls.gov).  Identify the areas that have increasing jobs and steady to decreasing unemployment.  Be sure to look at trends over several years as local events can skew the numbers.  Identify several markets that appear to be in a growth faze.

 

Once you have a few areas identified, it is time to drill down deep into each.  First take a look at the local Chamber of Commerce website.  Look for clues of recent company moves into the area.  Make sure to write down the name and phone number of the contact person as you might need this later.  Search the local newspaper and newspaper archives for signs of growth.  Look online for type of real estate you are interested in purchasing.  Call a few brokers to find out the vacancy rate in the area, how quickly properties are being sold and at what discount to asking price.  If they ask what you are looking for let them know you are currently doing a market analysis to present to your partners.  There are numerous other resources that can be found online and by making a few calls.  Do your research.  You are looking for an area that has a declining vacancy rate, increasing employment (including numerous jobs added by bigger companies), and a government that is conducive for business.  You will probably look at 10 areas and come up with one or two markets that will work for your investment property type and strategy.

 

Now that you’ve identified an area, it’s time to build your network and your team.  Start contacting brokers in the area.  Identify the local expert on your type of property and give them a call.  Start having brokers send you property listings via email.  You will do the same thing in the areas of legal, insurance, management companies, banking, etc.  Identify and build your team and you will be ready in that market to make a move when the “deal of a lifetime” comes your way.

 

Dana J Lange

Millionaire in Training

We've all made decisions in our lives.  In fact, if we choose not to decide we are making a decision.  Often times we think or say we have made a decision, however we have not.  This is what fuels a multi-million dollar industry of diets and health.  Who hasn’t started a diet only to find themselves back to where they started in the coming weeks or months?  I ask myself, why?  I think there are two key answers to this age old question.  Either we’ve not really made a decision or our reason was not big enough to overcome the ensuing obstacles.

 

Often we make a decision while leaving ourselves a way out.  We say things like, “I’ll try this” or “if this doesn’t work out, I’ll….”.  We may like the idea the rewards of a decision will bring – a better looking body, more money in our bank account, or something else.  Yet we have not truly made a decision to forsake all other options to achieve our set goal. 

 

Other times we make a decision and life has a way of testing our resolve to that decision.  Obstacles arise, either in the area of our decision or in other areas of our lives.  Life happens and we have job concerns, health concerns, or money concerns that draw our attention away from our goal.  Make no mistake, make a decision and life will challenge your resolve to that decision.  If your reason for making a goal is not big enough to overcome those obstacles, you will fail!

 

Recently 24 students embarked on a journey towards their real estate goals in the MMM Challenge.  For success in this journey we must all make sure we have truly made a decision and that our why is big enough to overcome the obstacles that will ensue.  Since the start of the MMM Challenge there have been several health concerns within the group.  Personally I have experienced an increase in job pressure, additional financial constraints, and a health issue.  These obstacles may or may not have presented themselves if I had not made a decision to pursue my dream.  Either way, I have made a decision and my why IS big enough to overcome these obstacles!

 

The next time you make a decision – make it and be ready for the obstacles that come your way with a big enough why!

Apartments provide the simplicity of single family housing with less risk, while providing an element of commercial real estate.  Apartments are easy to understand and therefore seem easier to attract a wider variety of investors.  The risk is lower with apartments: only 1 roof to fix, 1 water heater...and when there is a vacancy it does not represent 100% of the income.  The risk is spread throughout the units.  Property managers are easier to find for apartment complexes, especially with over 100 units the cash flow allows onsite management.

Apartments have components of commercial real estate.  The value is based on net operating income (cash flow, not including debt service).  Most apartments are sold for prices based on the NOI.  Roughly stated, increase income or lower expenses by $100 and you've increased the value by $1000 (amounts may vary).  Just by holding a property and increasing rent over the years, a property becomes more valueable.

With apartments I can attract numerous investors looking for cash flow and appreciation.  And I can reduce the risk through proper management.