These book recap series posts are simply my way of jotting down important takeaways from the book.
The books I have decided to focus on are topics that are of interest to me including personal finance, wealth building, business management, leadership, investing, and real estate. If you have business book recommendations, reach out to me on Twitter or Instagram @omgmymoney or contact me.
You can see the list of the book recap series at the bottom of this post. Check the business book recommendations section for a list of all the books.
Chapter 1: Nine Questions Every Real Estate Beginner Wants Answered
- Can I Invest in Real Estate if I Have a Full Time Job?
- Yes, there are hundreds of ways to make money in real estate.
- Success is most often found by consistent action not big action. Consistency in action is far more important than sporadic big action.
- Do I Need to Pay Some Guru in Order to Be Successful?
- Absolutely not, countless investors have become successful without the help of the guru crowd.
- Coaches or mentors can be incredibly helpful in answering questions allowing you to break through mental barriers, holding you accountable to action steps, or working along side you on a deal.
- Before throwing money at someone else to make you successful, understand that success comes from within first.
- Can I Invest in Real Estate if I Have No Money?
- Yes, it is possible to invest in real estate if you don’t have any money at all; however, there’s money involved in every real estate transaction.
- They key to investing in real estate without any money of your own is simple. Bring something to the table including education, time, connections, confidence, intelligence, creativity.
- Can I Invest in Real Estate with Bad Credit?
- Most banks require a score of 580 to get a loan.
- Yes, you can invest in real estate with bad credit, but you probably shouldn’t invest in real estate if you have bad credit depending on the reason for your poor credit score.
- Is Real Estate Investing a Way to Get Rich Quick?
- Real estate investing is not a get rich quick scheme. Investing in real estate takes planning, patience, and persistence.
- Plan on creating a business through real estate that will grow steadily, year after year to enable you to meet your financial goals.
- There are no shortcuts to being successful in real estate. You must learn the fundamentals and then apply them.
- Real estate, when done correctly, gives you the ability to supercharge your growth because of the power of leverage, the ability to use other people’s money.
- What if My Market Is Too Expensive?
- You have four options: don’t invest but simply wait on the sidelines for the market to change, look harder, change your strategy to something your expensive market does allow like flipping or developing, invest someplace else.
- Do I Need an LLC or a Corporation to Invest in Real Estate?
- You probably don’t need one, but it might be a good idea, some day.
- The one major downside to LLC and corporations especially for new investors is difficulty in obtaining loans. Most banks do not lend money on a residential property to a legal entity, they only want to lend to a real person.
- Should I Wait to Invest Until the Market Changes?
- Probably not. There are deals to be found, you just have to look harder.
- Becoming an experienced real estate investor now by developing the skills necessary in today’s market will help you when the market does decline.
- Don’t wait to buy real estate. Buy real estate and wait.
- Do I Need to Have a Real Estate License?
- Definitely not, but it could come in handy. A real estate license is not necessary for investing in real estate.
- What are the downsides of getting your license? Time to get the license, money to pay license fees each year, paperwork to disclose required information.
Chapter 2: Boring Financial Stuff – That Just Might Save Your Life!
- Having a strong financial foundation not only helps you build wealth, but it can also help you in almost every area of life. [OMG My Money commentary] I did not get involved in real estate until I was debt free specifically with all my student loans. I also wanted to make sure that going into real estate was not going to force me to sacrifice saving for retirement and making other investments. I felt like my financial house was falling apart and taking on more debt in the form of mortgages was going to stress me out. My recommendation is to have an honest assessment of your financial situation. If you have credit card debt with balances carrying over month to month, then do not get into real estate until you have all credit card debt paid off. If you have student loan debt, then this will have to be your call. My mental and financial situations were and continue to be different than yours.
Knowing Where You Stand
- Comes down to three factors: how much you currently have, how much you currently earn, how much you currently spend.
- More income is not the answer to your money problems. [OMG My Money commentary] more income helps, but what is the point if you are spending it all anyway. You need to know what is coming in and what is going out.
- Knowing your financial position is vital to making a solid foundation. A little sacrifice now and you can build a lifetime of financial independence later.
- Create your own financial statement consisting of net worth and total profit.
Showing Your Money Who’s Driving
- Categorize your expenses. Once categorized, you’ll see how to take back control of your expenses. There are 5 typical categories: variable expenses (groceries, gas, clothing, cost of living), fixed expenses (mortgage, car, credit card bills, utilities), donations, savings, fun money. [OMG My Money commentary] I use a very simple 5 minute budget plan to understand how I am doing with my income and expenses.
- If your expenses are higher than income coming in, then you either need to spend less or earn more. [OMG My Money commentary] simple math, save more than you earn.
How to Save More Money Without Abandoning All Fun
- By paying yourself first and automatically deducting money for savings, you’ll naturally spend less and you’ll likely not even notice. [OMG My Money commentary] automation is usually the key for most people. I personally do a combination of automation and manual contribution. The reason I have the manual portion is because it helps me get motivated and makes me feel like I am literally taking action to become financially independent. This manual work will not work for most people unless you are financially disciplined to do so.
- Find a way to decrease your housing expense or getting rid of a car payment.
- Look at subscriptions, insurance costs, and other fixed expenses.
Bring Your Spouse on Board
- Relationships are made up of two people with independent minds, so getting your partner on board with change will likely help your efforts to reduce spending.
- Financial responsibility is a mindset before action.
- Mindsets are changed slowly and can be done in three ways: through story to illustrate your goal, by defining and aligning goals, through media or books.
How to Earn More Money at Work
- Work more hours. [OMG My Money commentary] this only applies if you are not in a salaried position. If you are in a salaried position, absolutely do not think that working more hours will earn you more income. Just because you put in more hours means nothing. Results matter. In most cases, you can get results in your normal working hours without having to work extra hours.
- Ask your boss what it would take to get a promotion and then do it. [OMG My Money commentary] I have done this several times through my career. I take “negative” feedback well and I always want to do what it takes to get to the next level. Even if this does not guarantee me a promotion, I know that whatever is outlined will help my career.
- Get a higher degree. [OMG My Money commentary] take this with a grain of salt. I decided to forego an MBA despite taking the GMAT because I could not stomach getting into student loan debt again despite my company paying 75%. I still ended up getting a 75% base salary increase without an MBA. Do not focus on getting a higher degree. Focus on getting the experience, raising your hand for projects that will help you for your next role, increasing your network to ensure you are connected to the right people.
- Add skills
- Negotiate for commission or profit sharing. [OMG My Money commentary] this is extremely difficult to do because typically these are pre-set. Do not rely on this tactic to increase income.
- Be the best at your specific task. Move from replaceable to indispensable. [OMG My Money commentary] literally everyone at your company is replaceable. Never think that just because you received some certificate or took a training course or started raising your hand for special projects that this will help you increase income. The only thing you benefit from is simply increasing your skillset and keeping your job.
- Leave your current company [OMG My Money commentary] this is going to be the biggest raise and quickest way to earning more income at work. During my years at once company, I consistently received around 5% raises. When I left the company, I ended up getting a 75% increase in my salary. Think about that. I am already making 6 figures at that point and to get a 75% increase goes to show that no matter what happens at your existing company, they will rarely be able to match what outside companies will pay you. This is laughable when you think about how your existing company should do what they can to keep you, but it is the unfortunate truth.
- Become an intrapreneur, someone who starts a business inside of a larger company. [OMG My Money commentary] I recommend starting a business WHILE you are at a company. Do not start a business inside of a larger company. That company will own all the rights to whatever idea you bring and certainly all the work that you do.
- Ask for a raise. [OMG My Money commentary] I know from experience both on the asking end and the receiving end from employees that asking for a raise is easy to say, a bit harder to do, but will never match what you can get by leaving the company.
How to Earn More Money on the Side
- Start a business – 12 principles to use: do something you enjoy, you won’t know everything, finish what you started, partner carefully, learn to manage, do what is important, get obsessed, don’t quit your job too soon, focus on your higher paying tasks, keep the main things the main things such as family and integrity, read a lot, wake up earlier to get the most important tasks done
- Consulting, teaching, tutoring, and freelancing
- Sell a product
- Lease out your car or space in your home
- Get a second job
- Become a real estate agent to help someone buy or sell a house
- Flip houses or wholesale real estate
Chapter 3: Getting Your Ducks in a Row
Understanding Market Cycles
- The real estate market is cyclical largely driven by the general population’s fear or confidence in the economy.
- While prices may drop for a while, we’re confident that over the long term, our real estate investments will continue to grow in value.
Nervous? Here Are 7 Ways to Overcome Fear
- Develop a plan and work that plan everyday. Commit
- Start participating. Ask questions. Connect with others and build relationships
- Learn the lingo
- Learn the concepts. Fear is often result of being unclear. Teaching others a difficult concept will cement that concept into your own mind helping you to never forget
- Watch others
- Overcome analysis paralysis. Focus on one area of investing and become an expert in it and then move onto the other techniques and areas. [OMG My Money commentary] this was the most difficult for me when jumping into real estate. When estimating ARV (after repair value) and estimating repair costs, I tended to be conservative, which caused all the deals and eventually offers to be way off or to come in too low. Essentially it led to a lot more rejection than necessary. It finally took an investment friendly real estate agent to get over this paralysis.
- Get educated, get your plan together and start taking action. [OMG My Money commentary] action is key. I took the action to analyze properties, walk through properties, and submit offers. The problem for me was the action of being too scared of failing by overanalyzing my estimates and being too conservative.
Assembling Your Real Estate Team
- A team is merely a collection of individuals in various industries that you can rely on to help move your business forward.
- Who should be on any winning real estate investing team – your mentor, your partner, realtor, property manager, mortgage broker or loan officer, real estate attorney, escrow officer or title rep (person responsible for closing the deal taking you from the offer to the keys), accountant (preferably a CPA), insurance agent, contractor (licensed, bonded, and insured), supportive loved ones, great handyman.
- What makes a great real estate team – defined by its ability to consistently produce reliable results. [OMG My Money commentary] my biggest realization of how important the real estate agent is came about after about 100 showings with my 1st agent, who had no concept and understanding of real estate investing. After a disagreement on submitting offers, I realized the agent’s shortcomings. I fired the agent and connected with an agent who actually understood what it meant to be a real estate investor. To give some context, it took 100 showings and no purchases over 5 years (and 2 burnout years in between) with my 1st agent, who had no real estate investment experience. With the new agent who understood and had experience real estate investing, it took less than 1 year and less than 20 showings to purchase 2 single family residences. World of difference.
Should I Use a Partner or Go It Alone?
- It all depends on largely your knowledge, time commitments, abilities, talents, and timeline.
- Real estate partnership pros: team brainstorming, pooling resources, assistance with analysis, complimentary qualities (analytical vs hands on, construction vs financing, time vs knowledge), task division, expanded networking, accountability, confidence and motivation, split risk.
- Real estate partnership cons: personality conflicts, difference of opinion, suspicion or trust, delayed decisioning, smaller profits, mixing business and friendship, unrealistic expectations, responsibility for partner, more complicated taxes.
- 4 tips for a successful real estate partnership to minimize problems
- Don’t be a jerk. Treat your partnership with care and have a giving spirit.
- Learn to compromise. There will be disagreements and conflicts in a partnership.
- Talk daily
- Plan ahead. Make sure the arrangement is written and includes an operating. agreement that details the roles and responsibilities, capital contributions, profit splits, and exit strategies.
Real Estate Investing Mentors
- A mentor is an individual who teaches and instructs you based on that person’s first hand experience.
- How to find an organic real estate mentor – local real estate networking events and clubs, bigger pockets forums, your current network.
- Why would a mentor help you – passing on a legacy, having someone with similar interests to talk with, or the potential for making future deals.
- Tips to build a mentor relationship – concentrate first on establishing relationship with seasoned investors who you would like to learn from, become valuable, don’t expect anything in return, always think win-win, work hard to prove you’re worthy of their involvement, start small by asking a simple question about something you honestly need help with or clarity on.
- Should you pay for mentorship – you do not need an expensive, paid mentor to help you succeed. Before you ever pay for training, first exhaust all options for finding a local mentor. If you cannot find a local mentor, seek out books, forums, or blogs.
Real Estate Networking
- One of the best places is your local real estate investing club.
Entities: LLCs, S Corps, and C Corps
- Each state has its own rules regarding entities so talk with your attorney and CPA.
- Why entities matter – to separate assets in case one gets sued or something terrible happens, take advantage of possible tax benefits, maintain a strict separation between business and personal assets.
- It is highly difficult to obtain a conventional, residential loan to buy a property with 1-4 units inside of an LLC or corporation. That’s why many investors will purchase residential properties in their own name as a sole proprietor and then after the purchase will transfer the property into their corporation. The risk here is a clause that every mortgage has called the due on sale clause. The due on sale clause essentially says if you sell your home, then you need to pay the lender back.
- LLCs (limited liability company) – most commonly used by rental property investors. The primary reason is for asset protection, not tax benefits. The IRS requires that you to pass through the income that an LLC earns and then it is accounted for on your normal, personal tax return as opposed to a corporation, which may pay its own tax with its own tax returns. When setting up an LLC, you’ll also want to set up a bank account under that LLC in addition to obtaining an FEIN number from the IRS. An FEIN number is like a social security number but for businesses.
- Corporations – usually for tax savings. C Corp is a legal entity that is taxed as if it were a completely separate person and the tax rate is based on the government’s corporate tax rate, then any profits given to the investor or owners namely you get taxed again at your regular tax rate. This is why most real estate investors don’t choose the C Corporation except in unique circumstances. Instead many active real estate investors, flippers, wholesalers, rental property investors opt for the S Corp. S Corp is similar to C Corp except that it allows the company profits to be passed through to your personal tax return must like an LLC does. S Corps are most common for active investors like house flippers and wholesalers because of some special tax benefits. When you invest in flips or other real estate that you hold onto for less than 1 year in the eyes of the IRS, you are not investing in real estate but rather you are self employed in the business of real estate. As a self employed business owner, you are responsible for paying self employment tax on the money you earn.
Chapter 4: Real Estate Investment Niches
- It’s dirt. Land on its own can be improved to add value and be leased or rented to create cash flow. Land can be subdivided, split apart, and sold as separate parcels for more profit.
Single-Family Houses also known as single family residence (SFR)
- Most common investment for most first time investors. Relatively easy to rent, easy to sell, and easy to finance. [OMG My Money commentary] my bread and butter. The reason I personally got into SFR is because my dad is a general contractor and had extensive experience. He is also the reason why I selected certain cities to invest in because of his knowledge in those areas.
- Benefits include high inventory, easy to understand, easier to sell or rent, financing is simple, cash flow and appreciation, simple to manage, simple to rehab.
- Downside include scalability because it requires its own financing, its own rehab, its own management and one SFR is unlikely to make anyone rich or provide true financial freedom. That’s why many investors who start with SFR end up jumping into other, more scalable niches. Another downside is competition. When you shop for homes, you’re competing not only with other investors but homeowners who are willing to overpay for properties because they are emotionally attached to the deal.
- Any residential property that has between 2-4 units such as a duplex, triplex, or quad.
- These types are properties are slightly harder to find than single family houses.
- To a bank, small multifamily properties are no different than single family houses. The same lending rules and guidelines that govern SFRs also governs small multifamily properties as long as they don’t have more than 4 units.
- There is often less competition than single family homes and the ability to manage economies of scale as only one loan is needed to buy the multifamily.
- Have 5 units or more. Due to their size and cost, these properties can provide massive cash flow and potential for appreciation.
- These complexes typically require a larger down payment and net worth to purchase and the loans can be difficult to obtain for those without significant real estate experience.
- The value of these properties is based on the income they bring in. This creates a huge opportunity for adding value by increasing rent, decreasing expenses, and managing effectively.
- How does one go about finding great deals on apartment complexes – rather than placing thousands of cold calls, simply use brokers. Build a relationship with that broker.
- Where does one come up with the money for these $1MM+ apartment complexes – one option is syndication, a group of people who are willing to pool their money to obtain a property they normally wouldn’t be able to get a loan and then sharing the benefits.
- Although larger multifamily properties can also be considered commercial, these are non residential investments.
- These ultimately involve a property that is leased to a business.
- While commercial properties often provide good cash flow and consistent payments, they also may carry with them much longer holding periods during times of vacancies.
Mobile Homes and Mobile Home Parks
- Many of the strategies used in other types of real estate investing can be applied to mobile homes.
- With an ideal mobile home park, the tenant sown their homes and simply rent the land.
- You are investing in a piece of paper. You are creating an IOU officially known as a promissory note to someone else and each month that person pays you instead of a bank.
- Stands for real estate investment trust. REITs is to a real estate property what a mutual fund is to a stock.
- This is one of the most hands off approaches to investing in real estate, but do not expect the high returns found in hands on investing.
- You can buy shares in REITs via your stock account. You’ll find it very similar to investing in a stock or mutual fund.
- Some companies pre vet each deal that comes through where other sites allow any deal to show up on their platform.
- Some companies invest only in the debt side of the deal meaning the money you give them is only part of a loan, a promissory note and your return is made from the interest on that loan.
- Other crowdfunders invest in the equity side of the deal as well, which means they also share in the profits from the deal after the deal is eventually sold or refinanced.
- Some crowdfunders allow anyone to invest in the deals while others only take investment money from accredited investors. An Accredited investor is a distinction made by the US Securities and Exchange Commision (SEC) as someone who has a net worth of at least $1MM not including the value of their primary residence or have income of at least $200K each year for the past two years or $300K combined income if married.
Chapter 5: Real Estate Investment Strategies
Buy and Hold
- Most common and the most simple form of real estate investing. Involves purchasing a property and renting it out for an extended period of time.
- A buy and hold investor seeks to create wealth by accessing most or all of the four wealth generators of real estate: cash flow (monthly profit), appreciation (property rising in value over time), loan paydown (balance is being paid down), tax benefits (depreciation, rental property income is taxed differently than income earned from your job or self employment).
- Largest downside is that buy and hold takes time. [OMG My Money commentary] it is funny how my real estate investing approach mirrors that of my sports cards investing approach. Rather than quick flips, I focus more on buy and hold. One of the most common regrets that I hear from real estate investors and sports cards investors is selling too early or “I wish I had kept that…”.
- Buy and hold math
- Income – amount of money that comes in from a property
- Expenses – the things that costs you money on an investment
- Cash flow – amount of money left over at the end of the month after all expenses are paid
- Equity – the difference between how much a property is worth and how much debt you have on the property
- Total return on investment (ROI) – the percentage on your investment you’re making back on your money from the start to the finish
- Cash on cash return on investment – interest that you receive on the cash flow from an investment not other pieces of potential profit or losses like depreciation, the loan being paid off, or the tax benefits
- Rules of thumb to quickly screen through deals. These are quick and dirty opinion on some valuable metrics. [OMG My Money commentary] as mentioned here, use these as general rules of thumb. Use this only to quickly remove properties for consideration if you have hundreds to go through. When I first started, I took the 1st rule very seriously and this caused me to lose or pass on too many deals that ended up actually being killer deals.
- 2% rule aka 1% rule or 2% test – most common rules of thumb used by rental property investors. Looks at monthly rent ($2000) divided by the value ($200000) in percentage form (1%). The 1% or 2% test gives a quick view on whether or not the property will produce positive cash flow. Generally speaking, the higher the percentage, the better the cash flow. Of course this depends on greatly on location, price, and how much the expense is truly are on the property.
- 50% rule – while 1% and 2% rules of thumb can help you make a go or no go decision on whether or not to look further into a rental property, it doesn’t really tell us how much cash flow we might expect. The 50% rule states that on average and over time, 1/2 the income the property generates is spent on operating expenses (all of the expenses involved in running a rental property except the loan payment and includes taxes, insurance, utilities, repairs, vacancy). This rule can help an investor quickly estimate the cash flow of a rental property because it combines all of the expenses except the loan payment into one easy number. For example, a rental property rents at $2000 per month, then $1000 will be spent on expenses. This means we’re left with $1000, but then we need to make a mortgage payment on the property
- What kind of metrics should you aim for? The metric you should aim for is the metric that helps you accomplish your long term goal. An example is for cash flow – for a single family house by trying to achieve $200 per month, for a multifamily $100 per month per unit. Cash on cash return – the stock market has averaged 6-7% return annual and aim for around 12%. Equity – aim for minimum 20% in any deal. Total return on investment – try to average around 15% per year or more over the life of the real estate deal, which includes the profit when the property is sold.
- Establish your own metrics.
- Practice of buying a piece of real estate at a discounted price, improving it in some way and then selling it for a financial gain.
- Most popular type of property to flip is the single family home because one of the key factors in flipping a house is speed.
- Flipping is not a passive activity. When an investor stops flipping, they stop making money until they begin flipping again. [OMG My Money commentary] I do not consider flipping as real estate investing. Flipping is just a full time job that you have created for yourself. Managing a flip is not easy and if you are not lucky enough to have a family member who is a general contractor, all the more difficult and stressful.
- Flipping houses can help you make big money to invest in other deals.
- How to flip houses
- Do your market research – how much are average homes selling for, how much are bank real estate owned properties selling for, how fast are properties selling, what areas seem to be selling the fastest, what property type sizes, layout seem to be selling the fastest. Walk through as many open houses as you can.
- Arrange your flip financing – some common methods include all cash, conventional financing, home equity loans or lines if you have a large amount of equity in your personal income, hard money lenders who are private individuals or companies that lends on high risk loans like flips and charge high fees and interest to get the money, partners or private money, combination of any of the above methods
- Learn to run the numbers using the flipping formula – ARV (after repair value) minus rehab minus fixed costs minus desired profit equals max purchase price
- Find a great deal
- Fix and flip it
- For house flippers, the 70% rule can be helpful in determining just how much to pay for a property, but there are problems with this rule. The rule assumes 30% of the ARV will be spent on holding costs, closing costs on both the buyers and sellers side. 70% rule doesn’t work as well for a property with a low ARV such as $50000. A similar problem exists for more expensive properties. [OMG My Money commentary] another one of those rules of thumb to take lightly. Only use it if you need to quickly come up with a number. I took this rule just as seriously as the 1% rule described above and looking back it caused me to lose or not go after some killer deals.
Wholesaling Real Estate
- Process of finding great real estate deals, writing a contract to acquire the deal, and then selling the contract to another buyer. Generally a wholesaler never actually owns the piece of property they are selling. Instead a wholesaler simply finds a great deal, puts them under contract, and sells that contract to another for an assignment fee. This fee is typically between $500 and $10000 or more depending on the size of the deal. Essentially the wholesaler is a middle man who is paid for finding deals. [OMG My Money commentary] when I first got started and did not have much capital to deeply to real estate, I was told that wholesaling and flipping were the two best ways to more quickly build up capital. I personally liked the comfort of building up savings to get into buy and hold.
- Some major issues with this strategy include: difficulty because you have to find great deals before anyone else does and you have to pay less than others to work your own fee into it, constant marketing, continually seek out buyers, often illegal.
Real Estate Development
- When an individual buys a piece of property and builds something on that property, it’s known as development.
- One of more profitable albeit risky strategies for wealth creation through real estate.
- 5 distinct stages – some developers choose to work all 5 stages and other developers choose to just focus on one or two stages.
- Land acquisition
- Permits and planning
- Site preparation
- Building the structure
- Property management or sale
- Risky part of real estate development comes in the length of time it can take to work through all 5 steps.
- A particular company finds, buys, rehabs, and manages a property and sells the finished product to usually out of state investors.
- You would contact one of these companies and purchase a property usually a single family home and they would take care of nearly everything.
- Can be an exciting option for some especially those who live in real estate markets where cash flow is difficult to obtain as most turnkey providers focus on cash flow heavy locations mostly in the US midwest and southeast.
- Turnkey businesses provide unique insight into their local market, professional staff who have been there done that, a consistent method for finding great deals, reliable construction crews and the management of those crews, and simplicity.
- Turnkey company is a business that needs to make money. They do this by properties at a discount and sell it to you for a higher amount essentially flipping it to you, they bring in monthly revenue by managing the property for you.
- Greatest risk is the level of trust you must place in the turnkey provider because you’re relying on their knowledge and expertise to choose a location, choose a property, choose a tenant, and manage that tenant.
- One of the most popular strategies for first time real estate investors.
- Strategy of purchasing a small multifamily property, using one unit to live in, and renting out the other unit. The rent that your tenant pays each month can cover all of the expenses for the property. [OMG My Money commentary] when new investors especially the younger ones in their 20s ask me the best way to get into real estate, house hacking is my #1 answer. House hacking is not only a great way to save money and make money, it also gives you first hand experience managing a property.
- Other benefits include low or no down payment financing, on the job training because you’ll be a landlord, saved expenses.
Short-Term (Vacation) Rentals
- Usually privately owned properties where the owner leases out a furnished home or condo by the night much like a hotel.
- You need a steady supply of people to make sure you are getting the property filled.
- If you’re unsure whether your area will support a vacation rental, head to one of the vacation rental portals like AirBnB or VRBO and see what other listings are in your area.
- Downside of short term rentals – extra work involved on a day to day basis because of guests, income might be seen as business income not investment income, which would require you to pay self employment taxes on profit as well as state and federal taxes, legality of short term rentals.
Live-In House Flips
- Buying a fixer upper home and living in the home while remodeling it. [OMG My Money commentary] live in flips has been one of my go to ways of investing. I personally do not mind living in a construction zone because I do not have personal commitments at home aka no family. Getting into my primary residence at a lower rate and then fixing up the property while I live in it with no time pressure to get it fixed to pay back lenders has been one of my favorite ways.
- Greatest benefit is the potential tax benefit because of the IRS rule in which it allows an individual to pay zero taxes on the sale of their home as long as they’ve lived in the home two of the past 5 years and the profit is no greater than $250,000 for a single home or $500,000 for married, filing jointly homeowners.
- Stands for Buy, Rehab, Rent, Refinance, Repeat – Buying fixer upper rental properties, repairing them, leasing them out to great tenants, refinancing to get your money back, and then repeating the process.
- This can be a powerful strategy because of the ability to acquire numerous properties without running out of capital to invest.
- BRRRR investing is house flipping, but rather than selling the house, you’re going to rent it out after fixing it up.
- Buy – find a great deal and purchase the home
- Rehab – fix the property up to make it as tenant proof as possible
- Rent – after the property has been rehabbed, it’s time to rent it out
- Refinance – pay off the 1st loan usually a short term hard money loan with a brand new loan into a conventional mortgage. If you bought a really good deal, you should be able to get all or most of your short term money back
- Repeat – repeat the process
- Generally operated like in any other rental property, but due to the type of tenant some unique management strategies can be employed.
- Many student rental owners charge by the room rather than by the entire unit, ensure positive behavior by requiring the parent to cosign on the lease.
Is It OK to Invest in Multiple Niches and Strategies at the Same Time
- By focusing on multiple desires at the same time, we often destroy the opportunity found in both.
- Yes, eventually it’s fine to invest in numerous strategies. Most successful investors dabble in more than one niche and strategy in time.
- The problem is that most new investors find themselves losing enthusiasm; therefore, in the beginning of your investing, find one strategy and one niche and pursue it until you have it mastered.
Chapter 6: 27 Ways to Find Incredible Real Estate Deals
The LAPS Funnel
- LAPS stands for Leads, Analysis, Pursue, Success
- Leads – any property that can some day be a deal for you. Any potential deal is a lead
- Analysis – every property has a value that will make it worth buying
- Pursue – you’ll never get a deal if you never make an offer
- Success – as a real estate investor, you’ll be rejected over and over again. Learn to love rejection
27 Powerful Tactics for Finding Great Deals
- MLS or real estate agent – try searching one of the 3rd party websites (zillow, realtor, trulia, redfin). These sites have negotiated with the various MLS lists around the country to give you access to listings. The problem with using these sites is that their information might be dated or their information might be incomplete. Many local real estate MLS have decided to pull their listings from these sites from keep a tight reign on their monopolies. Some states or locations might be better than others. Another option is through a real estate agent directly. This means the real estate will send you the information you need to know about the properties that are for sale. Your agent should be able to set you up with an automated email that will send you properties when they meet your qualifications. You should definitely do this. [OMG My Money commentary] I continue to use the MLS and my real estate agent as the main source of leads. With the housing market on the up and up, properties I go after have been much more difficult. I still view properties and analyze, but the properties I have taken seriously from the MLS have been way down compared to the past few years.
- Driving for dollars – the practice of getting into your car and looking for potential deals. For the purpose of driving for dollars, you are looking for any property that looks distressed, damaged, vacant, or has other signs that the owner might not want to own it anymore. This could include long grass, newspapers piling up, legal notices on the doors and windows, tarps on the roof, old for sale or for rent signs that have been left behind. We have another funnel here – find deals, find addresses or phone numbers for the owners, contact owners, find out if they want to sell, make an offer. In other words you need to do some work to find out who owns the property and then you need to get in touch with them. For anyone who is starting off trying to find deals, you need to stop chasing opportunity and start working a strategy. Pick one area that is relatively close, drive those streets, and create a campaign based on highly distressed or highly desirable properties that you would like to mail over and over. As an example, drive through A and B rated neighborhoods that are in demand and have a high concentration of sales, take a yellow legal pad (1 for single family, 1 for multifamily). When you begin a particular neighborhood, write the name of the street on the top of the page and then write down each house number you want to target. When you reach the next street, flip the page and start the process again. After the list is compiled of a few hundred, enter them into a spreadsheet, and research the owners through their tax records. Send a personalized letter to stand out from all the other investors who send postcards and generic letters. Send out the mailers every Saturday so people will typically get them by Tuesday or Wednesday. Get the mail out as fast as you can. After someone contacts you about the mailer, attempt to set up a face to face meeting to start building a relationship with the potential seller. Ask questions to learn about where they are and where they want to go so you can provide a solution. It is only then that you hammer out the specific details. It is this personalized process to get more deals than your competition. [OMG My Money commentary] I have only done this to the extent of writing down addresses and taking pictures, but I have not yet gone the extra step of sending a mailer. Because this is new to me, I think I am running into some fear of the unknown. A very different tactic that the traditional MLS and agent route.
- Walking for dollars – almost identical to driving for dollars except you’re walking. By walking you’ll have more time to really look at the property. Set aside one hour per day and pick a new area each time. You’ll also be able to strike up more conversations with locals, tell everyone you meet you’re looking to buy a property in the area and ask if they know anyone who would want to sell. Use the same steps as driving for dollars.
- Civic or religious organizations – religious gatherings are usually the largest networking events most people regularly attend. Make sure people know what you do where you go.
- Real estate clubs – in nearly every major city, you’ll find real estate clubs and meetups. Dozens of people who care about real estate will be in one room so this is a great networking opportunity. Some might be wholesalers, others might be lenders, others might be tired landlords. You never know until you go and start talking.
- Direct mail – one of the most common and scalable ways to find real estate deals. This is the practice of sending out large number of hardcopy letters or postcards that ask he recipient if they’re interested in selling their property. The goal with direct mail is to find deals from people who are motivated to sell, but might not want to work with a real estate agent. Of course, most people will never call you back. Direct mail marketing costs money to get a list of people to send to, to print the letters, and mail them. As an example, you send out 2,000 letters costing you $3,000. Of those 2,000 letters, 50 people call you to find out more information. Of those 50 phone calls, you make 10 appointments to look at their properties. Of those 10 appointments and 10 offers, 1 person says yes and sells you the property. You’ll need to find the right people to send to, find the best material to send (postcard vs letter, handwritten vs typed), and you’ll need to find the right system for handling all those calls. Plus you’ll need to know how to talk to people and negotiate a great price.
- Courthouse steps – when a homeowner can no longer pay the mortgage on their property, the bank is forced to foreclose on the homeowner in order to get the property back. You can purchase the property at a public auction on the courthouse steps. Understand that you must pay cash, no bank financing. Typically you’ll need to bring multiple cashier’s checks to the auction. You’ll pay for the property same day. You can also use a hard money lender if you’re lender is willing to work with you to make it happen. When buying on the courthouse steps, you’re usually unable to get inside the property, which means sometimes you don’t really know what you’re getting. When you get to the courthouse for the auction, understand you are bidding against the bank even if the representative front he bank doesn’t show up. When you buy on the courthouse steps, you are buying the house with all junk attached including the physical junk and liens placed on the house; therefore, it’s important to do some title research before bidding on any courthouse step auction house. After purchasing the property, the title will be transferred to your name; however, the former owners may still live in the property and will need to be formally evicted in order for you to get the house.
- Eviction records – most landlords hate the eviction process so much so that they might be willing to sell. Call local landlords while they’re in the middle of an eviction. The eviction records from your local county are a matter of public record, which means you can get a list of all the current eviction filings. You can discover the name of the tenant being evicted and the address of the property and probably the name of the owner as well though it might be in the name of a management company.
- Craigslist ads – this is one of the first recommended for people looking to get leads without spending any money.
- Craigslist for rent ads – contacting landlords who post for rent ads. These landlords are giving you their phone number and you already know they own rental property so why not give them a call and simply ask. By calling landlords, you’re accomplishing networking and deal making and it’s 100% free.
- Craigslist automation – you can sign up to receive an automated email of ads that contain keywords you specify such as FSBO, fixer, needs work, handyman special, handyman, priced to sell, repairs, quick, cash only, cash offer only, reno/renovation, motivated, will not qualify, unpermitted, upside, TLC, tear down, sold for land value, as is, lots of potential, needs work.
- Bigger pockets marketplace – where real estate investors go to buy and sell deal on bigger pockets. Simply scanning the list might not be the most efficient use of your time if you’re only buying in one area. Use the bigger pockets keyword alerts system.
- Signs – can be effective because of the mass quantity of eyeballs that read the message even if only a small percentage respond. Bandit signs are the small corrugated cardboard or plastic signs. The problem with bandit signs is that they’re often illegal.
- Billboards – can be a great way to reach a large number of people.
- Car signs – if you drive around a lot, you can consider placing a “I Buy Houses” sign on the side of your car.
- TV and radio – can be scalable and cheaper than you think.
- For sale by owner (FSBO) signs – most homes are sold by a real estate agent, but many people don’t like this system and decide instead to sell the property themselves. Usually the seller wants to save on the commission that an agent would make. Just because a property is FSBO doesn’t mean it’s a good deal. In fact, most FSBO deals are priced too high because people tend to be overly optimistic about what their home is worth. [OMG My Money commentary] I had started to focus on FSBO, but after about 100 phone calls and discussions with home owners, I quickly realized that either the home was overpriced or the terms were not going to work out. I gave up on this because of the time it was taking, but still find this as an opportunity and potentially attractive way to get deals off market.
- Expired listings – many homes on the MLS never sell. Typically a listing contract has a definite start and end date. After the end date passes, the home may become what agents call an expired listing. In order to find expired listings, you’ll either need a real estate license or a real estate agent who will give you a list of expired listings. Once you get the list, either mail letters, call, or simply knock on doors.
- Family and friends – tell them. Your circle of influence is much larger than you probably think because everyone you know also knows other people.
- Newspaper ads – there are several sections to consider placing your ad. The most likely place is the classified section under real estate wanted or general.
- Landlord industry magazines and newspapers – placing an ad can be a great way to get in front of other investors who may be interested in offloading some of their properties.
- Blogging or content marketing – practice of using information to draw people into your business. Create amazing content, not sales content. Provide value. Promote that amazing content. Make sure your visitors know you buy houses.
- Website and SEO (search engine optimization) – provide great content that answers people’s questions and get other websites to link to your website known as back links.
- Paid traffic – through online paid ads. Facebook allows you to target who sees your ad based on their interest, location, demographics, and connections on Facebook. Google allows you to target who sees your ad based on their searches, web history, and location. The benefits of these kinds of online ads is that you can arrange to pay only when the ad works. It’s known as pay per click (PPC) advertising, which means you only pay when someone clicks on an ad and goes to your site.
- Wholesalers – many if not most wholesalers will just waste your time because lots of wholesalers have far less knowledge than you. They’ll send you leads that will never work out. Wholesalers are especially notorious for underestimating the cost of rehabbing a home simply because they’ve never done it. When you find a great wholesaler, someone who understands marketing, understands rehabs, understands true value, hang onto them. To find a great wholesaler, begin networking, attend local real estate meetups, ask around for referrals, be sure to run your numbers on whatever deals any wholesalers present to you, show them how you analyze a deal and what makes it a home run to you.
- Commercial brokers – if you’re looking to buy larger real estate deals such as apartment complexes or strip malls. Unlike residential real estate, there’s no centralized list of all the properties for sale. Instead leads will generally come from the broker themselves, but getting a great commercial broker to begin sending you quality leads is harder than it might appear due to the nature of the commercial industry and the relationship aspect. Talk regularly with a broker, take action on what they present, let them know what you want and what you don’t, and do what you can to prove that you are a legitimate buyer. To find a great commercial broker, check out the brokers who are actively listing properties on the online commercial marketplaces.
- Online commercial marketplaces – there is no centralized list like the MLS on the residential side for commercial real estate. Some notable sites include loopnet.com and crexi.com. Also sometimes commercial deals are placed on the residential listing platforms such as Zillow, Redfin, or Realtor.com.
Chapter 7: 12 Ways to Finance Your Real Estate Deals
All Cash – even when investors use the term all cash, no cash is actually traded. In most cases the buyer brings the check usually certified funds such as a bank cashier’s check to the title company and the title company will write a check to the seller. Other times the money is sent via wire transfer from the bank. This is the easiest form of financing as there are typically no complications.
Conventional Mortgage -most investors choose to finance their investments with a cash down payment and a traditional conventional mortgage. Conventional mortgages are the most common type of mortgage used by homebuyers and generally provides the lowest interest rates. [OMG My Money commentary] this is the only way I have purchased properties. I will typically put down 5% max and use the money I have saved to finance the rehab with cash. I am only able to do this because I have lots of cash saved up to pay for the rehab costs (and get credit card points along the way).
Portfolio Lenders – strict rules and guidelines can make conventional financing difficult to obtain especially for real estate investors and other self employed borrowers. Some banks and credit unions have the ability to lend from their own funds entirely, which makes them a portfolio lender. Because the money is their own, they’re able to provide more flexible loan terms and qualifying standards.
FHA (federal housing administration) Loans – a US government program that ensures mortgages for banks. FHA loans are designed only for homeowners who are going to live in the property, so you cannot use an FHA backed loan to buy a pure investment property. The benefit of the FHA loan is the low down payment requirement currently just 3.5%; however, the FHA loan does require an additional payment called private mortgage insurance (PMI).
203K Loans – a subset of the FHA loan program, the 203K lets a homeowner borrow money for the house purchase and home improvement with one loan. Like the FHA loan, 203K loan is only for owner occupants. [OMG My Money commentary] I have looked into properties that would not qualify for a conventional loan and only accept a 203K loan. Although I have never followed through on a 203K loan, I realized and learned that going through a 203K loan process with the rehab costs built in and finding the right contractor who accepts a 203K loan was more of a pain that I was willing to put up with.
Owner Financing – the owner of the property you want to buy can fund the property. Typically the only time a property owner will do this is if they already own the home free and clear meaning the seller cannot have an existing mortgage on the property. A buyer can potentially buy a property without the hassle and requirements of a traditional loan and the seller can regular fixed income for many years. [OMG My Money commentary] when looking at off market deals such as FSBO not listed on Zillow or Redfin, owner financing was something I really wanted to try. I learned that owner financing is favorable for properties that have no mortgage and not all FSBO are owners with a completely paid off property. Eventually I would love to try owner financing.
Hard Money – financing that is obtained from a private business or individual for the purpose of investing in real estate. Some defining characteristics of a hard money loan is that it is primarily based on the value of the property, short term lengths due in 6-36 months, higher than normal interest of 8-15%, high loan points, fees to get the loan, many hard money lenders do not require income verification or credit references and does not show on your credit report, can be funded in just days, hard money lenders understand when the property needs rehab work, can be beneficial for short term loans and situations. Use hard money with caution making sure you have multiple exit strategies in place. [OMG My Money commentary] I have explored hard money loans and this is also something I would like to try.
Private Money – similar to hard money, but is usually distinguishable because of the relationship between the lender and the borrower. Typically with private money, the lender is not a professional like a hard money lender, but rather an individual looking to achieve higher returns on their cash. Often there is a close relationship between a private money lender and an investor. Private money usually have fewer fees and points and the term length can be negotiated more easily. Their investment is secured by a promissory note or mortgage on the property, which means if you don’t pay, they can foreclose and take the house just like a bank. The interest rate given to a private lender is usually established upfront and the money is lent for a specific period of time anywhere from 6 months to 30 years.
Home Equity Loans and Lines of Credit – many investors choose to tap into the equity in their own primary home to finance the purchase of their investment property. You must first have equity in your home. Banks will only lend up to a certain percentage of your home’s value in total sometimes up to 90% of the value. Using home equity loans and lines of credit have multiple benefits over traditional loans. The lien placed by the lender on the property is placed on your primary residence not the newly purchased property. This means the bank providing the loan won’t typically even look at the new property. Because the loan is secured by your primary residence, the interest rate on the home equity loans and lines are typically low compared to hard money or private money. Even if you don’t have enough equity in your primary residence to fund 100% of the new deal you want to purchase, you can utilize your HELOC or HEIL to fund the down payment on the new property and obtain a regular loan for the rest.
Partnerships – finding a good partner to help fund a deal is one of the best ways to finance a piece of real estate. Partnerships work great because of the deal delta because three things are required – knowledge, hustle, and money. Partners can make up the difference.
Commercial Loans – can also be used for residential real estate. You can go directly to a bank or credit union and speak to its commercial loan department or you might work through a commercial loan broker who shops several different lenders to get you competitive rates and terms. Commercial real estate loans tend to have higher rates and fees while also offering shorter terms. While the terms might not be as friendly as a residential loan, a commercial loan can be significantly simpler to obtain than a residential loan as the strength of the property is the primary decision maker. The lender will typically look at the profitability of the deal, your cash reserves, and your track record or financial position. The primary metric to determine the profitability of the deal is the debt service coverage ratio (DSCR). This formula looks at how much cash flow as a percentage the property should produce. Anything above a 1 DSCR should provide a positive cash flow because there is more net operating income than expenses. The general rule of thumb for cash reserves is to assume 3-6% of your total loan balances.
Retirement Accounts (Yours Or Someone Else’s) – the two most common types of retirement accounts are 401k and individual retirement account (IRA); however, not just any IRA or 401k will work because most employment retirement accounts dictate where you can invest that money and it’s usually not in real estate. Therefore to use these plans for your real estate investing funding source, the IRA or 401k must be self directed, which means the plan holder can invest in whatever they want, but still must follow the rules. Important rules to follow when investing with your own retirement account include the property usually cannot be mortgaged; therefore, you must have a decent sized retirement account to begin investing with this method. Retirement account funds must be used for the deposit, purchase price, all expenses, repairs, taxes, etc. You can’t mix personal or business money with the retirement money. All income associated with the property must be deposited into the IRA. The property cannot be used for your personal benefit. [OMG My Money commentary] if I am in need of pulling money out for a property, a 401K loan is my backup. The biggest risk I see is if you take out the 401K loan and either leave the company or you get let ago before you pay off the loan.
Chapter 8: Real Estate Exit Strategies
Traditional Selling with a Real Estate Agent – be sure to interview several agents to find one you are comfortable with and who you know will get the house sold. A real estate agent will generally list the home on the MLS, put the sign on the yard to advertise the home, show your property to prospective buyers, market to the best of their abilities, manage negotiations with the potential purchasers.
Selling FSBO (For Sale by Owner) – there’s no legal reason to have to sell with a real estate agent. A major deterrent in selling FSBO is not getting your property listed on the MLS. Without being on the MLS, you’ll lose the ability to reach the vast majority of individuals looking for a property.
Selling Using Seller Financing (carry the contract) – takes place when an owner sells a property to a buyer, but carries the mortgage rather than requiring the buyer to get their own mortgage. With seller financing, the seller is the bank, so the buyer will provide a down payment directly to the seller and make monthly mortgage payments to the seller for the life of the loan or until the buyer decides to sell someday. There are a number of reasons to consider seller financing, but typically it is used for buyers who don’t typically qualify for a normal mortgage. When a property is sold via seller financing, the property is 100% the new buyer’s responsibility including all the rights and expenses that come with ownership. A seller may also choose to use seller financing in order to offset the taxes due at the end of their investment career as the IRS classifies this as an installment sale and allows the seller to spread out any capital gains taxes that may be due. When offering seller financing, the seller should acquire a large non refundable down payment upfront to protect their interests and to prevent the likelihood that the buyer will stop making their monthly payments. Seller financing is generally only applicable if the home is currently owned without a mortgage. If you have a mortgage through a bank or other lending institution and decide to sell the property to another party using seller financing, you will break the due on sale clause and the bank may foreclose on you. The largest risk in using seller financing is having your buyer stop making payments at some point and then you, the seller, will have to foreclose. After the foreclosure is complete, you will get the house back and be able to sell it all over again.
1031 Exchange – as a way to defer taxes to a later date for rental investments only. You have 45 days to find the next property and then 180 days to close on it. If done correctly, you can reuse the money you would have paid towards capital gains tax and use it as funds for your next property. You can do this over and over again. Yes someday you’ll need to settle up and the tax bill might be huge at that point, but so will your wealth. Many investors choose not to use the 1031 exchange and simply pay the tax to the government and move on because you could end up buying a bad property.
16 Tips and Tricks for Selling Your Properties
- Have your property inspected before you list. This will reveal problems you can fix before you list
- Clean up your home and keep it clean when it’s on the market
- Make sure you pass the sniff test so that your home smells clean
- Take great but honest pictures of your house
- Be available for showings
- Be informative to let buyers know what you’ve done to the property to make it better
- Know your competition
- Use an agent to sell your home quicker and often for more money
- Ask your agent for selling advice
- Price your house right
- List in peak market time. More people are looking to buy during the spring than the winter
- After the property has been listed, double check the listing to make sure all the information is correct. Listing mistakes happen all the time
- Stage those weird spaces that don’t have an obvious use
- Leave during showings and take your pets with you
- Be prepared to walk away from an offer
- Tell everyone you know that your property is for sale
Chapter 9: How to Work (Far) Less and Get (Way) More Done
Be the General
- Being the general is a mindset. Start small. Being the general doesn’t mean no work, it just means different work and in time, less work.
- Hire a property manager to look after your rentals, find a partner who is analytical to analyze deals, get a family member or friend to answer your real estate related phone calls, hire a project manager to do your flips, get a graphic designer to make your business cards, pay a college kid to design your website, hire out man of your non real estate tasks in your life, hire a virtual assistant to scan craiglist each week looking for mom and pop rental property listings that you can call to ask whether they’d consider selling, hire someone to make all those phone calls listed above, hire someone to do market research on a possible city to make investments in, get someone else to do your bookkeeping, hire a handyman to do repairs on your properties.
Being Effective vs Being Efficient – The Difference is Vital
- The difference is getting stuff done right vs getting the right stuff done. Many people focus on being efficient. They can get a lot of stuff done. Being effective is the practice of continually making the right moves and accomplishing important tasks. You can be incredibly efficient crossing off hundreds of items on your to do list, but if those tasks aren’t getting you closer to your end result toward the goal, you are not being effective with your time. To work less and get more done, it’s vital that you continually zone in on being effective in all that you do.
The True Enemy of Progress: Dead Space
- If you want to accomplish more in your life at a rate faster than you’ve ever imagined, you have to kill the dead space. Most of the time spent in life is not spent in action, it’s spent in dead space. It’s time we spend not working toward our goals. It’s the waiting that exists between moments of action or decision.
- Dead space can manifest itself through fear, uncertainty, lack of focus, distractions, limiting beliefs, waiting on other people, or physical restraints.
- If you want to accomplish significantly more in your life faster, you need to minimize the dead space.
- Most dead space is caused by one essential thing, you don’t know what the next task really is. The first step in minimizing dead space is to identify what your most important next step is. What is the smallest action you can do to move your goal forward. Be specific.
- Most big goals are really just a series of small easy to accomplish tasks.
- The second step is to do that task now or time block it.
- Repeat steps one and two over and over again until completion.
The Final Key to Long Lasting Success: Giving Back
- Giving back have a profound impact on your life in 3 major areas: your happiness, your health, and your wealth.
You can check out the entire business book recap series below:
- The Richest Man in Babylon book recap – George S. Clason
- How to Win Friends and Influence People book recap – Dale Carnegie
- Think and Grow Rich book recap – Napoleon Hill
- The Tipping Point book recap – Malcolm Gladwell
- The ONE Thing book recap – Gary Keller, Jay Papasan
- How to Invest in Real Estate – Brandon Turner, Joshua Dorkin