Fixer Jay’s Mom & Pop Millionaire Blog

In 1961 author and millionaire investor~ Robert W. Kent, wrote his best-sellerbook: “HOW TO GET RICH IN REAL ETATE” Published by Prentice Hall, Englewood,NJ. In the very first chapter Mr. Kent offers his opinion about the chances for an average ordinary working person to become the next real estate millionaire. On Page 2 Kent says:
“It’s very feasible for any sincere man or woman who is steadfast in purpose and is free of the 3 cardinal faults; TIMIDY, NEGATlVENESS and LAZINESS. Self-doubt is the on1y thing that can stop you. You must learn to push doubt aside every time it rears its ugly head.”
Mr. Kent began his investment career while working in a 24 hour key shop in Brookline~ MA. Starting in 1931, he began acquiring older rundown flats and apartments as quickly as his limited funds would permit. The key he said; “Each property I purchase must provide me with MIF, money in the fist.” That simple strategy would make him a millionaire by the end of the ’40’s.

SO YEARS LATER - NO CHANGE

Today, more than half a century later~ Kent’s wisdom is still a recipe for making millionaires. Other than a few personal preferences, I can find nothing to improve on! Of course~ MIF is more often called cash flow~but the idea is to get it! What you call it don’t matter very much! In my opinion, cash flow investing is even more feasible today because there are more qualified teachers who offer excellent “hands-on” training.

DIFFERENCE BETWEEN SUCCESS & FAILURE VERY SMALL

After 45 years investing and 25 years of teaching others. I can honestly tell you - there’s not a great deal of difference between students who enjoy super success — And those who just flounder around year after year without much measurable progress. Even with all my years doin’ this stuff. I won’t pretend I’m smart enough to figure what causes one student to be successful and the next to fizzle out when the opportunity for both is equal! Allow me to share5 personal observations that perhaps might explain a few answers.

1.     Many folks somehow imagine they are ready to compete and do    business after a free seminar or reading a book. They are not being realistic with themselves.

2.      Some people think there’s a magic formula to real estate investing, particularly with specialties like options. Note buying foreclosures. Probate sales and anything else that seems cleaner, easier and don’t sound like it requires too much time or effort! Friends - this is nothing more than a pipe dream that most often turns into a nightmare! You must understand real estate basics if you wish to be successful.

3.      I cannot remember ever having a student “too dumb” to become a successful real estate investor. On the flip side, I’ve been around hundreds of folks “too smart” to make it! Somehow they seem to think that learning the basics and developing a sound strategy based on reality is simply a lesson designed for slow learners. These folks are most often doomed before they ever start!

4.      The first rule of education — Thoroughly investigate the teacher and his credentials! If any instructor is telling you that real estate is “easy as pie” jump up immediately and run fast ’cause it just ain’t so! You should always check out the teacher behind the scenes. Make some telephone calls or better yet, write to newspapers who publish syndicated real estate columnists. Ask for their opinion about so and so.

5.      While it’s true, you can learn real estate investing on your own, by yourself, without any help — It’s called the “cut ‘n try method”! And chances are, you can probably save a few hard-earned bucks on lessons. But the problem is, you can easily spend it all back - plus a whole lot more fixing up your mistakes. You can greatly hamper any success you might enjoy by having to continually repair early mistakes. I’m a past graduate of “cut ‘n try” and it kept me broke much longer than I deserved to be. There were not many classes or instructors teaching this stuff 45 years ago! Back then most TV’s were still black and white and the picture wouldn’t hold still. Believe me, learning the real estate investment business from someone who already knows how is far more profitable in the long run!

Tags: The Joy of Cash Flow Investing by FixerJay
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Like most successful investors, I suffered through a probationary period! That’s when there’s almost as good a chance of going broke as being successful. What finally saved my bacon was when I started buying the kind of properties that would earn enough income to pay me every month. That might not sound like much to some folks - but to me, it was the discovery that kept my investment career alive - and my faith intact!

I can tell you from experience - buying the right properties, in the right sequence, makes all the difference in the world. If you’re like me, cash flow is always the biggest concern! It took me several years and some seriously overloaded Visa cards before I gave up the notion that average three bedroom, American dream houses would set me free! They almost broke me instead! Don’t misunderstand me here - I’m not saying they’re not a good investment - I’m saying they don’t provide any cash flow! My dream was to be a full-time investor and have my real estate support me.

BUYING THE RIGHT PROPERTY FIRST

When you don’t have a lot of money - and you need cash flow rather quickly, you must invest in the kind of real estate that will produce it. Single houses can produce it someday - but not until the mortgages are paid! If I was lucky enough to earn $100 per house, not likely with a mortgage - I’d need more houses than I could ever afford just to earn pauper’s pay. Fortunately, there’s a “faster, better way!

The better way is to start with fixer-uppers first - and concentrate on cash flow. With fixer properties, you can force the value up with sweat equity (yours or somebody else’s). With fixer properties, you won’t get stuck in a holding pattern, waiting for appreciation or a turn-around economy. This is very important, if your goal is to create wealth during your lifetime so you can enjoy it yourself!

BUILDING WEALTH DURING YOUR LIFETIME

Once you have a few dollars to jingle - and a respectable cash flow, you are now in a position to acquire quality houses, so long as they’re close to break even. I could never move forward very fast until I figured out the sequence! Go for cash flow first - quality houses, second! At my Fixer camps - this is what I’ll show you how to do.
Fixer investors also enjoy another major advantage over all the other investors because there’s no up and down cycles to slow you down. Unlike the general housing market, the fix-up strategy never changes regardless of what the economy does. Although I currently own a number of American dream houses now - I don’t mind confessing - my fixer properties bought every single one of then

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When Beth Rosander attended my Fixer Camp in the early ’90’s, her situation was a bit more urgent than my typical students.  Recently divorced with two small children to raise and very limited support payments, Beth needed to earn additional income fast.  Further complicating her life, she lived near the San Francisco Bay Area amongst the highest priced houses in California.

On a positive note, Beth understood how fixing up houses could rapidly increase the value! She and her ex-husband had completely remodeled her 92-year-old house and nearly tripled its value.  That experience gave her the courage to continue without him.  She even learned how to tile a bathroom floor, she said –Well, maybe not perfect, but certainly acceptable!  Her main problem, she explained to me, was writing up the offers - plus finding additional money for down payments and fix-up.  That’s the reason she came to my Fixer Camp!

During her three days of training, Beth explained how she first had tried working at a local grocery store.  Her net income left over for living expenses after paying childcare, was $42 a week.  In San Francisco, that just about covers your parking bill.  Obviously, Beth decided rather quickly - she needed another way to earn a living where she could keep the children with her.  Her house remodeling experience seemed to be her only logical salvation!

At Fixer Camp, Beth learned everything she needed! She learned how to write up offers, how to estimate her fix-up costs and how to get financing to acquire more properties.

In May of 1993, Beth’s house fixing success came to the attention of San Francisco Examiner real estate columnist, Corrie M. Anders. Corrie’s half-page spread in the Sunday Examiner profiled several of her recent projects, including pictures. During an on-site interview, Beth explained how she fixed the roof and remodeled a bathroom that had a garden hose running from the into to fill the tub. She spent roughly $21,000 on materials and her helper, worked long days and nights herself for over month – then sold the place for a $40,000 profit – just ninety days after she started.

According to Corrie’s article, Beth’s average profits were about $30,000 per house, and that included a period of sluggish sales for several years after the Desert Storm invasion. Obviously, Beth’s fix-up ventures received more notoriety than most Fixer Camp students get – Still, it was her personal efforts that made things happen. Beth took what she learned at Fixer Camp, added the elbow grease and presto – along came her well-deserved profits!

If you were to interview Beth today (she married her house fixing helper), I’m almost certain she would tell you something like this – Learning the information you need from a teacher who does it himself will prove invaluable for you success. Naturally, it’s up to the students to make things happen – but leaving Fixer Camp with the knowledge about what to do back home can quickly put you ahead of the competition.

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Every time I start talking about making profits at my seminars - someone always reminds me that all one needs to do is buy properties wholesale and sell them at retail!  You can’t help but admire the genius behind such advice, but I often wonder — Doesn’t the asker realize that’s what we’re all trying to do!

The big problem is — Buying low and selling high is not all that easy to do. In fact, it takes some real sound profit engineering to develop a money-making strategy.  A good plan must have several common ingredients, such as PROPER TIMING, EQUITY CREATION, GOOD FINANCING and a REASONABLE METHOD TO EXTRACT THE PROFITS.  None of these can be left to chance if you intend to make any serious money investing in real estate.

Every once in awhile-even dummies make money in real estate!  But take my advice don’t give up your day job thinking it happens to often, because it don’t!  A far  more realistic approach is to learn exactly how and why real estate profits are made to begin with.  If you will do this, you’ll, be in a position to make money in good times and bad tines alike.  Also, you won’t need to depend on inflation to make your profit.  Inflation earnings should be a bonus for investing wisely.

NO CASH DOWN OFTEN TRANSLATES TO NO PROFITS

Many neophyte investors have made the mistake of buying marked-up houses for no money down.  They automatically assumed they could earn a profit because no cash was invested!  With high mortgage payments and short-term balloon notes, their dreams of becoming rich tycoons quickly turned to nightmares instead.  The “free lunch strategy” may work well for selling slick-covered books on cable TV, but in the real
world — You won’t buy much value for nothing!

The important thing to remember is you can purchase properties with dollars or pay with your personal skills - But you must always pay!  When you are negotiating to buy a property, stop and think about the deal as if you were the seller.  Would you sell your real estate for nothing down if you thought someone would pay a normal down payment?  I don’t think I need to ask what your answer is — And, neither would I.   In most cases, acquiring properties for no money down means you’re paying too much to start with!  That’s the wrong way to make profits in this business.

BUYING HOUSES FOR CASH IMPOSSIBLE FOR MOST INVESTORS

Buying for cash is one way you can get big discounts, especially in a buyer’s market.  With good knowledge about your buying area, it’s not too difficult to purchase $100,000 houses for $80-85,000 cash! Every time you do it,  you’ll make $15-20,000 at closing!  Five or six deals a year will earn you $100,000 profits — Plus $4,000 worth of monthly income! With cash flow and tax savings, you’ll likely earn 15-20% annually.  And,
with appreciation, it’s even higher! It’s a good sound plan. It’s safe and offers excellent earnings to investors who have the cash.

If you’re not quite ready to pay cash just yet, then it’s absolutely necessary that you learn an alternate strategy for profit making.  I call mine “The Poor Investor’s Plan For Profits”. It utilizes each one of the ingredients I mentioned earlier. It’s also a bit more complicated than buying for cash.  But, if you do it right, you’ll end up just as wealthy as the investors who had money to start!

RENTAL HOUSES PAY THE GROCERY BILLS

Before I discuss the common ingredients, let me just say that one of the biggest reasons I’ve kept my flock of rental houses over the years is because they provide me a guaranteed income!  Having a reliable income allows me time to market my properties without being under the gun. There’s a tremendous disadvantage having to sell when you need the money to live on.

Waiting for Mr. Right can often be worth 20 to 40% more when you’re negotiating with a full stomach! Therefore, it’s always my standing advice — Buy a few good rental properties to start with.  Get a monthly income established so you never look hungry when you’re selling.  Buyers can always smell a starving seller a mile away.

EQUITY CREATION

When you purchase average properties in average condition, you can expect to pay average price and terms.  Equity creation or build-up is somewhat difficult when all things are average.  Equity build-up comes from two sources.  The first is very insignificant.  It’s the principal portion of each mortgage payment, which adds to equity in the property with each monthly payment.

The second kind is what I do.  It’s called ADDING VALUE.  It comes from fixing up a property or straightening out people problems by initiating better management.  This kind of equity is forced equity.  The owner makes it happen.

One of the best ways to create equity is to improve the financial performance (raising rents) of a property!  For example: If I’m able to fix up a rundown property and increase rents from $20,000 annually to $30,000, that’s FORCED EQUITY CREATION.  If the property is worth 8 times the gross rents, I’ve increased the value from $160,000 to $240,000.  That’s an $80,000 equity addition.  It has nothing to do with normal appreciation.  It was forced to increase by my fix-up work.  If the building appreciates 05% next year, that will add $12,000 equity to the $80,000 I’ve created.

Almost anyone with reasonable amount of knowledge can buy decent “middle class” tract houses for a little bit less than what they appraise for! The biggest problem is buying them cheap enough so that you’ll be able to sell or rent them for a profit.  If you pay 10% less than the asking price for a $85,000 house and you can only rent the place for $100 more than the mortgage payment, you’ll quickly run out of down payments — And, your investment plan will soon be stuck in the mud!

Selling for a profit anytime soon is not very likely because you’re basically playing the inflation game!  About the only way you could extract any profits is to wait until the property goes up in value — Or, keep making payments till the mortgage is paid down!  Either way, it’s not a very exciting plan, even if the house is a good sound investment.  It’s something like kissing your sister.  It’s okay, but it’s difficult to stay interested very long.

GOOD FINANCING

Unless you’re a cash buyer - good financing is absolutely essential to earning big profits.  If you can’t offer decent financing when you decide to sell - you’ll end up making concessions to the buyer, which will greatly reduce your potential profits.

What I do and recommend for you is to mentally sell your property at the same time you are negotiating to buy it!  In other words, think ahead to when and how you plan to market the property someday.  Specifically the kind of financing you’ll be able to offer to your buyer in the future.
If you agree to mortgages that can’t be assumed (due-on-sale clauses), you’ll restrict any future sales to a buyer who must qualify for new financing!  If you agree to short-term notes or mortgages, most buyers will balk at assuming them.  High mortgage payment are also restrictive because buyers are concerned about cash flow.

The best kind of financing you can have when it comes to making a future sale is a long-term (20-30 years) seller carry back mortgage without a due-on-sale provision.  Also, payments that are 50% or less of the current rental income along with a modest interest rate.  This type of mortgage can easily be wrapped (wrap-around) by a new all-inclusive mortgage allowing the seller to earn extra profits on the interest spread and, also avoid big income taxes from the sale by using installment reporting.

A METHOD FOR EXTRACTING THE PROFITS

Many investors buy houses without the slightest idea about how they’ll make a profit!  Others buy real estate and more or less figure that when it’s time to sell, profits will somehow; automatically be there for them. Investing in this fashion is an easy way to fail. Its too much speculation or guessing rather than investing.

When you have limited funds, like 95% of all my subscribers - you must make a thorough analysis or projection of future profits before you close escrow on every purchase!  You need to understand exactly how each investment will pay you back for owning it.  One method is to explain it thoroughly to an un-sympathetic spouse who would rather use the down payment for a trip to Disneyland.  If you can pass this test, chances are you’ve already given considerable thought to the deal — Which is exactly my point here!

My method is a very simple one, which has served me well for a good many years.  My tools consist of a yellow legal pad and a couple of pencils! I sketch out, sort of a credit-debit schematic or cash flow chart showing all the dollars I expect to spend in each year of my ownership.  I also estimate my income or profits for every year.  These income figures represent all the monies I expect the property to pay me for my period of ownership!

Lastly, I estimate my future selling price and develop a realistic plan for making the sale.  By going through this exercise, I’m forced to take a hard look at the various factors that contribute to a profitable investment — And of course, that’s the main purpose of the exercise!  Take it from me, if you can’t show someone on paper how you intend to make your profits - chances are - you won’t!

Tags: The Joy of Cash Flow Investing by FixerJay
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