Open houses are a good time to explore new properties

Look in newspapers, on the internet, and go through real estate brokers. When finding a real estate broker, respond to an ad that looks somewhat intriguing rather than call and ask them directly. You will find that the broker will be more willing to help you if you are a possible sell to one of his properties that he or she is already trying to sell to someone rather than try to approach him or her cold.

Do not worry about the commission that you will pay the broker. They will definitely earn it, as they can find better financing than you can. Also, they can especially find better property than you can. Think of real estate brokers as fetch-dogs. They can catch much more game than you alone can, but you must give the dogs treats for their work, or they will not be interested in helping you.

We must say a bit more about real estate brokers’ commissions. They definitely earn it. Many people think it’s a good idea to get their real estate license so that they do not have to pay commission to a broker. If you think this way you will get yourself into trouble. You are forgetting that you are investing. Investing involves spending money to make more money. You want the maximum back from the money you spent; you shouldn’t spend your time trying to find ways to spend less. You should instead want to spend as much as possible, because you are going to get plenty back on each dollar you spend. The more you spend the better. This is especially true with property and real estate brokers. They are in the market and have their eyes on it. They are much more likely to find you a good piece of property with good financing than you are. Let them have the commission and take your fantastic property which will be the beginning of your fortune. Surely you can pay them some money if they ensure you a much bigger head start to your fortune than without their help, can’t you?

Remember, when you go shopping, you should take a good, hard look at each property, rather than just skim though lots of them. You want to go inside, investigate the whole thing inside out, rather than just simply examine the property from the outside.

When you find a property that suits your needs, you should buy it as soon as possible. William Nickerson said it best: “You should start as soon as possible, with financing as heavy as possible, always with the safety proviso that the mortgage payments can be handled from the property income after expenses are paid.”

Your property will be safe from fluctuations in the economy if you follow these simple rules

Your first property choice needs to be a good one; it is best to start out on a good foot. Luckily, picking a good property is neither hard nor does it require much technical knowledge. Remember our previous posts – you must always keep property improvement in mind. Look for property that is structurally sound (will not need a new foundation poured, does not have excessive dry rot or termite damage, etc.). When you find a property that is structurally sound but is in need of repair, you should estimate the cost of repairing; the cost of bringing the property up to good condition needs to be less than that of the new construction cost of the home.

When looking for property, you should also make sure that the income from the property be sufficient to pay the mortgage and operating expenses (insurance, tax, utilities if not paid by the tenant, etc.), and even then, it should still spit off enough extra money to give you a decent return. You will not get huge returns when buying small properties such as your beginning ones.

It is best, when looking for property, to find property whose rent is a bit less than that of the average rent in the area. Many people look for property that is a bit more luxurious; therefore, demand a bit higher rent, because they think they will make more money. That’s true; they will make more money, if they can rent it. While it is great when times are good, your less expensive properties will be much more likely to attract tenants when the economy is bad. You should always look for property that is a bit less expensive to rent than the average in the area.

Also, when looking for property, try to make sure that the rents do not exceed weekly take home pay for the average earner in the area. You do not want tenants who can barely afford to live where they are; you do not want tenants who are neck deep in expenses, because they will take off to a cheaper property when given the chance. So, these two concepts combined produce a valuable rule; this rule determines how you look for property: your property’s rent should be a bit below the average weekly take-home pay of the average worker in the area.

Given this, you want to buy the biggest property you can possibly afford; this will serve you better than being “safer” and buying smaller property. Remember, the bigger the seed you plant, the bigger tree you will have.

Remember the rules established in this post when buying property, and you will have very safe investments; your investments will be safe even from fluctuations in the economy.

Apartment Buildings

When most people buy property, they think of good locations, and they hope the location they pick will appreciate. If it does appreciate (and it usually does), then their investment has been successful; this is their strategy.

Unfortunately for these people, this is a very poor strategy likely to produce only meager results. The reason is because appreciation is only third in importance. Ranking ahead of this is property improvement; property improvement is a sure way to increase your equity and guarantee yourself a profit. This is critical and must always be kept in mind when buying investment property. But, ranking ahead of even this is maximum financing. You should try to finance as much of your investments as possible. A 100% financed investment property is ideal; since you put no money into the property, the return is essentially infinite (you never put no money into property, but the principle is the point). However, 100% financing is a thing of the past now, as banks were hit hard by the riskiness of it. You should plan on putting about 20% down on all of your property.

Sometimes, instead of property improvement, you can improve the operations of the property. This includes raising rent, lowering expenses, paying employees the correct amount, etc. This discussion is more fitting to larger apartment buildings than it is to smaller buildings, which is the starting point in property investment.

Beginners will not focus on commercial property; commercial property is far too risky for the novice. Commercial property comes in many different flavors. There are warehouses and office buildings and strip-malls and many other types of commercial properties. Each one of them must have many employees (hotels included), and they are considered businesses, not real estate investment. On the other hand, houses and apartment buildings require very few employees to run and operate the property. This is your best friend. You want as little hassle as possible. This is not because you want to take it easy, but because you know very little about property investment and you should not get yourself in the middle of something that will go way over your head.

Residential buildings have very few vacancies. They are always in demand; people always need places to live. Office buildings might rent well while a business occupies them, but they might pose to you a problem finding new tenants after that business leaves. Residential buildings, however, are needed by anyone and everyone. Apartments are easy to fill, and they take advantage of the pie concept. The pie concept is that each piece of the pie, when sold individually, will bring in more revenue when totaled together than the pie sold whole would. With a single family home, you are selling the whole pie. But, with apartment buildings, you are selling the individual pieces.

Our strategy is sure to create success for you.

“Be prepared to work 24/7/365, longer when necessary.  Be willing to do menial work when necessary.  Find a mate who shares your goals and will work as hard as you will to reach them.  Avoid having a family before you make your first $250,000.  Seek out someone local who has achieved more than a modest success in real estate investing; treat that person to a fine meal; ask for advice; listen; and learn.  Waste no money on expensive tapes and seminars promoted by hucksters with get-rich-quick promises.  Study William Nickerson’s classic How I Turned $1,000 into Five Million in Real Estate in My Spare Time, and adapt its techniques to fit your circumstances today.  Avoid partnerships unless the partner has expertise, experience, or connections you lack.  Understand that your lack of money is no reason to forma  partnership with someone who has money.  Learn how a professional appraiser appraises a property.  Study and follow the market for different kinds of properties.  Identify and number of fixer-upper properties, and make offers based upon location, financing, condition, current income, and potential income.  Avoid becoming attached to any property before, during, or after ownership.  Fix up and trade up again and again.  Borrow for investment purposes only.  Pay your debts on time.  Learn how the time value of money affects your business dealings.  Take fewer risks as you accumulate more assets.  Cultivate relationships with an accountant, an attorney, a banker, an insurance agent, a loan broker, a real estate agent, and a Jack or Jill of all trades.  Hire on-site management.  Handle off-site management yourself.  Hire help to do those things which somebody else can do for you equally as well as you might do them yourself so that you can concentrate on doing those things which you alone can do to achieve your goals.  Stay out of court except for evictions.  Learn how to evict, and evict promptly.  Expect setbacks and take them in stride.  Be unflappable.  Keep your word.  Be fair.  Be available.  Be tough.  Be patient.  Be flexible.  Live beneath your means.  Complete a financial statement every six months to take stock of your assets.  Give back to your community.  Good luck!  Self-made millionaires need a little bit of luck, too.”
The lesson behind Robinson’s words is that we cannot expect success unless we are very willing to sacrifice for it.  There is no type of easy, get-rich-quick real estate investment.  No money down is a terrible option for most people, and we should all avoid anyone who says otherwise.  There is no real estate investment strategy which will provide for you lots of spending money in the beginning steps.  It takes a long time to be able to do this.
We must all thank Mr. Leigh Robinson for his words, and we should all study them carefully.  This is REALLY how to succeed in real estate.

When somebody puts his or her money into stock, it grows. It grows linearly, but it does not grow geometrically. When something grows geometrically, it is growing at a much, much faster pace. Whoever figures out the power of pyramiding will be rich. It is the secret force of capitalism that separates the rich and the poor. It is the only way to become filthy rich. If you take advantage of it, you, too, will be rich.

This secret power is the power of borrowed money. Borrowing money is the surest way to riches. The middle class and the poor always try to avoid debt, and that is precisely why they remain poor and middle class. It is not their fault though, for the only debt they know of is consumer debt, which is bad. Some debt can be good; some debt can make you rich.

Every fortune in history was built upon debt; borrowed money is the driving force behind every millionaire’s fortune. So, you are probably thinking, “How can I tap into this power of borrowed money?” The answer is simple: invest in real estate! Real estate is full of borrowed money! Banks practically throw it at you. All you need is 20%, and they’ll give you the other 80!

Compare this to stock investment. You put in $20,000 into stock; you put another $20,000 into a property worth $100,000, and you borrowed the rest from the bank. We’ll say the bank is charging you 5% interest on your loan.

Time goes on, and both of your investments appreciate exactly the same amount – 6%. What does that leave you with? The stock has made you $1,200, and the real estate has made you $6,000, minus the $4000 that you owe for the loan, for a total of $2,000. The stock made only 60% of the real estate’s earnings. So, the real estate has made you 10%, but the stock only made you 6%. Clearly the real estate is the way to go.

But, it gets even better. What happens if your investments made 8%? Real estate would have earned you $4,000, but the stock would have earned you only $1,600 – only 40% of the real estate’s earnings. Do you see how real estate really is taking advantage of expontential growth?

What about the second investment you make? Say our investments make 8%, so now we have $21,200 from our stock and $24,000 from our real estate. We invest it again. We buy $21,200 worth of stock, and $120,000 worth of real estate, borrowing the other $96,000 at 5% interest. This time our investments earn again 8%, the stock earning $1,696 and the real estate earning $4,800. The stock, in this case, only earned 35%. It keeps getting better with time; real estate continues to earn a higher and higher percentage of the amount of capital invested, but stock is linear progression.

Real estate truly takes advantage of borrowed money, the essence of capitalism; it takes advantage of the pyramiding power of other people’s money.