40 Days To Success in Real Estate Investing
40 Days To Success in Real Estate Investing
40 Days To Success in Real Estate Investing
TO SUCCESS IN
REAL ESTATE
INVESTING
R O B E R T
S H E M I N
40 DAYS
TO SUCCESS IN
REAL ESTATE
INVESTING
40 DAYS
TO SUCCESS IN
REAL ESTATE
INVESTING
R O B E R T
S H E M I N
To Alexander,
may you have more success in all areas
of your life than you can dream of.
CONTENTS
xiii
ACKNOWLEDGMENTS
xv
INTRODUCTION
DAY 1
DAY 2
DAY 3
17
DAY 4
Foreclosures, Part 1
29
DAY 5
Foreclosures, Part 2
39
DAY 6
Friday Check-In
43
DAY 7
48
DAY 8
59
DAY 9
71
DAY 10
76
DAY 11
80
DAY 12
84
DAY 13
89
DAY 14
Networking, Part 1
94
ix
CONTENTS
DAY 15
Networking, Part 2
101
DAY 16
Negotiating, Part 1
103
DAY 17
Negotiating, Part 2
109
DAY 18
114
DAY 19
119
DAY 20
Contracts
123
DAY 21
127
DAY 22
130
DAY 23
133
DAY 24
Protecting Yourself
137
DAY 25
144
DAY 26
148
DAY 27
152
DAY 28
Wholesaling, Part 1
154
DAY 29
Wholesaling, Part 2
160
DAY 30
Wholesaling, Part 3
163
DAY 31
168
DAY 32
172
DAY 33
176
Contents
DAY 34
180
DAY 35
185
DAY 36
190
DAY 37
195
DAY 38
Property Managers
200
DAY 39
Review Activities
202
DAY 40
206
BONUS
209
233
INDEX
xi
AC K N OW L E D G M E N T S
special thank you to all of the people who have made this book possible: Mike Hamilton and the great team at John
Wiley & Sons, Inc.; Barbara McNichol (www.barbaramcnichol.com) a talented editor who has made all of my books a reality and her editorial assistant Sherry Sterling; Andrea Ramos, a fantastic associate and person; Paul Bauer, a wonderful
agent and friend; Brian McAdams, Jeff Vihari, Cameron, and Hisha at EMS.
Thanks to Mom and Dad; without them, neither this book nor I would have
happened.
Thanks to my fellow investors, speakers, authors, and friends who inspire
meWright Thurston, Dr. A.C. Loury, David Finkel, Peter Conti, Russ Whitney,
Jeffrey Taylor (www.MrLandlord.com), Robert Allen, Lee Phillips, Vena JonesCoe, Lundy Patton, Duran and Sharon, Jeff Petroko, David Duech, Chris Cooper,
and Heather Seitz.
A special hello and thanks to Tamara Davis, Lisa Delman, Rav Chaim from
Jerusalem, Anthony Cherry, Luisa Garcia (my trainer), Shakira, Bruce Springsteen,
Donald Trump, Robert Kiyosaki, President Jimmy Carter, Dr. Richard Hersch, Dr.
Keith South, the Kaballah Center, Garth Brooks, P. Diddy, Ludacris, Lil Kim, and
Bill, Sam, Steve and all of the great people at the Learning Annex
(www.learningannex.com).
And thanks to my students and to you for reading this book.
Happy investing and learning. Have more fun!
xiii
INTRODUCTION
Desire
Your success in real estate investing is determined by your desire. You must already
have desire, or you wouldnt be reading this book. The question is: What do you
desire? Pinning that down is the focus of Day 1.
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INTRODUCTION
Time
Any business youre in requires you to dedicate time. I recommend devoting between 5 and 10 hours a week working on your real estate business. Thats exactly
how this 40-Day Plan is designed to work. If youre willing to consistently dedicate
at least five hours a week to real estate for the next six weeks, youll get results.
Commitment
The third requirement is commitment. I think most people fail in any business, but
especially in real estate, because they try it for only two weeks with a part-time focus. After a few phone calls, they decide this particular road to riches doesnt work.
When I started in real estate investing, I decided to make a five-year, part-time
commitment. I told myself that I would review the situation at the five-year mark
and decide whether to continue. Of course, six months later, I felt like quitting,
mostly because I didnt have the systems in place that youll have after reading this
book.
Today, Im glad I didnt quit. At the 12-year mark, I made more money from
one deal I did last year than I made for the entire first two years I was in real estate.
Just as in running any business, youll get better as you go.
Realize that you dont have to know everything there is to know about real estate or be supersharp. Nor do you have to have a lot of money or credit to get
started. The main thing is simply to stick with it.
A student of mine in San Diego had been dabbling in real estate investing for
seven months, but hadnt adopted the action plans Id laid out. Instead of following this simple plan, she made up her own, trying this and that.After plodding along for almost 30 weeks, she still hadnt found a deal and was
frustrated.
I asked her to stick with it a little longer. She followed my system more
closely, found a deal through a real estate agent, bought, fixed up, and sold a
house and made $80,000! She recently bought a second investment house and
will likely make $180,000thats in her pocket. Do you think shes glad she
stuck with these plans?
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Introduction
Dispelling Doubts
Do you wonder whether real estate investing really works or whether youre suited
to it? You probably know people who have made a lot of money in real estate
most of them by accident because they bought one house and it doubled in value.
Consider this: If these people made money in real estate by accident, just on their
own home without even trying, then you have a chance to make some real money
in real estate.
I wonder about people who bought a house to live in, made $100,000 in three
years on it, and still spend 50 hours a week at a job they dont like. Why dont they
spend more time on real estate and less time at jobs they dont like?
Even if you see the potential in real estate investing, you might decide you
dont want to be a real estate investor. I have news for you. You are in real estate,
whether you want to be or not. You have to live somewhere. Youre either buying a
house for yourself or youre paying rent. So why not at least learn how to make
money on your most important investment?
After reading and completing the exercises in this book, youll know how to
buy your own home for at least 20 percent below market value. Twenty percent on
a $200,000 house means youll save $40,000. If you do that every five years, the
dollars add up.
If youre renting, consider lease optioning, which is renting with the option to
buy. That way, you wont be throwing all your rent dollars away. Right now, if
youre renting for $1,000 a month, what do you have to show for it at the end of the
year? Twelve cancelled checks. Youve received no tax break, no ownership interest, and little benefit in return for your hard-earned money. You can change that.
If so many people make money in real estate by accident, how much can you
make if you do it on purpose? In todays market, people ask me if theres a real estate bubbleand a time when that bubble could burst. Some like to talk themselves
out of doing real estate investing. They say real estate is too risky. Prices are too
high. They shouldnt get in. Often, they suffer from paralysis of analysis. But consider this: Because you can make money in real estate without committing your
own money, there is almost no market risk. For example, I do wholesaling, which
means I find property for a good price, put it under contract, and sell it before I
have to close on the sale. I dont care whether the market is going up or down next
quarter. In wholesaling, Im in and out before the next quarter comes.
If you rehab houses, you can buy, fix up, and sell a house in about six
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INTRODUCTION
months. With this approach, youre not concerned about what the market will do
in two or three years. If you do lease options (that is, rent with the option to
buy), you lock in your purchase price when you make the deal. If the market
goes up, you have an opportunity to sell and make a lot of money. If, on the
other hand, the market goes down, you are not obligated to exercise your option
to buy the property. You just leave after the lease is up and reduce your market
risk to zero.
Risk Factors
Rather than assess what your risk is for getting into real estate, assess what your
risk is for not getting into real estate. Thats the real question. What has your risk
been for the last several years if you havent been buying real estate? A lot. Most
likely, real estate values will continue to rise. If you stay in certain markets for the
long run, youll probably always do okay. If youre in the stock market or real estate market and buy good deals every month, you wont care if the market goes
down next year. Next year, youre still buying, so youre benefiting from those less
expensive prices.
Compare real estate to the stock market. Stockholders who panic when the
market goes down might sell all their stocks. By doing that, they lock in their
losses. If they had held on to those stocks for five to ten years, the value of their investment probably would have returned to a higher level. Similarly, with real estate, if investors can hang in long enough, time will fix almost any problem.
Many years ago, I bought some duplexes in not such a good part of Nashville.
It turned out to be a bad deal because I paid too much money for them. I paid
the full market value of what they were worth at the time. These duplexes
needed more repair work than Id realized, though, and not surprisingly, the
first year or two I owned them, I didnt make any money because of expensive
repairs. Then, the neighborhood got better, people started fixing up their
properties, and my bad deal almost tripled in value. Time fixed this mistake
and can fix almost any mistake you make.
xviii
Introduction
If you have short-term goals, get in and out of the market using wholesaling,
lease optioning, and rehabbing. With these approaches, you dont have to worry
about what the market will do years from now.
If youre holding properties for the long term and do it properly, by following
this 40-Day Plan, you wont have much market risk because youre always buying,
youre always able to hang on, and time will fix almost any problem.
Appreciation rates are generally 3 percent to 6 percent a year, which means approximately every 10 years, a property doubles in value. When is the time to get into
real estate? Today!
Tax Advantages
Wealthy people focus on one basic thingafter-tax dollars. This book provides
information about some general tax considerations as you get started in real estate investing.
xix
INTRODUCTION
If you work for a company or corporation, you probably dont get any workrelated tax write-offs; they go to your employer. Your exemptions would be your
children, charitable donations, and mortgage interest on your home, which is your
largest tax deduction. But if you own your own business, youll realize a number of
tax advantages. (Consult with your accountant about various tax laws that apply to
you.) You can write off almost any expenses related to your business. As the owner
of a real estate business, you can also write off depreciation and mortgage interest.
Other tax benefits include using a 1031 tax-free exchange, self-directed IRA, or
pension plan to buy and sell real estate, making it possible to pay no taxes or to defer taxes on your gains.
Whats more, as a business owner, you can start a self-employed pension plan,
writing off up to $40,000 (according to a sliding scale) of your first years earnings
right off the top. Go to my web site at www.sheminrealestate.com to link with companies that can get you started with a retirement plan. I am not affiliated with these
companies, nor do I profit from themI just think they are good resources for you,
as they have been for me.
Debt or Leverage
Youll likely borrow funds to buy real estate. The idea is not to buy real estate without any money; its to buy real estate without using your personal funds. What
other businesses can you start and have funded by other people? Very few.
Your costs to maintain the property are generally covered by rents you collect for
properties you hold over time.
When you own property, you have the supply, and your property will be in demand.
Of course, you have to analyze the market to understand how the supply and demand principle works in your locality.
xx
Introduction
When I first got into real estate, I thought there was only one way to make
money: Borrow money to buy a property, fix it up, and rent it out.Tenants pay
your debt and expenses, and the property appreciates. What a great wealth
builder! But this strategy also requires working with tenants and becoming a
property manager. If you can hang in there over time, youll realize a profit
and eventually build the wealth you want.
However, be sure to consider the reward-to-work ratio. Going for
greater profits can require a lot more work.Thats why I have another rule of
business:The more people involved, the more complicated everything is.That
means the more tenants you have, the more work youll have.You see, the actual house or duplex never calls to ask me for anything; its the people living in
the house or duplex who call and demand a lot of my time.The same is true
for you and your time.
Dont confuse property ownership with property management. Property
ownership is what youre going for; property management is what drives most
people crazy. Similarly, although rehabbing properties can turn into a profitable business, its managing the contractors that drives most investors crazy.
Make sure that you have good systems in place to manage your people and
processes.
With three wealth engines running, your possible return on investment is high, or,
as I like to say, infinite. These are your engines: You own properties that appreciate,
youll realize tax advantages, and youll use other peoples money to make it all
happen. All this leads to endless ROI possibilities.
xxi
INTRODUCTION
You can build your real estate investing business by buying rental property and doing rehabs. I highly recommend hiring a manager, however, so that youre not involved in the day-to-day details. Instead, you manage the manager.
Wholesaling
To wholesale property, you find a good deal, put it under contract, advertise it for
more money than you are paying, then close on it with the buyer at the same time
that you close on it with the original seller. Wholesaling has distinct advantages: no
buying, no borrowing money, and no dealing with tenants or contractors.
Lease Optioning
This involves leasing a property with the option to buy it at a fixed price, below
market value. Lease optioning has become more and more popular. Twenty years
ago, few cars were being leased; today about half of the cars on the road are leased.
Lease optioning can answer many problems. For example, self-employed people
who cant qualify for a mortgage can rent-to-own their home and new residents can
rent-to-own while they take time to get settled in a new area.
Money Brokering
As a broker, you become the go-between for people who have money and people
who need money, and you charge a fee to put them together, as most banks do. See
the similarity? Banks take money from people who open savings and checking accounts, pay them a low interest rate for the use of their money, then turn around and
lend that same money out at a much higher interest rate.
As a hard moneylender, you take on the role of the bank. You lend money
on property, secured by real estate, and get paid for putting deals together. After
about 10 years in business, many successful real estate investors become hard
moneylenders.
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Introduction
Consulting
Once youve been in business for a few years, people ask you for advice. As a consultant, you can charge an hourly rate or a percentage of the profits if you help with
a deal.
Property Management
Once you learn to manage rental property, you can do it for other people. Property
managers charge from 5 percent to 10 percent of the gross rent, plus various fees.
Real estate agents earn commissions from helping people buy and sell real estate,
although its not the same as being a real estate investor. There are advantages to
being an agent (earning commissions, access to a real estate office and listing services, and ability to run comparable sales analyses), but I decided they were greatly
outweighed by these disadvantages: licensing requirements, fees, long contracts,
and lots of regulation. In addition, agents cant pay finders fees to people who are
not real estate agents, while investors can.
Mortgage Brokering
You can start your own brokerage business, or you can affiliate with brokers and receive a referral fee for every deal you send their way.
Establishing Affiliations
You can make connections with construction companies or affiliate with contractors, title companies, and closing agencies to get a referral fee for every job you
send their way. Or you can start your own company to provide these services. For
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INTRODUCTION
all affiliations, be sure to check on the legalities in your area, and disclose your affiliations in writing to everyone involved in what you are doing.
Developing Land
Buy land, add zoning and sewers, perhaps even homes, and then sell everything for
much more than you paid for it. Two of the most lucrative businesses in the world
are buying whiskey by the bottle and selling it by the shot, and buying land by the
acre and selling it by the lot. Real estate developers make a lot of money because
instead of doing one deal at a time, they deal with multiples.
When youve gone to a seminar given by an expert, have you ever wondered, If
this person is making so much money in real estate, why is he selling books and
courses and doing seminars? I can only speak for myself, but the main reason I
write books and lead seminars is that I like doing them. I suggest that you never do
anything you dont like to do.
Although I do make some money from my books and seminars, I made more
money from one real estate deal last year than I did from all my books and course
sales in the last five years. And Ive got three best-selling real estate books. Besides, I take almost all the proceeds from my books and courses, and donate them
directly to charity. Thats why Im so motivatedbecause I like to help people in
as many ways as I can. Again, it is easier to make more money from a $200,000
home than from a $20 book.
When you buy preconstructed properties, you put down a deposit before anything
gets built. Suppose you have contracted to buy a preconstructed house and the developer raises the prices within a year. You can sell your contract for more than you
secured it for. In this area of investing, especially beware of supply and demand.
Also recognize you have capital tied up in your deposit. Most important of all, to
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Introduction
minimize your risk, make sure you feel comfortable dealing with the builder/developer over time.
INTRODUCTION
Authors Note
This book is filled with ideas that have worked for others and can work for you,
too. Please only use the ideas that you feel absolutely comfortable with. All business, including real estate, should consist of win/win transactions. Help others and
you shall win, too.
For those readers who think some of the material in this book in simple or basic, my question to you is this: Are you practicing these methods? Its usually the
simple procedures that bring you the most success!
Happy Investing.
xxvi
D AY 1
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
have a lot of desire; they go out and make things happen; they dont worry about
itthey just keep working their Action Plan. When I started in real estate investing, I didnt know these things either. But I did enough activities to experience
enough successes.
The most important part of your real estate investing career is desire and motivationwhether youve been in real estate for 10 years, or youre just starting out,
or youve spent the last 10 years just thinking about getting started.
never even read the course. These people remind me of a friend whos been divorced four times and still loves to give relationship advice. So notice when your
advice is coming from someone in Group Two, and dont pay much attention.
Group Three, the last group we get our advice from (and the smallest group),
is made up of experts. Those are people whove been doing something successfully
for over five years. I hope thats why you bought this bookbecause you want advice from an expert. Ive been investing in real estate for over 12 years, and people
consider me an expert.
Whatever you do, make sure youre paying attention only to advice from
Group Threethe experts.
Do What Works
As you launch your real estate investing career, notice what is working for you. I
challenge you: If one thing works, do more of it. I go around the county, and I meet
people who dont follow this seemingly commonsense philosophy. For example,
one guy said, I called my real estate agent, and he found a deal. I made $80,000!
Did you call him again?
No.
Do you talk to him anymore?
No.
Have you got any other agents working for you?
No.
Its human nature. All of us do something that works really well, and then we
quit. For example, have you ever been in a relationship, ended it, gotten involved
with someone else, and realized how good the first one was?
I quit doing something that worked in my fifth year in real estate. I had been
wholesaling properties at a rate of about one a week. I made a lot of money. It was
unbelievable. I wasnt fighting with contractors; I didnt have to deal with tenants.
My workload went down. I had free time. Then, the next year, I got into property
management. I had 18 employees and was busy all the time. It was stressful. My
company was very good, but we made no money. Still, I did that for two years. And
I wholesaled only a handful of properties during those years, because I was so busy
doing something that didnt really work well. So, if youre doing something that
works, do more of it.
3
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Mark a Spot
I encourage you to do the following exercise to demonstrate how your mind works
and how you can put it to work for you in setting your goals.
Relax. Stare at the wall. Without moving your shoulders or straining your
neck, look as far to the left as you can. Mentally mark the spot on the wall. Look
forward. Then again, without moving your shoulders or straining your neck, look to
the right as far as you can. Mentally mark the spot on the wall. Remember those
spots. Turn forward again.
Do the same thing again, but this time you can move your body. Turn all the
way to the left, moving your shoulders, turning as far as you can, and mentally
mark the spot you can see on the wall. Look forward once more. This time, look
left again, keeping your shoulders still, as you did the first time. Notice the spot
youre looking at. Is it farther away than the first spot?
Whats the difference between the two? You set a higher goal. Your subconscious mind realized that you could see farther than you did the first time. Thats
the only difference. Your subconscious makes a record of everything you say, do,
and take in.
Use this mind-stretching activity in your goal setting. Set your goal today,
then after doing real estate for one to three months, come back, review your goal,
and notice how much farther you see.
Included in these 40-Days to Success is the opportunity to meet a lot of
other successful real estate investors. Youll be getting to know people just like
you, who had no experience in real estate; they were just beginners at one point,
and now theyre creating a lot of wealth. Their insights will help you realize
your potential.
The Small Business Administration did a study of all the reasons people succeed in business. It considered education, background, experience, family,
where they lived, and what type of business they started.The study concluded
that the number one determinant of success was desire. Desire, motivation,
and goals are all different sides of the same thing.
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
All success takes is the right mental attituderealizing that real estate is just a
business, and youre just conducting business transactions. Dont allow yourself to
get emotionally attached to the properties or the deals. And remember, you dont
have to know everything to get started.
Write down what motivates you. Remember, there are no wrong answers.Whatever you desire is correct.
Why are you interested in real estate? What motivated you to purchase this
book and learn more about real estate?
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Here are some common answers to these questions: make more money, be
my own boss, become financially independent, be able to take more vacations, get
rid of my boss, tell my boss Im leaving and feel good about it, create wealth for future generations of my family, build retirement savings, take control, make up for
losses in the stock market.
Whatever your answer is, write it down on a card and look at it every day.
In the exercise above, you might have written down, I want to make more
money. Thats an excellent goal; theres nothing wrong with making more
money. The question is this: What are you going to do with the money? So if
you wrote down, I want to make more money, be more specific and write
down exactly what youre going to do with it. For example, are you going to pay
off some debt, take a trip, buy a toy? Whatever it is, write it down.
_______________________________________________________________
_______________________________________________________________
Now its time to get specific about how much money you want to make. Be realistic. If youre just getting started, maybe you want to make an extra $10,000
to $20,000 to $150,000 this year. Or an extra $2,000 a month.
Go back to the particulars.What will you do with that money, if you could
work part-time and make an extra few thousand dollars a month? What would
you do with your extra cash? How would it change your lifestyle? Write down
what difference that would make for you and your family.
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Next, find a specific example of a motivating factorwhat your success would
look like exactly. For example, if your goal is to take a vacation with your family,
then find a picture of the island location, and post it in your kitchen or bathroom. If youre motivated to make more money, write down the amount, and
describe what the money is for. Look at your written statement often. Perhaps
you want to buy a new car. Locate a picture of your dream car, put that picture
on your desk, and look at it every day.
Determining that motivation will remind you of why youre getting into
real estate.
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Remember, your number one determinant of success is your desire, your motivation.This visual reminder will encourage you weeks down the road. If youre having
a bad moment, dont get frustrated. Just reread that card with your goal written on
it, and look at the picture of what you want.Youll be motivated again to keep on
going. It will reignite you.
D AY 2
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
and eating a breakfast of fresh fruits. Then, she gets a spa treatment from the Mandarin Oriental in Miami, Florida. After a one-hour nap, she gets another spa treatment. Then, she eats a special lunch of fresh fish and steamed vegetables, prepared
in front of her by a private chef. Lunch is followed by a foot massage. She walks on
the beach during the afternoon. Any kinks from her walk are worked out by another
full-body spa treatment. She follows that by a period of meditation. One last spa
treatment ends the day.
What would this cost? To fly to the spa, $300. A night in a nice hotel, $200. A
good massage, $150. So with the multiple spa treatments and private chef, Felicia
can have her perfect day for about $2,000.
To start to make this dream a reality, Felicia has to write this down. Then,
she needs to keep what she wrote in sight for motivation. The final step comes
after her first real estate deal. She must pay herself first. If she makes $8,000,
shell take $2,000 to enjoy her perfect day of play. When she does, guess what
shell want to do? Shell do more real estate deals and come up with another
perfect day of play.
The biggest problem with real estate investors who make a lot of money is
that theyre so busy working at their business that they never take any time off to
enjoy the fruits of their labors. You need a strong commitment to pay yourself first
and play; we tend to pay everybody else first. Of course, you need to make sure
your bills are paid. But be sure to reward yourself.
Youre making a big commitment of yourself and your time to get into real estate investing. You can make it happen, but remember why youre getting into real
estate in the first place. I hope its to have fun and make money.
Once you get rolling, take a day of play every time you finalize two to five
deals. Make it part of your success plan. I promise you that these days will help you
relax and clear your mind. As a result, youll be able to do even more deals when
you return.
10
plan? What are your goals? Most of them say, Im just going to get into real estate, and something good is going to happen.
Well, thats not a bad plan. Its better than most peoples plans, which are no
plans at all. They just go to work, watch TV, and go to sleep. Theyre not willing to
do something different. They wont pick up a book, go to a seminar, or take a risk.
Thats why I commend anyone who says, My plan is to get into real estate, and
something good will happen.
You are different. Youve picked up this book and are willing to try something. Youre in the top 3 percent of the population. Most people go through life doing the same thing over and over again without goals or plans. Theyre negative;
they doubt everything. But youre making the effort to learn something new. Youre
following a success plan. Congratulations!
But lets make an even better plan.
Everything in your life results from thought. Everything in your life is an idea.
The house you live in resulted from someones thought. The car you drive started
as an idea. Someone thought about a car, drew it, built it, and made it a reality. Your
real estate business is something youre thinking about; youre wise to be thinking
about your success in it.
Maybe you havent thought this through entirely for yourself. Take a few minutes to picture in your mind what youd like to accomplish. Thats what youll
spend Day 2 doing.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
For the first five years I was in real estate, I never thought about any of
this goal setting or forward thinking. My business was operating very well
in Nashville, Tennessee. I was working between 50 and 75 hours a week
and feeling stressed out. One day, I decided to stop all my activities and
analyze my business. I read several books and came across this idea about
creating a perfect day of play and work. So one day, I went out on a limb,
and decided to work seven hours instead of ten. You see, I had limited my
imagination.
Then, I read a few more books and reenvisioned my perfect days of work
and play. I discovered that my perfect day of work expanded to doing my business from anywhere, being able to travel constantly, living by the beach, and
having assistants handle details of the business that I dont enjoy, such as accounting and bookkeeping. I would do deals all over the United States and in
some foreign countries. My income would double, enabling me to donate to
charities and help people.
When I wrote down everything I wanted, it all seemed unrealistic.Then
two years later, I moved to South Beach, Florida, and today I am making my
vision a reality. I live by the beach with a view of the ocean. I have assistants
who handle the details Im not good at. Im doing real estate deals all over the
United States. My income has more than doubled. And even though I work
hard some weeks, Im traveling constantly and taking a lot of time offusually
two months a year.
A few years ago, I would have thought having all of this impossible. But I
believe if you write down your dreams and think about what you really want
to happen, even if you dont expect your dreams to come true, they will. Revisit your goals and look at them often.
Many of my students make more than $25,000 a month. I can assure you that
their goals and perfect days of work and play have changed a lot over time. You
could make enough money to hire someone to worry. Some people like to worry.
Why not pay them to do it for you? Certainly, make it a goal to have enough money
that you can hire someone to tell you how to have more fun!
12
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
me from the rim of the canyon, crying with joy, telling me shed met her goal.
They spent a full week there taking helicopter rides, going up and down the
canyon on mules, and having a good time. Her son had never been on a vacation
in his life.
They came home, and she never did another real estate deal. Shes a teacher
and didnt have that much interest in real estate. That trip was her goal. And she
proudly met it.
Take three minutes to write down what your perfect day of play would be. If
you had two days and an extra $2,000 to just blow and have fun, what would
you do? The more detail you write down, the better.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
16
D AY 3
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
associations all around the country, to find other investors. Choose people who are
pros or people new to the business who are hungry and willing to grow and work
with you.
working for you. In any business, 60 percent to 80 percent of the business comes
from referrals. Think about that when youre calling people and working with
them. Take care of them, and theyll take care of you.
Real estate agents can scour the MLS for deals and run comparable sales analyses.
They are a source of buyers, motivated sellers, and people with money: the three
lists that youll want to build to grow your business.
To find agents to partner with, ask a few people at your real estate association,
look through the newspaper, and call two to five real estate agents who seem to be
active. Ask them, Do you work with investors? Once you find one agent who
does, then youll find the rest of your team.
Mortgage Broker
Investor loans are more difficult than conventional loans. Having a mortgage broker on your team can be a big advantage.
Find people who have easily verifiable income (W-2 rather than self-employed)
and borrow funds from them or use their credit. Whatever you dont have, find
someone who has it.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
20
Having a title agent familiar with you and your business can be helpful at closing,
especially when you do wholesaling.
A real estate lawyer will help you keep what you earn, protecting you from potential lawsuits. Your lawyer will set up your corporations and look over your contracts, partner agreements, and other documents before you sign them.
Accountant
One of the biggest surprises for me in real estate is the amount of work required to
keep up with the money flowing in and outwhere its coming from and where
its going. Like most investors starting out, I tried to do it on my own. It was a
small disaster.
I recommend putting a system in place. Open a separate bank account to keep
your business transactions apart from personal funds. Have a separate folder for
every property. Quickbooks can perform well for budgets, or hire a professional
bookkeeping service. Give them your receipts throughout the year; then at tax time,
your return will be ready. Make sure your accountants own real estate, too, and understand what youre doing. Theyll keep up with the laws better. Choose a good
one through a referral source you trust.
Almost everyone I know who has been successful in real estate investing for
over seven years has been through a full IRS audit. Youd better have good records
and be ready.
You might think hiring a professional to handle your bookkeeping, accounting, and taxes will cost you money, but it will actually save you money. Remember,
if all you did was find one more deal with that extra time, the service was worth it.
The cost of paying the person is not important; look at the cost of not having the
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
right professional help: stress, aggravation, not having good records, and lost time
to find deals.
Appraiser
Contractor
When youre analyzing deals, youll need a contractor to assign a cost to any repairs needed. Use a contractor rather than a home inspector. Although home inspectors provide an important service when youre buying your own home, they arent
effective for your purposes in real estate investing. If you hire a home inspector for
$300 to $500, all you get is a report that says what the problems are. Thats good
information, but you need a number. You need to know how much it will cost to fix
the problems. So when you buy property for your business, hire a contractor who
can not only find the problems, but can also give you a receipt detailing the costs to
repair them.
Business People
22
I went to the president of the biggest bank in my town, someone I didnt really
know, and asked him to help me with my business. He would sit down with me
every so often for 30 minutes and ask, What are you doing? Why dont you do
this? Go meet these people. Go over herehes buying property; shes selling
property. He really helped my business.
Insurance Broker
Youll need to carry proper insurance on your properties and your business.
Find the three most active investors in your town and take them to lunch. In fact,
thats your Action Plan for Day 3. They are big buyers; theyll buy anything you can
find. Because theyre out looking for deals, theyll find deals they dont wantthey
can give them to you. Third, they have money. They might finance deals for you.
People always ask me how I got into real estate. It was completely by accident. I had no desire or interest to be in real estate. That is, until I met a gentleman
in Nashville, Tennessee, who had a lot of rental properties. He had no formal education or background in real estate. I met him in his dumpy office. He didnt have a
computer. He still doesnt. But he had over 100 houses in Nashville, paid for, and
his net worth was in the multimillions. He was making between $500,000 and $1
million a year off his rental properties.
When I met him, he opened up his frayed ledger and showed me all the properties hed accumulated over the previous 20 years. He didnt start in real estate until his
mid-fifties, so you beginners still have time. In the beginning, he worked really hard,
but for the last seven years, he had been taking seven months vacation each year.
Thats when he turned to me and asked, Robert, hows your job?
I said, Not as good as yours! I recognized this golden opportunity. So I
asked if I could talk with him more about real estate investing. I took him to lunch.
He spent two hours with me, telling me what he did. Then I met other investors,
took them to lunch, and learned what they did. Thats how I got started.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Youre starting your business; you need to ask people for help. Tell them
youre building your business and are looking for deals. If you ask enough people, youll find them. Even go to the busiest investors in your town, people
who are doing 200 deals a year, and say, Im just starting out and would like
to get some deals. You might be surprised; they just might pass along some
deals to you.
Not long ago, I lease optioned five properties to David in Nashville.
Now, I knew exactly what those properties were worth, but I let him lease
option them from me for almost no money down at 78 cents on the dollar.
So, for example, one of the duplexes was worth $100,000, and I let him have
it for $78,000. I gave him terms. Now he manages them, rents them, and
makes money.
Why did I, a hard-core, seasoned investor, lease option them with such
generous terms? Theres only one reason I did it for David and didnt for anyone else. He asked. He said,Hey Robert, Im starting in real estate; youve got
a bunch of property. Do you have any you want to peel off?
I was willing to work with David because I wasnt interested in the five
properties anymore. Id bought them way below market five years earlier,
Id rented them and was willing to sell them below market to avoid listing
them, paying commissions, and scaring my tenants away. And I made
money.
So ask people.Tell them youre looking for deals.
In school, if you ask a lot of questions, people think youre dumb. Now
that youre an adult, asking for help is a sign of strength. Most people want to
help.You just have to ask.
Do you need money? Ask people if theyll help you finance a deal. Do
you need good credit? Ask people who already have it, if you can use their
credit and split the deal. If youre looking for real estate deals, call other investors and ask them. Call business people to ask for advice in starting your
business.
What do you want? Ask for it! Thats your homework.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
worth. You only have one asset in your lifetime. How are you going to spend it?
And what are you expecting to get for it?
As you start your own business, determine what your hour is worth. If you
think its worth $10 an hour, thats what youll make. Youll do activities in your
real estate business that support that rate, like painting, drywalling, and cleaning.
Theres nothing wrong with this if you have to do it in the beginning of your business, but keep in mind what your hour is worth.
If you determine that your hour is worth $200, you wont spend time on activities that wont support that rate. Instead of painting and cleaning carpets, youll be
out finding deals. Thats where the real money is.
Constantly remind yourself what your hour is worth. Check your activity,
and ask yourself what it would cost to hire someone else to do it. For instance, if
youre doing the painting yourself, find out how much you can hire a painter for.
Say its $10 an hourthen why are you doing the painting? Maybe you dont
like bookkeeping. What can you hire a good bookkeeper for? Look at what
youre doing, what your hour is worth, and where you got your ideas of what
your time is worth.
What Size
Small, Medium, or Large?
Do you want a small business, a medium business, or a big business? Keep in mind
that little businesses make a little money, medium businesses make medium
money, and big businesses make big money. Does that change your mind? So let
me ask it a different way: Do you want to make big money?
For many years, I had one or two real estate agents looking for deals for me.
Today, I have about 25 real estate agents looking for deals for me. I have eight
mortgage people whom I do business withtheyre out there looking for deals for
me. Its the same with other people on my team.
Dont get overextended right out of the gate. You want to start out focused,
narrow, and deep. But have an end goal. How many people do you want looking for
deals for you? If one real estate agent is finding you one deal every six months, for
example, then why not get six agents looking for deals for you?
26
Begin thinking about whos going to be on your team and start finding them. Over
the next 10 to 20 days, youll be building your team as youre completing the other
activities.
Find other real estate investors. How? Go to your local real estate association.
Look in the newspaper, in the section called Investment Properties. Find three
to five investors whove been doing real estate for over five years.
Invite them to lunch.Ask them a series of questions:
How did you get started?
_______________________________________________________________
_______________________________________________________________
What kind of real estate are you doing?
_______________________________________________________________
_______________________________________________________________
What would you do differently?
_______________________________________________________________
_______________________________________________________________
What would you recommend for someone like me whos just starting out, or
doing it part-time (whichever your situation is)?
_______________________________________________________________
_______________________________________________________________
Ask for recommendations of attorneys, contractors, and so forth.
_______________________________________________________________
_______________________________________________________________
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D AY 4
Foreclosures, Part 1
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
things or dont? Its not a very good use of your time. Lets get something out of the
way right now. People can be very strange. Why dont more people do real estate
investing? I dont know. Why do people smoke cigarettes? I have no idea. Why do
people not wear their seatbelts? Beats me. What people do and dont do doesnt
make much sense, so dont spend your time trying to figure them out.
What motivates some people to sell their property for below market? Although it certainly doesnt make sense to do so, people do it. Ive done itselling
five duplexes for 22 percent below market. Im not that greedy. Im happy to give
someone else a good deal. I made money. Im happy to get 78 percent. The point is,
dont worry about it.
New real estate investors worry, saying, The real estate market has gone up.
Its doubled in some cities in the last five years. Its very expensive. The real estate
bubble is going to burst. Are there really any deals left? Yes, there are always
deals to be found.
When will people stop having financial troubles? Never. When will people
stop getting divorced? Never. When will people stop dying? When will people start
managing their rental property perfectly? When will people stop being transferred
out of state or having to move quickly? When will they stop having to pay off debts
quickly, after getting in over their heads? Never, never, never. So when will there
stop being deals in real estate? Never. All these problems may motivate people to
sell their real estate below market value.
Foreclosure rates are at their highest levels ever. Those people will lose their
houses if they dont sell before the lenders foreclose on them. Their credit will be
wrecked. Thats motivation.
For the first time in many years, some banks and mortgage companies are
shorting their mortgages. That means they are letting the mortgages be paid off for
less than what they lent. That hasnt been common since the Depression. Why are
they doing that? Somebody did an analysis and discovered that discounting them
made more sense than keeping them on their books. Does that make sense? I dont
know. But thats what banks want to do.
There will always be motivated sellers because of death, divorce, financial
troubles, bad property management, property taxes, bad money management, the
need to move quickly, and repairs that are needed (often not as costly as the current
owner thinks). If you have a good contractor on your team, you can determine the
extent of repairs needed. The house may look really bad, but will clean up well at a
fraction of the expected cost.
30
Foreclosures, Part 1
Not too long ago, I was looking at a piece of real estate in Nashville. This
particular property was a brand-new, beautiful, five-bedroom, three-bath
executive home on five acres. It was easily worth $650,000. The newspaper
ad said, Must sell. Make offer. I asked what hed like to get for it. He said,
Id like $1. I laughed and said, No, really, what do you want to sell your
house for?
Again, he said,If you give me a contract for $1, Ill sign it.
Why?
Im getting divorced. I have to give my ex-wife half, and I cant wait to
throw fifty cents at her.
So we wrote a contract for a dollar.The judge didnt accept it, but he did
accept a contract for $340,000.
Why did the man want to sell his house for a dollar? Did it make sense? It
did to him.
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Order of Debt
Be aware that there is an order of debt. Lets say youre going to buy a house for
$500,000. You borrow $400,000. Thats your first mortgage. The bankers tell you
that you can get an equity line against your property and they lend you $50,000, so
that you can go on vacation, make repairs, or go to school. Thats your second
mortgage. Next, lets say you paid a contractor to do some repairs on the house and
then you got into a fight with him, so you didnt pay the bill. He can put a lien
against your property, say $10,000, for the work he did. That debt becomes third in
line. Then, you get in a car wreck, you hurt people, and you dont have enough insurance to pay the medical bills. The other people sue you, and their lawyer wins a
32
Foreclosures, Part 1
judgment of $100,000 against you. You dont have the $100,000 in cash, so they
put a lien against your property. This could go on and on and on. You could borrow
more money from other people and stack up the debt on the house.
Who goes first in order of the liens? The government. The government will always be paid. So if you owe city or county or state taxesthey will go first above
all the other debts. If you havent paid your federal taxes, the IRS can place a lien
against your house that trumps all others.
Lets say, for instance, you didnt pay your property taxes, and the city places
a lien against your houseits first in line. Its a governmental agency. If it forecloses on the house, then any further debt against the house gets wiped out.
If the property taxes were paid, but the bank with the $500,000 first mortgage
forecloses because it wasnt paid, then all the liens below that will be wiped out.
Lets say everyone has been paid except for the $50,000 second mortgage. If
the holder forecloses, every debt below that is wiped out, but the property still has a
$400,000 mortgage and the $50,000 thats being foreclosed on.
Ive worked on a house with seven mortgages. It was the third one that was
being foreclosed on. You can buy whatever mortgage isnt being paid and then
foreclose. Whenever you buy a mortgage, you step into the sellers shoes.
Governmental Agencies
There are other governmental agencies that may have an interest in peoples property, such as the Drug Enforcement Administration going after drug dealers or the
Justice Department going after white-collar crime, for example.
You can specialize in foreclosures in any one area. Remember, youre looking
for motivated sellers. If the IRS has a lien against someones house, that owner
might be motivated to sell. If the DEA has put people in jail for dealing drugs and
forces the owners to auction off their house, they may be motivated. You can start
networking with the people in the governmental agencies and ask if they know of
any real estate deals.
You might laugh this idea off, but consider what one deal is worth. If you find
one house worth $100,000 for $60,000 and wholesale it for $80,000, then youll
make $20,000. Some people work all month or all year just to make $20,000.
I know a police officer who leads a SWAT team that busts crystal-meth labs.
Members of his team deal with people who are making illegal drugs in their
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
houses. Their biggest risk when they go in and arrest these people who make drugs,
besides getting shot, is that the house could blow up because theyre using highly
volatile chemicals. They always have another team waiting outside in case the first
team gets blown up. This officer and his team have busted more than 300 crystalmeth labs in this dangerous work.
In addition to being a police officer, my friend is a real estate investor on the
side. He finds most of his deals through his day job. Of course, he discloses everything in writing, so that theres no conflict of interest. After a bust, he goes back to
the people involved and makes an offer on the house that was once a meth lab.
Then he wholesales it, making from $15,000 to $25,000 on every deal. He just retired from the police force at the age of 39 because hes made so much money from
his real estate deals.
One of my best sources of deals has become police officers. Get to know
them. If police officers or fire fighters refer business to you and you wholesale the
house, pay them a generous finders fee.
Get to know people at the tax office, foreclosure court, and other governmental agencies. When they find a deal, encourage them to call you.
Foreclosures, Part 1
Never buy or take an interest in a property without talking to a title insurance agent to make sure you can get clear title and title insurance.
Many people have bought properties at tax sales and learned afterwards
that they can never get clear title. If they buy a property, they do own it, they
can rent it and live in it, but they can never refinance it or get a mortgage on
it because they cant get title insurance.That means they can never sell it because the new buyer cant get a mortgage. Thats the way some tax foreclosures laws have been written.
There are ways to clear title by filing a lawsuit and going to court. Its
called a quiet title action. Its complicated, but it can be done.
Just be careful. Before you buy any property, anywhere, for any price,
make sure that youre getting clear title and can get title insurance.
get the property. In others, you have to wait a year to see if the original owner pays
it off (this is called right of redemption), which in some areas is two years. In other
areas, you cant get clear title.
Instead of wondering or worrying about it, make a couple of phone calls. Your
job as a real estate investor is to stay focused on helping people and making money.
While you can spend a lot of time studying the technicalities and terminology involved, and the differences in every citys and states ever-changing laws, you need
to focus on the end result. Call a local title lawyer and ask, Do I get the property?
Can I get title insurance? Its important to determine if you can make some money
on the deal.
Remember, almost all loans and liens are negotiable. If you never ask for a discount, youll never get one. So before you pay off any loan or lien, ask for a discount. Any time you ask a question, there are only three responses you can
get: yes, no, or maybe. So ask, ask, ask.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
In major cities, tax sales have become highly competitive. A lot of investors bid on these properties. My strategy is this: Go to small towns, out in the
middle of nowhere. There are real opportunities in small towns, away from the
competition.
Foreclosure Sales
When you go to a foreclosure sale, who else is there? Buyers, sellers, and people
with money. Network and get to know these people. They buy deals, they sell
deals, and they can pass deals on. You might even find a deal at the sale.
Let me tell you a secret about foreclosures. When you go to the courthouse,
youll see 100 people on the downtown courthouse steps. The same 5 or 10 people
are always buying the properties, like a little insider club (which you should get
intotheres always room for one more).
Lets say you looked at a house that appeared to be a good deal. You think its
worth $200,000. Its being foreclosed on, and somebody bids $190,000 on it. Youll
find out its usually the bank who bids that high because they lent $190,000. Everyone else at the foreclosure sale will probably shrug their shoulders, get upset, and
go home.
When you are outbid, never quit, and never get upset. Instead, approach the
buyers and ask what theyre going to do with the property. As in the example
above, call the bank who bought it. The bankers might say, We lent $190,000 on
the property, but now weve got to dump it. Make an offer. So you offer $110,000.
Maybe they take it. Maybe they dont.
In another example, an investor might buy a property at a tax sale to wholesale it. That investor could actually wholesale it to you, so contact the buyer and
ask. Then find out what else this investor wants to buy and go find it. That person
could become your new best client.
Youre always networking, always finding buyers. Most great deals come
from networkingsomeone you met at a foreclosure, someone you met at a real
estate meeting, a friend took you to lunch. If you dont want to do this part of the
business, find someone who does.
36
Foreclosures, Part 1
Go to the courthouse, find the registrar of deeds, and have the employees
show you how to do a title search. Im not recommending that you do these
searches consistently.That activity wont make you any money. But become familiar with them and the process they employ.
Who helped you at the courthouse? Keep in contact with them, because they
could give you leads.
Go to a foreclosure sale. Meet people. Get names and numbers.
Find out whos buying.These are people with money.They could become your
money sources. List them here.
Buyer ____________________
Buyer ____________________
Buyer ____________________
Buyer ____________________
Buyer ____________________
Ask what the buyers will do with the properties, and take notes here. Maybe
theyll sell their properties to you in the future.
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
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What other types of properties are these potential future buyers looking for?
List them here.
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
38
D AY 5
Foreclosures, Part 2
Finance Companies
Today, youll call finance companies. Get out your Yellow Pages, and look up
Mortgage Finance Companies. These are the B- and C-grade mortgage finance
companies. They make higher-risk loans, with lower loan-to-values. They have
names that include the words Associates, Beneficial, Commercial Credit, to
name a few.
Call the phone numbers, and ask for the managers. Tell them youre looking
for deals in real estate. Ask if they have any property now or if there are any properties they will soon be repossessing.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
These companies make riskier loans than banks and mortgage companies.
People they lend to dont have perfect credit, so often the companies end up taking
a lot of property back. Sometimes, the property returns are handled locally, sometimes regionally, and sometimes nationally.
Ask these lenders to send you a list of all the properties theyre taking back. If
youve contacted a company that handles its repossessions nationally, some properties will be in your state, while some will be in other states.
Most investors toss out the information regarding property in other states. Not
you! Use the same analysis on those out-of-state properties as you would for local
ones, and when you find a deal, call the local real estate association, get on the Internet, find the I Buy Houses ads in that area. Make a couple of phone calls to
source a local buyer for the deal youve found.
Ive wholesaled two properties that way in other states. I never even saw the
properties. I used the same system: Do the analysis, put the property under contract, and wholesale it to a local investor.
Foreclosure Sales
If youre going to a foreclosure sale to buy a property, youll need cash and a letter
of credit. If the government or the bank is foreclosing and theyre selling the property at the courthouse or at a foreclosure sale, once you put a contract in, you generally have from 0 to 10 days to deliver cash.
If you dont have a lot of money, find a partner with good credit or a lot of
cash, or go to a hard moneylender. (Youll have homework on Day 25 to find hard
moneylenders and other people with cash.) Another way to find people with money
is to notice who is buying property at the foreclosure sale. They have cash or credit,
so get to know them.
Why would people at a foreclosure sale want to talk to you? Because you can
help them. Find out what they want. If theyre buying property, find out what
theyre looking for, so down the road, if you locate property that fits their criteria, you can sell it to them.
40
Foreclosures, Part 2
Caveat
Although foreclosure sales work and many of my students make a lot of money
finding deals through them, I generally dont like them for three reasons: Theyre
very competitive, you need a lot of cash, and you cant inspect the property. I know
plenty of other ways to find deals. But some people love to work foreclosures, and
there certainly are deals to be found.
Today, call eight to nine finance companies. Do they have any property, or will
they soon be repossessing any property that you could buy?
Company __________________________ Phone number ________________
Property description ______________________________________________
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
42
D AY 6
Friday Check-In
ay 6 could land in the first week, second week, or even third week after you start your business, depending on the pace
at which youre going. But by now, youve been doing real estate for five days.
Youre still looking for deals, but theres something important to take care of.
Whatever day this comes out on for you, youve got to do the activities on what I
call your Special Friday.
Special Friday
You can pick a day other than Fridaybut youve got to do this once a week.
Theres no option. Every Friday, spend 30 to 40 minutes to step back and carefully
examine your entire business.
That means review both your business and household budgets. Be aware of
whats coming in and whats going out every week. Of course, if youre just getting
started, you may have lots of money going out and none coming inyet. But still
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Doing this addresses the number one killer of businesses: lack of cash flow. A
lot of businesses make money but dont have the proper cash flow to keep it
going. Without good cash flow, they dont have a cushion or the capital to
weather a few poor-income weeks in their business. All of a sudden, a good
business can be out of business. Because of this, I set aside time every Friday
and I look at the cash-flow statement for my business.
track it. If youre not able to, hire a bookkeeper to do it, because you need a weekly
statement of whats coming into and going out of your business.
You may shy away from looking at your financial statement every week because it could be so depressing. But I think one of the best motivators is desperation. It gets you moving and thinking. Look at financial statements for both
your personal budget and your real estate business, and youll know where your
finances stand.
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Friday Check-In
Hes been busy talking on the phone with his friends and playing games
on the computer, but he hasnt been making any money. What would you do
with that employee? Youd put him on notice. Well, if youre accomplishing
nothing with the time youre spending, youll have to put yourself on notice,
too! I certainly hope youre tracking your time, so that you know whats actually
getting done.
Tracking your time is good business. From now on, track your time, track
whats making you money, and track your cash flow. Do this every Friday. How can
you improve and become more efficient if you dont know what youre doing, how
youre spending your time, or whether youre making any money? Scrutinize your
own use of time just as you would an employees.
Track your time every day and total it every Friday. Its a discipline. You have
to do it. Fill out your checklist (see the Action Plan at the end of this chapter for a
copy). Looking back, youll be amazed at how you spend your time. Once, I spent
30 minutes looking for paper clips! Ive actually spent an hour looking for a CD.
You might spend time doing the laundry, watching TV, folding paperdoing anything but work. You can be extremely busy without being productive. So focus on
your productive timetime that will help you find sellers, buyers, and money
time that makes deals happen.
The most successful real estate investors in the country are probably spending up to 15 hours a week doing productive activity. Please dont get me wrong.
Theyre busy 40 hours a week, but how much of that is really productive time? A
Whats the real reason you should get into real estate investing? Consider
what an hour is worth when you are spending time with your family and
friends, tending to spiritual pursuits, and doing other things you really enjoy.
These hours are priceless. Every hour you spend working, you cant spend doing whats really important to you.
Thats why you need to make a lot of money during the time youre
working. You want to weigh the time you spend working against the cost of
not doing what you really want to be doing.This issue is not about the cost of
what you are doing, but about the cost of what youre not doing.Thats whats
important. Make it count. Make your money in a fewer number of hours, and
free up time for the rest of your living.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Friday Check-In
Financial Housecleaning
On Day 6, start filling out your productivity chart. Be diligent. Make sure you get
those budgets done. Every Friday, demand from yourself and your bookkeeper to
know what the businesss cash flow iswhats coming in and whats going out.
Every month and every quarter, do a financial statement; review it carefully.
By doing this, youll be set at the end of the year instead of scrambling. Once you
get into real estate, your financial situation should be much better after two years. I
hope youll be making more money, bringing in more cash, and building more net
worth through your real estate equity. Take a snapshot now and then regularly
down the road. Keep comparing the numbers.
Check your weekly financial statement for both your real estate business and
your personal budget.
Total the time you spent on each activity this week, and fill in the rest of the
chart below.
Productivity Chart
Activity
Time Spent
Profitable?
Enjoyable?
Am I good
at it?
Can someone
else do it?
30 minutes
0
0
0
0
0
after a while
one hour
two hours
four hours
Under the Profitable heading, enter your actual earnings; the first month
might have all zeros, but after six months to a year, youll see profits.
47
D AY 7
Looking through
the Newspaper
he basis of real estate investors success lies in finding good deals rather than ordinary ones. You dont even need
to get dressed up to find good deals. Just grab a cup of coffee and scour the
newspaper.
Which newspaper? Although you can look in your citys major newspaper, the
local, regional newspapers are even better. Theyre much less expensive to advertise in. Youre looking for motivated sellers, and theyre looking to save money, so
they often choose these papers to advertise in. Youll get a lot more for your time
by combing through local papers. Still, spend a few hours a week looking through
the major newspaper, too.
Many great deals are there, section after section, ready to be foundby you!
Remember, youre looking for a motivated seller. Sometimes, the ads will tell you
directly, saying, Motivated seller, Must sell, or Must liquidate. Mostly, youll
infer the motivation by combing the following sections.
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If people try to sell their properties and dont want to get a Realtor involved, they
have strong motivation to sell. Maybe they dont want to pay a real estate agents
commission, or they dont have time to get an agent. These ads can lead to finding a
good deal quickly, because you can negotiate directly with the decision maker.
These involve real estate investors doing lease options. They may be motivated.
They may be willing to do owners terms. Its definitely worthwhile to find the
other players in the market who are doing lease options.
When youre calling For Sale by Owner and Lease Option ads, here are the
three questions you should ask. (1) Are they motivated sellers? (2) Are they buyers? (3) Do they have any money? By probing for answers to these three questions,
youve tripled your rate of success with every call.
For Rent ads are among my favorites to call on. Im not saying this is the only way
or the best way to find deals, but in every major city where my students have said
no deals exist, I can call from 50 to 100 For Rent ads and find deals.
Whos on the other end of a For Rent ad? Either a landlord or property manager. The property must be empty because theyre running a For Rent ad. Likely,
the tenants left it in poor condition, and they arent collecting rent on it. They just
may be motivated.
Additionally, if theyre landlords, they probably bought the property years
ago, paying half of what its worth now. Even though theyve heard its value has increased, in their mind, its still worth what they paid for it. Therefore, they might be
willing to sell it for less than current market value.
Lets say a house worth $150,000, and the rent is $1,000 a month. Does that
mean the landlord is making $1,000 a month? No. Hes spending a lot of time and
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
effort to take care of the property. Hes managing it, or paying a manager. Hes
spending a lot of money on repairs. Currently, its empty. So run the numbers, and
ask the following questions:
How much have you spent on repairs in the last two or three years?
How much time do you spend with paperwork and phone calls?
Then run the numbers with the landlord. Hes not collecting $1,000 a month
because its been empty two months this year, so hes only collecting $833 a month.
He has all of these expenses and headaches. Point out, for example, that in the last
three years, he spent $3,000 fixing the property, painting it, replacing carpets, and
so on. Thats $250 a month. With repairs and vacancies, hes really only making between $500 and $600 a month.
On almost any rental property, you can take 30 percent to 40 percent off the
top for vacancy, management, and repair expenses. Thats something most investing books and seminars never tell you. You may be an exception. You may have a
rental property thats been full all year and has had no repairs. If so, youre very
lucky. Over a 5 to 10-year period, youll still have to fix things, paint, replace carpet, or replace the roof and hot water heater. Managing property takes thousands
and thousands of dollars.
After you point out that hes really only making a fraction of what he assumed, he could be motivated to let you take over the property, so that he can
get out of the headache business, get out of the repair business, get out of the
tenant business. Then hed be free to travel and pursue his hobbies. Talk with
him about doing a lease option or selling the property. Make a quick profit and
move on.
Most people call 20 For Rent ads and only reach one or two people. They
leave a bunch of voicemails and no one calls them back. After that, they quit.
50
Im willing to call at least 100 For Rent ads. Out of 100 ads, I usually get
through to about eight people. I leave voicemails with the rest, and between four
and eight people call me back. So Im lucky to get a 10 percent to 15 percent response rate.
Most people lose interest and quit too quickly. One of my deals in South
Florida resulted from making 150 calls on For Rent ads. I only got a hold of 15
people, with callbacks and leaving messages. But of the 15 people, I connected
with one landlord who had two deals and had only closed on one of them. I wholesaled his condominium and made $28,000. Do the math: $28,000 divided by 150
calls equals $187 per call.
The way I look at business is this: I dont care that I called 150 people and
most people didnt call me back. I look at what I make per phone call. Now thats
just to find the deal. Then I had to put it under contract and find a buyer, so theres
more work involved than the initial round of calls. And deals do fall through occasionally; nothing works out perfectly.
But consider this: Would you make a call knowing youd earn $187 to make
it? Lets say youre not very skilled yet, and you only average $50 a call. Would
you still be interested in making a call to earn $50? Do you currently make $50 for
every phone call you make? Of all my students tracking calls on For Rent ads, the
least successful one Ive heard of is making $30 a calland he didnt follow my
system. Still, thats not bad. Unfortunately, most people will make a few calls, get
no response, decide this doesnt work, and quit.
Consider this: If Ive made 149 calls and still havent found a deal but have
confidence that I can make an average of $187 a call, Ill make another one (or
whatever the call ratio is). The point is this: Calling is worth your time and effort.
Track the number of calls you make, the number of responses you get, and the
amount of money you make. I promise, if you call For Rent ads in the next year,
youll find deals.
What are the two things landlords and property managers hate about their
property? (1) Collecting rent, (2) Making repairs. If tenants always paid their rent
on time and there were no repairs, no one would complain about rental property. So
when you talk to landlords, keep in mind youre here to fix problems. Tell them, I
have a program. I need to see whether youre qualifiedyou might or might not be.
This program will get you out of the repair business and make sure you get your
rent on time, all the time. Would you be interested? Please call. (Leave your name
and phone number.)
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Most beginners in real estate investing call with an apologetic attitude. They
want something the owner has and arent sure theyll be able to get it. So using the
script on the previous page, youre posturing. Youre telling them you have something they might not be able to get. You have to see if theyre qualified, because
you have the goods: the information, the knowledge, and the program.
Usually, if a house is listed by a real estate agent, the sellers are not highly motivated. The real estate agent has done an appraisal and run comparable sales, advising the seller to list the property for what its worthor even more. However, these
agents might know of some motivated sellers. And remember, youre always building your team of experts.
Real estate brokers are valuable team members for several reasons:
You can specialize in one or two of these areas. Taking ethical shortcuts, I suggest you
find out who works in these areas at the courthouse and take them to lunch. Tell them
youre looking for deals in real estate and that youll pay them a finders fee. The
transactions become public record, but you still must respect client confidentiality.
Read announcements about upcoming auctions and court actions. Then attend them.
Talk to everyone there, get contact information, and use it to build your buyer
database.
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Obituaries
If an obituary is in the newspaper, what does that mean to you? The deceased usually leaves behind real estate, furniture, cars, and family members who live all over
the country. You could be doing the relatives a service by writing or calling them
and saying, I am so sorry to hear about your loss, but if you have any property you
want to dispose of quickly, I can help. I might be interested in taking it over. In a
lot of cases, people say, We dont want to mess with this house. The children and
cousins have moved across the country. Just take the house; youre doing us a favor. Yes, we know were selling way below what it is worth, but we dont have time
to deal with it. There are too many memories there. Just take it.
Investment Property ads are for properties being sold by investors and landlords.
They may not know enough about investing or analyzing or managing property.
They may be losing money on their properties or deciding to retire. Find out their
situations; these sellers could be highly motivated.
After a rich man in Nashville passed away, Bill, a friend of mine, read the obituary in the newspaper and called the widow. She had just inherited 14 apartment buildings and 20 small housesproperty she didnt want to deal with.
She was happy to sell them to my friend for 50 cents on the dollar. She offered
owners terms and made a lot of money.
He also asked her the magic question: Do you have anything else youd
like to sell? She took him out back to the barn, where she showed him 20 collector cars her husband had acquired. He bought them all for $50,000, and
sold one of the 20 for that exact amount. The proceeds from the other 19
were pure cream on top.
The lesson is this: Be aware, look in the paper, and make that phone call.
Why did Bill find all those deals and make all that money, while I didnt? Because he picked up the phone and asked. I wished real estate was a bit more
complicated than that, but its really not.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Most of my deals are done with other investors. They understand investing.
They understand that Ive got to buy a deal; they know I understand they need
to make a little money.They wont try to sell property for full price to another
investor. Most real estate investors are good people, and youll want to get to
know them.
another source of investors. Call the advertisers, tell them youre starting out in real
estate and want to learn more. Of course, ask them if they have time to talk. Be respectful; chances are theyre busy people. If you leave a voicemail message, make
sure you leave a message that will compel them to call you back. You can leave your
name and phone number, but if they dont even know who you are, they probably
wont call back. Instead, think of something theyre interested in, and connect to that.
For example, you might have property theyd be interested in buying, or perhaps you
have a friend in common. (See Leaving Phone Messages in Day 9 for more ideas.)
Sending Letters
One of my students concentrates his business on writing letters to family members
grieving after a death. He finds names from obituaries in the newspaper. It works.
Hes helping people sell things quickly and settle the estate. Families are very appreciative that someone is willing to come and take it all: houses, cars, and furniture. You too can provide this service.
If youre making calls or sending letters based on obituaries, please be very sensitive. Remember, youre dealing with people who have just experienced a death. My
students letter reads: I understand youve just had a loss in the family. If there is any
real estate that you would like to sell, I may be able to buy it quickly. Please call me.
Expect realistic responses. If you send out the best letter in the world, the average response rate to direct mail is 1 percent to 2 percent. Even if youre offering
gold bricks, unlimited wealth, weight loss, or free money, youll still only get a 1
percent to 2 percent response rate. Youre playing a numbers game. Most people
arent willing to send the volume of letters that is required to get the needed response rate. I highly recommend that you spend a few extra minutes to double your
response rate by doing a few simple things:
1. Hand write the address, then youll get more people to open the envelope.
2. Include the following message in bold print on the envelope: We May
Have Money for You. If you received an envelope that said that, would
you open it and read the letter? Most likely. A compelling message increases your success rate.
3. Make sure the first line of your letter is written in a forceful way.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
To triple or quadruple your response rate, follow your letter with a phone call.
At the bottom of the letter, write Please expect a phone call. When you call and
someone asks who you are and why youre calling, you can say, Theyre expecting my call. Or you can say, Its personal. Or even, Its a legal matter. Check
with your attorney and do only what you feel is legal, ethical, and honest.
When people dont call back, leave a polite message every day until they do. If
you need to talk to someone, instead of wondering or worrying, pick up the phone
and dial 7 to 10 numbers. Think from the other persons point of view; try to return
everyones phone call within one business day. If you want to be in the top 10 percent
of whatever business youre in, just calling people back makes a huge difference.
tion for at least the next 90 days. Also make it a habit to look through the real estate
section on at least one other day of the week, usually a Wednesday or Thursday.
But always look on Sunday.
Besides having great information about the market (interest rates, players,
sellers, and buyers), the newspaper has helpful articles about mortgages, mortgage
rates, trends in real estate, and new developments. If you read the newspaper regularly, youll become an expert on your local real estate market. Many newspapers
are also available on the Internet, so if youre interested in another city or area, get
online and start reading its real estate section.
Commit to educating yourself about your real estate marketthe different areas and pricesso youll recognize the deals.
Today, youre looking for potentially motivated sellers who may be prospects.
Circle the following ads in your newspaper: For Sale by Owner ads, Lease with
Option to Buy ads, For Rent ads, For Sale ads, Make Offer, Must Sell, I Buy
Houses ads, court announcements, obituaries, and Investment Property ads.
Which newspapers do you use? You should also read local shoppers news, big
city papers, and legal newspapers.
List the newspapers you scoured today.
_______________________________________________________________
Names and contact information of investors you found in the paper:
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
What did you learn about the real estate market from the newspaper?
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
List active real estate agents.
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
List the potentially motivated sellers you found, with their contact information.
Tomorrow, youll make these phone calls.
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
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D AY 8
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
and courses to learn the principles contained in this material. Follow these ideas,
and youll get similar value and results. So lets get started.
First, block time out in your schedule to focus on making phone calls. Dont try to
sandwich calls between all the other things youre doing that day. Make calling a
priority. On this day, Day 8, take 90 to 120 minutes to make phone calls. Turn
everything else off, shut the door, and focus on just making phone calls.
Number of Calls
How many phone calls can you make in an hour? A professional telemarketer can
make between 30 to 50, so you can probably make at least 20 to 30. At least, set
that as your goal, and be sure to track the ones you make.
Gather Information
From your very first call, all you want to do is gather information. That is initially
your only mission: to gather information.
Dont fall into the traps that hurt so many novices. To succeed on the phone,
use these techniques:
First, relax. Take a few deep breaths and focus.
Second, remember that the less you care, the more money youll make. So
dont care; have fun.
Third, use posturing to portray yourself as a busy real estate professional.
Thats the attitude you must have, whether youre just beginning or have been
working for 10 years.
Fourth, when I call about real estate, the last word I mention is real estate. Im
genuinely interested in the people Im talking with so I ask about what they
do, where they live, etc. I let them ask why I called. Then, the real estate becomes a by the way aside rather than the focus of the call.
Fifth, build rapport, making them feel comfortable with you and you with
them. Studies show that people like to do business with people they like.
Sixth, match their style. Ive learned from martial arts that if you want to win
a fight or any kind of conflict, use whatever energy your opponents use
against them. Dont use your energy; use theirs. For example, if you call
someone and say, Hi, my names _________________ and Im calling about
your real estate, and hes loud and abrupt, then match his style and speak
loudly and quickly, getting right to the point.
Alternatively, if you call someone whos quiet and peaceful on the phone
and speaks with a low voice, match this style with a quiet, peaceful demeanor
and low voice.
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
I suggest that you play with this style of calling and become comfortable with
it until you find your own style.When I respond to a For Rent ad and someone
picks up the phone, I say, Hi. My names Robert. Whats your name? Then I
ask,Where do you live? He usually gives me the name of the neighborhood.
Then I ask,How long have you lived there? I might ask where he works and
how long hes been there. At this point, some people say, Hey, wait a minute!
Why are you calling? Who are you? And Ill say,Oh, by the way, Im calling on
a For Rent ad. I never bring it up first. I want to build rapport first.
The problem with most beginning investors is that they care way too
much about the real estate and getting the call done. In my experience, that
approach will hurt you. So, care less. Have fun. And be genuinely interested in
the people youre calling.
To reduce my nervousness and tension while Im on the phone, I usually
do something else while I make the calls, such as skim a book or magazine.
Maybe youd like surf the Internet.That will make you care a little bit less and
make calling a little more pleasant. If you worry too much about doing anything, it can become nervewracking.
know me, and I know you probably dont like getting phone calls like this. Then
be silent for a minute. Youve just addressed exactly what theyre thinking. This
will disarm the person youre talking to. Then say right up front, Look, Im a beginning real estate investor, and Im not very good at this. I dont really know what
Im doing. Pause again. Then say, However, Im trying to find a few good deals
and was wondering if you would answer a few questions. I might not even ask
them right.
This honest, up-front approach disarms people, makes them feel comfortable,
and gets good results. Theres nothing wrong with telling people youre new at real
estate investing, and dont know what youre doing. But, gee, youre trying. And if
youre relaxed and having fun, the people youre calling will relax and have fun.
Alternatively, if youre uptight and nervous, the people youre calling will be uptight and nervous. So give what you want to get.
If youre calling on a foreclosure, keep in mind that the people involved may
be under pressure, in denial, and getting a lot of calls. In that situation, say, I
62
know youre getting a lot of calls, and a lot of letters, and people are coming after
you. I dont want anything, relax. How are you feeling? Let them talk. Ask if
theyre confused about the process, if they have any questions, or if theres any
way you can help.
Here are three key questions you want to get answered for any property
youre calling about. If youre calling on a For Sale ad ask
1. Why are you selling?
2. Why are you selling?
3. Why are you selling?
The reason for such repetition is that you have to find out if theyre actually
motivated to sell.
The first time you ask, most people wont tell you the real reason theyre selling their property. You have find out what the real problem isthe serious motivation behind selling the property. Usually, you have to ask why are you selling?
several times to uncover the true reason. And even then, they might not have a reason. Thats also important to know, because youre looking for motivated sellers.
Youre looking for people who are willing to sell their properties for 15 percent to
30 percent below market value. If theyre not motivated, theyre not going to sell at
a discount. So if they answer, We just want to sell our house; we have plenty of
time; theres no rush; the real estate agent told us its worth $1 million and we want
to get that for it; we have no particular reason for selling. If thats the truth, those
sellers clearly arent motivated to sell at the below-market price youre looking for.
But they may also tell you, We have to move out of state quickly. Ive got a new
job and we have to be in our new location within a month. In this case, theyre
likely highly motivated to sell.
Often, people say they have to sell the house because they need the money.
Most real estate investors stop right there, but you wont make that mistake. Youll
keep asking questions. Ask, What do you need the money for? If they say they
have to pay off some debt, ask how much the debt is. I suggest you strive to uncover the exact numerical reason why theyre selling their property.
Are you surprised that people actually reveal these details on a first phone
call? Thats why trust-building telephone techniques are so important. You have
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
I like to say Im a real estate doctor because my focus is to help people. I tell
them Im here to help them solve their problem if they have one. If they
dont have a problem, I offer to help them sell their house anyway. So if
theyre not motivated and they want to sell their house, I may refer them to
a real estate agent or give them an idea how to market their property. My
number one priority is helping people. If they dont have a problem, I cant
help them.
Contingency Clause
If you were buying a house for yourself, your contract would most likely have a
contingency clause stating something like this: This contract is contingent upon
getting a good mortgage from a lender. If you couldnt obtain funding from the
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Remember, even though Ive been in real estate for over 12 years and teach
how to make phone calls, I almost never do it perfectly myself. I usually leave
something out. After I hang up, I remember something I should have asked.
Know that feeling? Of course, you can always call the person back. Calling a
second time often proves to be much easier.
Please understand that this is not a test.You dont have to make each call
perfectly.You can miss half the questions and do half of the things wrong, but
just by making the callif you make enough of themyoull make something
happen.
bank or mortgage company, or privately, you wouldnt have to buy the house, because you included the contingency clause in your contract.
Whats your risk in sending out that contract? None. Whats your risk in not
sending that offer out? You could lose a potential deal. You never know. You might
also include a line in the contract that says, This offer is only good for one business day or This offer is only good for 48 hours from receipt. Or put a date on
which the offer will expire. Dont make an open-ended offer that doesnt specify a
time to reply; if you give people an unlimited time in which to do something,
theyll probably never do it. If you give them a week, theyll probably respond on
the seventh or eighth day. So when youre making offers, dont allow too much
time to reply.
To build a greater sense of immediacy, include a cover letter that states youre
making offers on a lot of other properties. Restate the time frame you stipulated on
the contract: This offer is only good for 48 hours from receipt, for example. It
expires this Friday at midnight, so please respond. Then, include your phone number. Close the letter with a note that you will be calling. Then follow through. Take
the time to make one more phone call.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
How long have you been trying to sell the property? _____________________
(If the person says,Im not going to tell you that, its personal, respond with,
Thats fine, its public record, Ill just look it up. It doesnt matter to me.
Remember, you dont care that much. Its just business.)
(Again, if the person doesnt want to tell you, be easygoing about it and say it
doesnt matter to you; its public record, youll just look it up.)
(Only negotiate with the decision maker.You may be talking to someone for a
while and discover hes not the owner but the third cousin who just happened to
pick up the phone. Hes not the person you want to talk to or negotiate with; he
cant make a decision.)
(If the bank took back the property last week but the people are still living in it,
then talk to the banks representative.The bank holds title and owns the property.)
(Be sure they are comparing apples to apples and oranges to oranges.They may
think their house is worth the same as one that sold down the street. But if the
one down the street is newer or bigger, theyve got the wrong price in mind. If all
the houses on the street are about the same, the price quote may be on target.)
66
What repairs are needed? How much would they cost? ___________________
________________________________________________________________
________________________________________________________________
(Once a deal progresses, be sure to verify these expenses. Send out a contractor
to inspect the house. But in the preliminary stages, when youre finding out
whether its a deal worth pursuing, keep in mind that most sellers do know what
repairs are needed and how much theyll cost. So ask them. If they say no repairs
are needed, use my system to go from top to bottom.Visualize the house, start at
the top, and go down.) Hows the roof? Hows the ceiling? Walls? Bedrooms?
Bathrooms? Kitchen? Floor? Stairs? Foundation? Windows? Yard?
(If they say theyre in no rushtheyve got two yearstheyre not motivated. If,
on the other hand, they say theyve got to sell it within 20 days or the bank will
take it back, youve found a motivated seller.)
And heres the million-dollar question: Do you have any other properties for
sale? ____________________________________________________________
Fill out a Property Analysis Worksheet like this on every call you make. I suggest doing all your real estate business this way, by making calls and completing
the worksheet as you go.
These are two important numbers to know when youre considering buying a
piece of property: (1) what the sellers bought the property for and (2) what
the current mortgage amount is.
Generally, people wont sell their property for less than what they
bought it for or less than what the mortgage is.There are a few exceptions, especially when theyre in financial trouble or when the bank is willing to make a
short sale or discount the amount of money thats owed.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Ten years ago, when I started in real estate, the newspapers were filled with
notices of foreclosures. There were fewer buyers, and the market was not as
hot as it is now. I used to look at five to eight properties and find a deal.Today, I
consider between 50 and 150 properties to find a deal. Is all this trouble worth
it? Absolutely.The only thing that matters is what one deal can be worth.
If you find a house in the $200,000 price range and youre able to make
10 percent for wholesaling it, thats $20,000 in your pocket. Of course, this ratio depends on your experience, the area youre in, and the type of real estate
youre looking at. Track the number of phone calls youre making and your
success rate. If you continue to follow these success plans, six months from today youll discover that youre achieving a much higher success rate than you
were your first week.
68
Experienced investors: If you follow this 40-Day Action Plan in your business,
your results could double or triple. Suppose that one deal is worth $5,000 to
$100,000 or more. If you make that extra phone call or send just one more
letter, even if it works only once, you could make a huge amount of money.
As you call people, remember to keep building your three lists: buyers, sellers,
and people with money. To increase your business, always ask this magic question: Do
you have anything else you want to sell? And always ask this question: Do you know
anyone else who might have a property for sale, or who is buying property, or who has
money? About one out of four times you ask that, youll receive a referred lead. Most
investors new deals come from referrals, as many as 60 percent to 80 percent of them.
Your goal is to spend two hours today making phone calls from the contacts you
found in the newspaper.You can probably make between 20 to 30 phone calls in
one hour. Make that your target rate.
How many calls did you make?
_______________________________________________________________
How many people did you reach?
_______________________________________________________________
List any potential deals.
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Who would you call to help you with an immediate deal if necessary?
_______________________________________________________________
From now on, spend at least one hour a week making these phone calls. If
you do this faithfully for 30 weeks, something will certainly happen. On the
other hand, if you make phone calls for 30 minutes only one time, not much at
all will happen.
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D AY 9
Time Management
Believe it or not, 60 percent to 80 percent of your business can be handled over the
phone. Youll find, however, that people will ask you to meet with them. Ask them
why. Adopt the attitude that youre very busy; youre a professional. You have a lot
of phone calls to make, a lot of properties to buy, a lot of offers to present. So ask
people why they want to meetwhy cant you do business over the phone, through
the fax, or via e-mail?
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Ive learned the most efficient use of my time is on the phone looking for
deals. I can even have a contract signed or close on a property through a fax
or by using a courier service. I avoid driving across town, and getting stuck in
traffic.The first year or two I was in real estate, I didnt even think about all
my driving, but then I began to analyze how I spent my time.
I calculated that being stuck in traffic ate up 80 percent of my time. I was
driving to meet people that I didnt really have to meet. I was driving to the
hardware store to pick up materials, driving to pick up pieces of paper. Now, I
use the phone, fax, e-mail, and courier services, saving all that time!
How will you manage your time?
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One of the keys to real estate investing is following up. Call people back. Make
sure you reach them. Call them every business day, and leave a friendly, positive message until they call back. If you call only once, they may forget about
your message or misplace their notes. But if you call several days in a row,
theyll call you back, if only to make you stop calling!
Remember, real estate is competitive. If you dont call back, someone else will call in the interim. So pick up the phone, and make those
calls.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Spend an hour and a half to two hours making phone calls from the contacts
you found in the newspaper. Remember, you can probably make between 20 to
30 phone calls in one hour. Set that number as your target rate.
How many calls did you make? ______________________________________
How many people did you reach? ____________________________________
List any potential deals here:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Landlords and investors are good people to talk to; you can learn from their
successes and their mistakes. To help you learn, when you call on the investment property ads, ask the owners the following questions and write down
their answers:
How long have you been investing? _________________________________
How do you like real estate investing? _______________________________
Im getting started, could I take you out to lunch? ______________________
At least once a week, take a successful real estate investor out to lunch.
Who will you take out to lunch this week? _____________________________
Next week? _____________________________________________________
The following week? ______________________________________________
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Date:_______ Time:______
Name: ______________________________
Date:_______ Time:______
After you make your calls, write down these three things:
What did I learn today? Maybe you learned some market prices or found some
players active in real estate in your area. Maybe you found some sellers, buyers,
or resources. List them here.
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
How could you make calls more efficiently? Is there anything you forgot to say?
How could you leave a better message?
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Did you enjoy making the calls? If not, how could you get someone else to do it?
_______________________________________________________________
_______________________________________________________________
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D AY 10
If houses look deserted, or the grass is high and the bushes overgrown, could the
owners possibly be motivated sellers? Absolutely. Put them on your list.
As you drive for dollars, look for For Sale and For Sale by Owner signs. Some of
these signs might say Make Offer. Pay extra close attention to them. Because you
are still driving through neighborhoods, learning about them, and finding potential
deals, make a point of meeting the real estate agents who are active in these areas.
You will learn a tremendous amount from talking with them and from carefully
reading the signs.
If a house is for rent, you may locate a highly motivated landlord tired of managing
it. Perhaps he bought the property 20 years ago for a fifth of what its worth today.
The best properties may be the empty ones. Call about these, too.
Spend your two hours today driving for dollars. Pick a neighborhood in transition, and drive around, getting to know it, gathering addresses. Find at least
20 addresses you can write down for neglected, vacant, or condemned
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
homes. Or look for ones with signs saying For Sale, For Sale by Owner, or
For Rent.
How much time did you spend driving for dollars? ______________________
How many addresses did you write down? ____________________________
List at least 20 addresses:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Spend time doing research, then contact your leads.
How many letters or phone calls did you make? _________________________
How many responses did you get? ___________________________________
78
Are any of the leads promising? How could you potentially make any money or
find any deals from these people? ____________________________________
_______________________________________________________________
_______________________________________________________________
Fill out a Property Analysis Worksheet for each lead. (See Day 8 for
worksheet.)
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D AY 11
Set office hours. This is more than a recommendation; its important advice
for you and your family.The biggest problem with real estate investorsand
entrepreneurs in generalis that they work too much.Work can be addictive.
If you dont set office hours, your family life will suffer, your personal life will
suffer, your spiritual life will suffer, and youll make less money because youre
working all the time. So set office hours. And stick to them. Do the work for
the two hours you set aside, then quit and do what youre supposed to doenjoy time with family and friends.
portunity in the outskirts of cities, and the outskirts are usually less competitive
than the city center.
At this point, lets broaden your horizons. You may be thinking only about
houses and condominiums and duplexes. Some of my students have actually taken
driving for dollars on farm land. Theyve put it under contract and wholesaled it.
One of my students makes a lot of money by specializing in hunting camps that he
wholesales to corporations. Another one of my students specializes in older driving
ranges and golf courses in small towns. You may decide to look for smaller apartment buildings or houses in horrible shape. Its up to you to develop your specialty
based on your research and interests.
Stay Safe
Its always better to drive for dollars with someone whos willing to help you. (Besides, its more fun.) While youre driving, the other person can write down addresses for properties you might want to check out. Drive slowly, and make sure
you get the correct address and phone numbers from the signs you see.
I wouldnt recommend knocking on doors. It could be dangerous; there may
be vagrants or people on drugs using a vacant house. Instead, send letters and make
phone calls. A lot of the owners of these properties can be hard to find. One way to
find them is by asking neighbors. They often know whats going on. Another good
tactic is asking postal workers in the neighborhood. They may have information
about the house, where the owner is, and who currently lives there. They may even
have a forwarding address.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
When you spend your two hours today driving around, pick different neighborhoods in the beginning, and get to know them. Write down at least 20 addresses of neglected, vacant, or condemned homes, or ones with signs saying
For Sale, For Sale by Owner, or For Rent.
How much time did you spend driving for dollars? ______________________
How many addresses did you write down? ____________________________
List the addresses here:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
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_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Spend time doing research on the sellers, then contact them.
How many letters or phone calls did you complete? ____________________
How many responses did you get? __________________________________
Are any of the leads promising? How could you potentially make any money or
find any deals from these people? ___________________________________
_______________________________________________________________
_______________________________________________________________
Fill out a Property Analysis Worksheet for each one. (See Day 8 for worksheet.)
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D AY 12
84
Sources of Deals
Codes Court
Go to your local housing administration office to find out scheduled dates for the
codes court, where landlords and investors go to defend their interests. The codes
court enforces the codes and can issue fines. They can even condemn homes and
have them bulldozed. Youll find that motivated sellers come to these courtrooms.
The proceedings are all in the public record. The docket for the day is usually
posted outside of the courthouse. You can talk to owners while they are there, and
meet with lawyers, landlords, and other investors who come. Chances are youll
find a good deal.
Go to the codes court, and just listen in for an hour or two. Meet some of the
owners and attorneys as theyre coming down after receiving fines and judgments
for not making repairs. Ask if theyre interested in getting rid of the property. Ask if
the house is scheduled to be bulldozed next week. (You dont want to buy it on
Tuesday and see it disappear four days later.) Use what youll learn in Property
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Analysis (see Days 18 and 19) to make sure you have a good deal. Understand the
numbers, and be certain that youre able to do the repairs. Also make sure that you
have enough time to either sell the property or make the repairs.
Eviction Court
Every major city has a busy eviction court. Who shows up there? Tenants, attorneys, landlords, and property managers. When owners have a conflict on their
hands and have to go to court to resolve it, they could be in the market to sell for a
good price.
When you go to eviction court, you may find some great deals but guaranteed
youll find better entertainment than any TV sitcom. Yes, the spectacle can be sad,
but its also entertaining to watch property managers and tenants present their
cases, sometimes not very eloquently, in front of the judge. In many cases, the tenants havent paid their rents and are being evicted. The property managers/landlords are motivated. They havent received rent for several months and may have to
deal with damage to their property. Many dont have proper policies and procedures to manage their property. Clearly, owning property is not working out as they
wanted it to.
At eviction court, you can also network with people you want to know. I like
to talk to landlords, to see if theyre tired of managing their properties and would
like to sell.
I suggest you take to lunch various property managers and the attorneys who
represent them. I make a lot of deals from property managers Ive met at eviction
court. Since property managers are mainly interested in making money, you can offer to take over the property, manage it for them, and still pay them their management fee. Or if you buy the property, you can pay the property manager a
commission. Sometimes, property managers have hundreds of scattered properties.
They can help you buy them, but they wont want to sell them if theyre going to
lose money.
If you dont want to spend time at eviction court, you can get names, addresses, and phone numbers of people on the docket. As a public record, the list of
evictions is posted on the outside of the eviction court. Send those people listed a
letter that asks, Do you have any properties youd like to sell? Then take steps to
follow up.
86
Divorce Court
Because divorce records are public, you can actually look up case files and see
what a couple owns. Many divorces have a home they must sell, and theyre often
willing to take a discount just to settle the assets and get out of the marriage
quickly. I suggest getting to know some divorce attorneys, keep in touch with
them, and show up at divorce court. Keep your eyes open for good possibilities in
this venue.
Probate Court
You can look in the public records where deceased persons assets are listed and
then contact the attorneys and the families involved. You might say, Would you
like to unload these properties quickly? I can help you out. Do you think you can
find deals that way? You bet.
Bankruptcy Court
Spend a few hours at the courthouse looking at bankruptcy files, and search for any
real estate involved that might be sold. Get to know the people who work there.
Tell them what youre doing. They will help you.
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
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D AY 13
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Wait a minute! Now that the word is out in this book, everyone will start to
go to the courthouse to look for deals, and it wont be such a good source anymore! Are you worried about that? Consider this: Even though a lot of people
get excited about real estate and understand how to do it, even say theyll do
it, the truth is, most people wont do it. I hope that youre different and special,
and that youll go out and do some of these things youre reading about. Sure,
theres competition, but theres plenty of room for more.
Heres more food for thought:When I call about an ad, I always ask if any
other real estate investors have called. Most of the time they say, Nope.
Youre the only one. So be assured, theres plenty of room out there for you.
Dont be among those people who learn something and get excited, but never
actually do anything.Thats why this book gives you step-by-step action plans.
Now you can go out and make it happen.
using a certificate, you get interest on your money or on the property. Some tax
certificates pay anywhere from 10 percent to 30 percent interest.
People buy at tax sales for two reasons:
(1) They hope to get the property for the amount of back taxes due. For example, if a $200,000 house has $8,000 of property taxes not paid and goes to a tax
sale, investors want to buy it for $8,000, the amount of the back taxes. Of course,
several investors bidding can actively raise the price, but you can still find good
deals at tax sales.
(2) Many cities, counties, and states by law demand that the taxes owed and
the amount bid collect a good interest rate. In certain areas, every taxing authority
has rules and laws for how sales are run. Some require as much as 20 percent to 30
percent interest paid. For example, say the owner of a house worth $200,000 owes
$8,000 in back taxes. You bid $8,000 with the intent to acquire the house for the
amount of taxes only. However, your city has a one-year right of redemption rule,
which means the homeowner has one year to pay back all the taxes and interest
due, and can legally redeem the property.
In this example, say your areas interest rate for tax liens is 20 percent and the
homeowner pays you $8,000 plus 20 percent to get the house back. If the homeowner doesnt pay you off within one year, you get to keep the $200,000 home.
However, you cant sell that house until the year is up.
90
Alternatively, you could buy properties for the amount of the tax lien. You can
also acquire them by bidding on them at a foreclosure sale auction.
Between the time you hear of a pending tax sale or foreclosure and before it
happens, you should talk to the property owners affected. Are they motivated to
sell? Yes. Are they hard to talk to sometimes? Yes, because people have a psychological defense mechanism called denial. Sometimes people say, No, I dont want
to talk to you. Im going to win the lottery. Someone will show up at my door and
give me a million dollars. I know its going to happen, so leave me alone.
Sure, they may be difficult to talk with, but most often the things that are
hardest to obtain are the sweetest. So work these foreclosures and preforeclosure
tax sales.
Environmental Court
People who leave too much junk on their properties wind up in the environmental
court. The judge fines people for not removing trash and not cleaning their yards.
Owners of these properties can be highly motivated to sell. Go meet them, get their
names, and contact them afterward, because they could turn into good deals.
Mold-Damaged Properties
One of the hottest areas of litigation right now is mold. In many areas of the country, houses are growing mold; people are getting sick and cant live in them. Numerous lawsuits and insurance claims involving mold are in the courts. An
experienced real estate investor can focus on mold houses. You can hire professional firms that will guarantee mold removal. Sometimes, its not as expensive to
get the mold out as you might think.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
One of my students,Andrea, has found a contractor who can remove mold inexpensively. She finds owners of houses that have insurance claims for mold
problems. These owners are highly motivated to sell. She makes an offer
based on what the property is worth minus her mold experts bid. Shes getting incredible deals buying these houses, fixing them, and getting letters of
guarantee from contractors that the mold has been removed and the houses
have become healthy.
Houses with fire or water damage claims make up another area to specialize in. The
gentleman who got me started in real estate specialized in houses that had suffered
fire or water damage. Often, the owners had collected on a large insurance claim, so
theyd received money for a good part of the house and were ready to move. They
were willing to sell the house at a deep discount because the house had basically
been paid for through the insurance settlement.
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Talk to the registrar of deeds, title searchers, lawyers, and people representing
banks and mortgage companies. Exchange business cards. Build your database.
Ask them to keep an eye out for deals for you. At some point, put them on
your team. List the names and contact numbers of people you met here:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Visit the environmental court. List the names and contact numbers of any
prospective sellers you found here.
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
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D AY 14
Networking, Part 1
Real estate agents have access to the Multiple Listing Service (MLS) and to buyers
and sellers, so get to know the active agents in your targeted areas. When good
94
Networking, Part 1
deals come their way, they will call someone, and that someone should be you.
Make sure they get paid when they find deals, so that you keep your relationships
golden. By the way, if I use agents and brokers but do not close on a property with
them, I give them a check for their time until they find me something. It keeps the
relationship solid.
When people want to do financial planning, settle their estate, sell some property,
raise money, or get out of financial trouble, they turn to their trusted accountant or
financial planner. These professionals often help clients dispose of their property,
so get to know them and build your network.
Bankers and brokers make loans to real estate people and often know where good
deals are. Because they have access to funds, they may be able to finance the good
deals you find. They also know lots of other investors and can help you expand
your network.
When people get into financial troubleheading for bankruptcy or foreclosurethey follow a predictable pattern of behavior.They run to their accountants, mortgage brokers, and financial planners. In desperation, they might call
a real estate agent and say, Can you sell my house in three weeks? As a last
resort, they call a bankruptcy attorney.
Because of this pattern, you want to build a network of mortgage
bankers, real estate agents, accountants, and attorneys so that when desperate people call, they will send them to you. You can pay them cash for their
house, quick-turn it, make money yourself, and possibly stop them from going
bankrupt.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Attorneys
Attorneys manage a lot of things that can help your business, such as estate
sales, divorce, bankruptcy. Find several active attorneys in your area and network with them.
Contractors
All contractors, big or small, look at properties that need work. They know owners,
and some of those owners will be motivated to sell. So contact every contractor and
repairperson you know and say, If you bring me a deal that I close on, I will pay
you a finders fee.
Utility Workers
Utility workersfrom the gas company, electric company, water company, and so
onare walking and driving in neighborhoods every day. They know a lot about
houses, neighborhoods, and the people they deal with. They might be able to say,
Hey, I know about a house that needs a lot of work. We recently had to shut the
gas (or the water) off. And heres the owner and address.
Often postal workers know more about you and your neighbors than you think.
They know who is getting divorced, who is moving, who has to sell a house. In
fact, some successful real estate investors are post office workers. Ask them to help
you identify good deals.
Police Officers
Police officers have a tough job in the neighborhoods. They learn about houses or
properties that must be sold, especially ones they just locked up because some96
Networking, Part 1
body did something naughty inside. Police officers may be able to point you to
motivated sellers.
Our population is getting older, and more people are moving into retirement homes,
assisted living units, and nursing homes. Often, people are forced to sell their property and their assets to qualify for financial assistance before going into a home.
Most major cities have a real estate association or a landlord association. Who attends their meetings? Investors, landlords, and people who find good deals. Associations are great sources of education, too. At www.sheminrealestate.com we
provide a list of real estate associations. Network at their meetings, and you will
find everything you need to become a successful real estate investor.
Other Investors
You find these people through real estate associations and through I Buy Houses
ads. If an ad says, We loan money on real estate or We buy houses, follow
through because these investors will become your favorite people. Sometimes, they
may find more deals than they know what to do with; theyll pass some on to you,
One of my students hangs out at nursing homes to find good deals. He makes
friends with the administrators, who call him and say, Mrs. Smith has to sell
her home, and the family doesnt want to deal with it. Can you help them
out? He gets a lot of good deals that way. Hes not taking advantage of the
situation; hes truly helping them. And he discloses in writing exactly what he
is doing.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Of all the ways to find good deals that Ive listed here, the best ones in my experience have proven to be these three:
1. Finance companies
2. Disgruntled landlords
3. Other investors
and you can later pass some on to them. As a matter of fact, Id say that 80 percent
to 90 percent of all the wholesale deals I complete are partnered with other investors. Sometimes, it is possible to do double and triple flips if theres enough
margin in the deals.
Be sure to network and meet people who are in the investment business. Affiliate yourself with the good ones, and your business will grow.
Tired Landlords
If landlords are not managing their property properly, theyre going to have
headaches and stress, and they wont be making a profit. They may be burned out.
They may be motivated to sell. Theyll likely give you big discounts for taking the
problem off their hands.
Networking, Part 1
Its the strangest thing.A lot of people in real estate have not figured this out.
They like to be greedy and not pay people who help them. So they make a little extra money on one deal, but dont do a lot of deals. Ive discovered one of
the most interesting secrets in business: If you pay people and do what you say
youre going to do, they want to keep doing business with you.
One repairperson has brought me more than 30 deals. One real estate
agent has brought me over 40 deals.A fellow investor has brought me over 12
deals. Ive sold over 80 properties to another investor. I make sure that he always makes money on every deal. In other words, I dont squeeze out every
last dollar. Instead of making $8,000, I only make $4,000. But then hes making
money and still wants to do business with me. I recommend that you adopt
this successful business philosophy.
Network with everyone you can. Let people know youre looking for deals.
Youll be amazed. At some point, everyone knows people who have got to sell their
property fairly quickly and may be motivated.
_____________________
Response _____________________
Contact
_____________________
Response _____________________
Contact
_____________________
Response _____________________
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Contact
_____________________
Response _____________________
Contact
_____________________
Response _____________________
Contact
_____________________
Response _____________________
Contact
_____________________
Response _____________________
100
D AY 15
Networking, Part 2
pend another day building your network. Go down the list from Day 14 and find another five to seven people youd
like to network with. Call them. Meet with them. Take them to lunch to educate
them about the kind of deals and sellers youre looking for: properties with signs of
motivation, such as For Sale by Owner signs, houses that need worknot just
every house that has a sign in the yard. You can give them a Property Analysis
Worksheet to fill out, if youd like. Put in writing that if they bring you a deal you
close on, youll pay them whatever you think makes sense in your business.
Always continue to expand your network. Keep handing out those cards and
flyers, and pay people quickly. Know that the first time you give them a handful of
cash, theyll get busier and find you even more deals.
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
the mortgage, what do you do? Instead of hanging up on him, you can refer (not
necessarily recommend) desperate homeowners in financial trouble back to professionals in your network. These professionals help you find deals, and you help
them build their businesses. And youre even helping the homeowner. Over time,
this will build your business reputation. Youll start getting referrals, and your business will grow, grow, grow!
_____________________
Response _____________________
Contact
_____________________
Response _____________________
Contact
_____________________
Response _____________________
Contact
_____________________
Response _____________________
Contact
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Response _____________________
Contact
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Response _____________________
Contact
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Response _____________________
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Negotiating, Part 1
ould you like to know how to double your income? If by negotiating, I can show you how to save $1.00, what
would you have to make working at a regular job to save the same amount?
About $1.50 to $2.00 depending on the city and state where you live, and the tax
bracket youre in. You can double your income by learning how to save money
and by negotiating, too. I assure you, the most money youll ever make will
come from negotiating.
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Build Rapport
When you start talking with someone about a property, be nice. People like to do
business with people they like. To build rapport, use humor, be yourself, ask questions about them: where they live, what type of work they do, whats their family
situation, what they like to do for fun. Let them talk; just ask questions.
Disarm Them
When you get down to business, disarm them, which means make them feel comfortable. You do that by pacing or paying attention to peoples reality, so whatever you suppose is on their minds, mention it up front. For example, if their house
is in foreclosure, say, I know a lot of people are calling you and bothering you.
Youre probably under a lot of stress. That statement helps to disarm the person
youre calling who stops and thinks, Wait a minute. This person understands me.
When talking with a homeowner, say, Look, I know you have to sell your
house quickly, and I know youre unsure about what you want to do. You probably
dont want to talk about it, or tell me this information, but Im trying to help.
Take just a minute to think about what people might be thinking, what their
real pain or problem is, and address it up-front. Ask why they must sell this home.
What would they do with the money? Get specific details.
Try this disarming approach the next time youre at a restaurant and get a
bad meal.Youll find that yelling at the waiter wont do any good because hes
not the restaurants main decision maker, and yelling doesnt usually get anyone anywhere. Instead, pace the waiters reality and say, I know you have a lot
of tables to wait on. Learn whatever his reality is at the time. That will put
him at ease and make it easier to talk about your concern.
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Say Im calling on a potential lease-option deal. Im trying to lease option the property from the landlord, so Ill ask her, What dont you like about the rental property? She might say, I dont like collecting the rent, Im tired of the repairs, and I
never get any free time, I dont have the weekends off. I probe further: If you
didnt have the property and had some money, what would you do? She might say,
Id love to travel, go fishing, spend more time with my family.
Find out what people really want. Then, when you go back to negotiate, always point out how theyll get what they want. For example, to the landlord mentioned earlier, Id say, If we could work this out, youd have more free time to take
trips, fish, and spend time with your family. Find out what they really want and
what they really need. People usually say, I just need the money. Most investors
stop there. But not you. Youre going to become an expert negotiator and gather information. Ask them what theyre going to do with the money; then work their answers back into the negotiation.
When it comes time to ask how much money they really want for the property,
abide by this rule: The first person who mentions a number loses. So if you offer
$200,000 on a house thats worth $300,000, the least youll get that house for is
$200,000, because you cant go down. What if they would have taken $180,000?
Youve not given them that opportunity.
My father always says I should be in much better shape because Im always
jumping to conclusions. When youre negotiating, dont jump to any conclusions or
assume anything. Remove yourself from the process.
If someone asks me, What would you like to buy the house for? I never
mention a number. Instead, I tell them,Look, I dont like to negotiate. Im not
very good at it. I speak slowly and pause, then say, Without negotiating,
whats the least youd take for this property and be okay? Then Im silent.
That silence is as short as one second; other times, its as long as 20 seconds.
The most powerful negotiating technique is silence.
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If you determined the house was worth $300,000 and they want $250,000,
most people would say, Thats a great deal! Ill take it! But when youre negotiating, show no emotion. Never say anything about the house, good or bad, because
its their house.
Suppose you said, This is a great house. Ive got to have it. If I could just get
this house, my investment career would really take off. Youd be giving them too
much information. Your job is to gather information, not give it out.
Or if you say, This house is a piece of junk. Its an awful neighborhood; I
dont know why anyone would ever live there. I wouldnt pay any more than
$100,000 for it, even though you say its worth $300,000. Thats very rude. Keep
in mind youre talking about their home.
Rather than saying anything emotional, be disinterested. Tell them youre
looking at several houses and will be making a lot of offers this week, so you really
need to move on.
Heres where the negotiation starts to look like what most people think of as negotiationthe back and forth banter. But remember, you started negotiating from
your very first contact as you started building rapport.
To continue our example, usually people come back with a number. They say
theyll take $250,000 for it. Maybe thats a decent deal for you. But dont get excited. Instead, say, Seriously, whats the least youd take and be okay? Ask the
question again. Give them another chance. About 20 percent to 30 percent of the
time, theyll reduce their number. Then ask a third time, Okay, really, without negotiating, what would be the absolute least youd take and be okay?
If they get upset, use another tool of negotiating called reframing the negotiation. Use humor to diffuse the situation. Smile and make light of it, saying, I read
this book about negotiating, and the author said to ask the question three times. Can
you believe that? I thought he was kind of crazy, too. Laugh and smile, take a
breather, then say, So what would be the least youd take for this house, and go
right back into the negotiation.
When they get to the point where they say thats their rock-bottom price,
thats when you first mention a number. Its called a test number. Go low, and use
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Negotiating, Part 1
an odd number to throw them off. For example, say, I was thinking more along the
lines of $176,817. They might say, No way, I want $235,000; or Look, theres
no way I can do that, but I tell you what, Ill come down to $230,000. Or they
could become upset, feeling insulted at such a low offer.
If they become upset, reframe the negotiation by saying, The guy in the book
said to throw out a low number. Its crazy. Im sorry about that. Is there anything
you can do?
At this point, youre only negotiating on price. Later, youll also negotiate on
terms, closing costs and time, and anything else that might be involved with selling
the property. If they do come down in price, consider that a reset button. Theyve
reset the entire negotiation, and you start it all over again.
In your discussion, bring up their core values, what they want to do with the
moneywhatever their pain or problem is, then go back to negotiating. Whats
the least youll take? Of course, youve got to read them well. If they tell you to
not ask that question again, dont ask it. Often, prices are settled by splitting the difference, so be open to that possibility.
Once youve settled on a fee, start negotiating the terms, saying, Okay, Ill
pay you $219,000 for the house, but Id like to just take over the mortgage payments. Hows that? After negotiating on owners terms, then negotiate on the closing costs and request they pay all of them. Always ask for that. You may not get
them to agree, but if you never ask, youll never get.
Practice your negotiating skills. Today, on Day 16, go out and buy something. It
could be lunch, dinner, or something at a major store. Follow these instructions:
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Third, appeal to the person by saying,I know this is kind of strange to ask, but
do you ever do anything special for good customers? Give them a discount or
have any sales going on soon? See if you can negotiate even better deals.Your
rule from now on is ABN=Always Be Negotiating. If you go to a store and save
anywhere from $30 to $5,000, its money in your pocket. Youll be amazed at
how many times people comply and give you more than youd imagine.
Fourth, ask this open-ended question: What do you do for good customers? Be
silent, and let them answer the question.
Fifth, when they offer something, ask for a bit more.Thats very nice.Thanks for
the free dessert. Could we get two? Now, dont be greedy, but why not ask? As it
says in the Bible, Ask and ye shall receive. Similarly, my rules of negotiating say,
Ask and you might receive. If you never ask, youll never get.
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D AY 17
Negotiating, Part 2
Childs Play
Ask children about negotiating: How do they get the toys they want, how do they
get their ice cream, how do they get to stay up late?
Youll find they use almost all the negotiating techniques that were covered on
Day 16. When children want something, first they build rapport by putting on their
sweet face. They smile and tell their parents something funny, saying, By the way,
I was wondering if I could get ice cream today. If the mother says no, what does
the child say? He uses the next negotiating tool. He asks why. If she says, Because
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My 11-year-old son asked what I was doing on a particular weekend. I told him
I was going to teach negotiating at a real estate seminar. He said, Negotiating? With adults? Thats easy. Every kid knows how to do that. I asked him if
he had any tips to share. He said,Always put on your cute face.Always ask for
more than you want. So if you want one Transformer, ask for three. If they say
no, ask them why five to seven times. Then, if they wont let you have three,
ask for two. If they wont let you have two, ask for one. And if they wont let
you have anything now, ask for later.
Then he used one of the trickiest negotiating techniques in the world,
saying, If your mom wont give it to you, go to your dad. So if youre negotiating with one person who wont give you what you want, then go to somebody else, like the other spouse or another owner of the property. If you can,
come back and never stop negotiating. Then, he said, when you do finally
get an answer, if they let you have one toy, go back to the original request and
ask, then why cant I have three? See this persistency? Incredible. It wears
people down.
I told you that you cant have it, then the child again comes back with another
Why? They usually ask why from three to eight times. Theyre negotiating. Then
if the mom gets upset and threatens to punish him, the child reframes the request
another negotiating tool. He puts on his cute face, or starts crying, or laughing
whatever hes learned will get his mom out of that emotional state. Then he goes
right back into negotiating, Well, could I have ice cream tomorrow? This persistence definitely pays offfor kids, at least.
So on Day 17, consult with a child and his parent about his technique. Afterward, go out into your community and negotiate for two or three things that youre
going to buy or use. Then apply this in your real estate business in every transaction.
Negotiate with your contractors, mortgage brokers, real estate agents, and sellers.
Negotiating, Part 2
Gee, I wish I could get you full price for your house, but my partner wont allow
it. Remove yourself from the process, so theyre not upset with you. Its never you
pushing. Its your partner.
Dont Give Up
People may say they wont negotiate, but they will. Give them your phone number.
It could be a week or even a month later before they call, but some people are willing to negotiate if something changes.
Dont give up if people hang up on you, either. Wait 30 minutes to an hour, let
them cool down, and call them back. Pace their reality, saying, I know you dont
like negotiating. I dont like it either. I know youre a little uncomfortable. You
probably got upset. Im very sorry about that. So, what can we do here? And go
right back into negotiating. Remember, silence and patience can be very effective.
Have a folder on every property with a deal sheet (name, address, info you
found). Review these folders every 30 to 60 days, call the sellers up, or shoot them
an offermake some type of contact. Again, people who arent motivated today
might become motivated down the road.
If you dont like to negotiate, find someone who does. If you know someone
who is a great negotiator, someone who likes to go bargain hunting at garage sales,
someone whos good at making deals, partner with her.
Be aware of the style of the person youre negotiating with. If he or she is impatient, youve got to be more careful. You dont want to be offensive or develop
any conflict. The moment people seem to feel nervous or uncomfortable, you have
to do something to put them at ease. I recommend leaving the negotiation and
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talking about something else (what they do for a living, what they do for fun), then
going back to negotiating.
In real estate, Ive been in negotiations where someone wouldnt negotiate at
all. The person said, I want $1 million. Thats it. At that point, you must make a
business decision to go along or give up. Another option is to write up a low offer,
shoot it over, and see what happens.
Ive also been in negotiations on a larger piece of real estate that took three
weeks of this kind of communication. It wasnt until the second week that we
learned the real reason the sellers were sellingextremely important information.
Keep in mind that on most of the property youll buy, you wont find out why the
sellers were really selling or what they would really take. Always ask yourself,
How much money did I leave on the table?
You see, when youre negotiating, youre gathering information. If youve
made an offer on a property and the offer is accepted, the only thing you learned is
that you offered too much.
Realize that nothing in your life works all the time. I promise, however, that
if you never use these skills, theyll never work. If you use them all of the time,
theyll work some of the time. But the rewards can be huge. Because real estate
deals are big-ticket items, by using negotiation principles, you can save from
$1,000 to $100,000. Negotiating is worth attempting, even if it only works 20
percent to 30 percent of the time over your real estate investing career.
Today, negotiate for two or three things that youre going to buy.
What did they offer you?
_______________________________________________________________
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D AY 18
The bad news was that they were very hard to sell or it was hard to find people with
enough money to buy them. Right now, money and buyers are in abundance, but
deals arent. The good news is that when you find a deal, its very easy to sell it.
The bad news is, the deals are hard to find.
Dont let the market generalities stop you from investing, but certainly become aware of them.
That is, what will someone pay for it? How do you determine that? If you hire an
appraiser, youll get three to five comparable sales of similar properties (close in
size, location, type) that have sold recently. You can also go on the Internet to glean
information. For links to free appraisal sites, go to www.sheminrealestate.com.
Suppose youre looking at a three-bedroom, two-bath house. Three houses
like it on that same street just sold for $450,000. That means this house is probably
worth $450,000, too, so be sure youre comparing apples to apples. No, you cant
compare a house in the best neighborhood to a house eight miles away in a worse
neighborhood. Similarly, you cant compare old to new or big to little. Look at all
the variables when making comparisons.
Honestly, I dont put a lot of stock in comparable sales. Ive seen properties
comp at $800,000, but never saw anyone pay more than $700,000 for them. So in
addition to running comps, verify the prices with a market professionalsomeone
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who buys and sells a lot of property in that area. Thats why these action plans have
you continually building your network with real estate agents and other investors.
If youre buying in a particular area and you know any agents who sell a lot of
houses in that neighborhood, call and get their opinions about the comps. Theyll
be able to give you the scoop and may say perhaps that the market is slow right
now and therefore the house wont sell for the comp price. Or they may have buyers who will pay more than the asking price because its a hot market.
I recommend that you get everything in writing. Get your three to five comparable sales, and then also verify the price with a market professional until you feel
comfortable that you can sell that property for that particular amount.
At this point, youre only analyzing properties that look good. Theyve already
passed your initial test. Youve talked to the sellers. Theyre motivated. The deal
sounds good. There arent many repairs. So youve put it under contract. Youll
have a contingency clause in your contract, so youre not obligated to buy it.
Now is the time to do the rest of your due diligence, to make sure the repairs
will cost what youd estimated. How do you find out? Have a referred contractor go
to the property and give you a realistic bid.
A couple of things can happen. The contractor can find that instead of the
$10,000 in repairs you estimated, no repairs are needed. Or he could find more repairs totaling $15,000. Or he could determine that the property is falling apart and it
will take $100,000 to fix it. The sellers either didnt know the extent of the repairs
needed, or they lied to you. Is that a problem? No. Just go back and renegotiate.
Keep emotion out of your real estate deals; negotiating is just numbers. Simply ask
the sellers to renegotiate. If they wont, its still not a problem because you have that
contingency clause in your contract, which means you can walk away from the deal.
Determining this is where your negotiating skills really come into play. Study the
negotiation techniques outlined in Days 16 and 17, and apply what youve learned
at this point in your property analysis.
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You want this important number to be as low as possible. Thats why its so
critical to find a motivated seller.
Find two to three referred contractors (referred from investors, landlords, and
others youve been networking with).
_____________________________
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Find a way to get comparable sales:You can do your research on the Internet
or use your teamreal estate agents and mortgage brokers.What method will
you use?
_______________________________________________________________
Build your list of market professionals working in specific areas.These are people you can call to verify what the value of a particular property is.
Area
_______________________
Contact
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Area
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Contact
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Area
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Contact
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Area
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Contact
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Area
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Contact
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Area
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Contact
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Area
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Contact
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Area
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Contact
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Area
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Contact
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One way to determine what a house is worth is to run an ad and see if it attracts any interested buyers. Ive also used ghost ads to determine the right
rents and sales prices on properties for which I havent found accurate comps.
If no one calls on the ad in two weeks, youve learned something important:
Youve priced it too high. If your phone rings off the hook, then you have some
idea of what buyers want. Only run ghost ads after you have the property under contract complete with a contingency clause to protect you.
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Appraising property and valuing properties is an art, not a science. Unless you
have 100 houses that are exactly the same that are always selling, you cant
determine market pricing precisely.
Thats actually great news. Its only because real estate is an imperfect market that were able to make a profit! Every piece of property has a 5 percent to
10 percentsometimes even 15 percentfudge factor built into the price. A
house might be appraised at $300,000, but someone might pay $330,000 for it. A
property might be appraised for $600,000, but no one will pay more than
$575,000 for it.Theres always a bit of leeway; youll never get an exact comparable market price.Thats why real estate investing is regarded as an art.
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The only way you can really tell you what a property is worth is to check the
market. Dont wait or wonder. Dont let paralysis of analysis set in. Instead, pick up
the phone and dial 7 to 10 numbers; get someone to help you. Any time you get paralyzed, take action.
Find two properties to practice your analysis skills on. Discover what they are
worth, what the repairs are, and what you can get them for. Fill out your worksheet. Become comfortable finding comparable sales. Then, when the real deal
comes up, youll be ready to take action.
1. Which two properties did you analyze?
Property #1: ____________________________________________________
Property #2: ____________________________________________________
2. What were the results?
Property #1: Worth __________
Property 2:
Worth __________
Repairs __________
Repairs __________
Cost ____________
Cost ____________
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D AY 20
Contracts
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If someone comes to you with a car worth $50,000 and offers it to you for
$1.00, will you pass on the deal because you dont have the right contract to buy it?
Of course not. In the United States, all you have to do is write on a piece of paper,
I will buy your car for $1.00, and Ill give you the dollar tomorrow. Then sign
and date your new document, and you have a valid contract.
I repeat, dont worry about contracts. Youll learn my tricks of the trade,
but dont use them to get hung up on paperwork. If a real estate agent tells me a
seller will sell to me, but I have to use the agents contract, I will. Id rather use
mine, including as many clauses as I can, but I wont let that keep me from making a deal.
Remember your focus: making money. That takes precedence over deciphering, analyzing, and getting overly involved with contracts. Build your team to include a real estate lawyer and title company. Let them draw up your contracts. Your
job is to find good deals, help people, and make money.
Contingency Clause
You only need one: This contract is contingent upon buyers inspection and approval before closing. That removes all risk. At any time before closing, you can
inspect the property, say you dont like it because its not what you thought, and get
out of it. Dont write a contract on a piece of property, however, unless you think
that youll definitely close on it. This clause is just your safety net if something unexpected goes wrong.
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Contracts
Proper Disclosure
I am a real estate investor. I may be reselling your property for profit. I do not represent you or your interests. This could protect you in case of legal action.
Earnest Money
If you think you have to put down earnest money, type in $10 earnest money, and
stipulate who will hold it.
Assign Risk
Seller has the risk of loss up until the date of deed. That means if theres a fire or
earthquake and youre scheduled to close on the property tomorrow, youre not at risk.
Instead, the sellers are at risk in case of a disaster because they still own the property.
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Get a copy of a contract from a local real estate agent to use as a model. Read
it. Make sure you understand it.
Get your contract ready. Have it reviewed by a local real estate attorney.
Write out by hand between 10 and 20 copies of your contract so that youre
familiar with it.Then youll be prepared to use it the minute you find that motivated seller.
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D AY 21
Earnest Money
Do you have to include earnest money or a deposit on your contracts? My attorneys
tell me that in order for a contract to be valid, it has to have two parties, a meeting
of the minds (an agreement), and valuable consideration.
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Say you write a contract to buy a house for $1,000. Then you dont need
earnest money because the purchase price is the promise of valuable consideration.
Your local attorney or real estate experts however, might say that you need to put
earnest money down or they might require a deposit to be held in an escrow account through a title company or an attorney.
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D AY 22
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D AY 23
Halftime Check-In
Youre more than halfway through this 40-day program. I suspect youre probably not doing all the activities included in the book because people never do 100
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percent of what they want to do. But imagine for just a moment what would happen if you actually did follow these action plans for two hours a day up until
now. Imagine what youd be learning, the people youd be meeting, the networks youd be building, the information youd be gathering. Youd be well on
your way to success in your real estate investing career!
At this point, reanalyze your commitment. Are you really committed? Are you
doing the activities you need to be doing? Are you thinking and worrying too
much? Or are you just enjoying reading this book so much that youve been too
busy to actually execute any of these well-intentioned plans?
Its up to you to make it happen.
What is your commitment to your business today? Are you doing the activities?
Yes or No
How many offers have you sent out? ____________________
How many offers do you think you should be sending out?
Each week ________
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How many phone calls have you made to follow up on your offers? ________
Send out 10 more offers. List the properties, prices, and responses here.
What properties?
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
How much was offered for each?
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D AY 24
Protecting Yourself
Stay Comfortable
The number one way to protect yourself and your business is to feel comfortable
with the people youre doing business with. If you dont feel comfortable with people or dont trust them, be cautious about doing business with them. Life is too
short. Why should you do business with someone you dont trust when you can
spend your time doing business with people you do feel comfortable with?
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Protecting Yourself
you choose, youre responsible for your activities, and you could get sued for what
youre doing.
If a lawsuit is filed against you and everything you own is in your own name,
your personal assets (e.g., home, car) as well as your business properties could be
lost in a judgment against you. In the eyes of the law, a properly created and maintained corporation is a separate person. So, if some of your real estate is in a Limited Liability Company or a contract is in the name of the LLC, your losses are
limited to the assets that come under the umbrella of your LLC.
Remember, a corporation doing business must have proper insurance. Please
check with your insurance agent to make sure your LLC is properly insured for the
activities youre doing.
Should you handle your insurance yourself? A few years ago, I had knee
surgery. I simply had to have some cartilage taken out; I could probably have done
it myself. Would you feel comfortable doing knee surgery on yourself? I doubt it.
Doing your own legal work can be considered equivalent to doing your own medical work.
When I have a medical operation, I want a professionally trained doctor whos
specifically trained in the procedure and has performed the operation many times.
With legal work, there are many details and changes in the law to take into consideration. Thats why you want a good, qualified attorney to make sure the corporation is properly set up and maintained.
Once they set it up, attorneys will instruct you how to sign your documents
with the correct corporation name. They will also keep you up to date on the annual
paperwork required to keep it valid.
People who want to save a few hundred dollars by doing their own corporations often dont have the proper operating agreements; they dont have the proper
filings; and they dont conduct the proper meeting every year and show the proper
minutes. In other words, they dont keep their corporate book in order. Then, if they
faced a lawsuit, a good lawyer will ask them to present these things that they dont
have. The judge will say the corporation is invalid, leaving the people who wanted
to save a few hundred dollars with no protection.
I highly recommend hiring an attorney as one of your team members to
protect you.
Its important to meet with your accountant as well as your attorney when
deciding on corporations because the tax implications vary for each of these entities. Do you want to be taxed as an individual, as a partnership, as a corporation?
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I suggest you meet with a qualified accountant to determine which one would be
best for you in your particular circumstances.
As real estate investor, youll have questionsabout contracts, real estate law,
even personal questions. Any time you have a legal question, you can call
your Pre-Paid Legal Services attorney and get answers.
Professionals in affiliated law firms will make calls and write letters on your
behalf. Youll receive unlimited legal service for personal matters and a few
services for business matters.
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Protecting Yourself
Comprehensive Will
About 70 percent of Americans do not have a will. A good will drafted by a top law
firm will cost you from $200 to $1,000. Thats included at no additional cost to you
once youre a member. In fact, its the first thing Pre-Paid Legal Services will do
for you. Their lawyers will also review your will once a year to make sure it reflects
changes in your life. Please get a will today; you dont want your states legal system to determine how your property will be dispersed at your death.
Traffic Representation
After a 15-day waiting period from the date you join, you will have representation
from Pre-Paid Legal Services if you get a speeding ticket or any other moving violations. If you are criminally charged (for instance, with manslaughter or vehicular
homicide), your car insurance wont pay for your defense but Pre-Paid Legal will.
Assuming you werent on drugs or alcohol when the accident happened, this service provides unlimited defense.
Legal Defense
During the first year of membership, youre eligible for 50 hours of legal defense, which will increase to more than 200 hours a year.
The IRS audit defense covers up to 50 hours. You can also call and ask legal tax questions. Remember, if you work in real estate investing, youre in
a high-audit category.
Any legal services not fully covered are still available from Pre-Paid Legal
Services at a discounted rate with your membership.
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Joining Pre-Paid Legal Services gives you access to legal representation 24 hours a
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
For an extra $9.95 a month, Pre-Paid Legal Services (in conjunction with Kroll)
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Are you comfortable with the people youre doing business with? Yes or No
Is there anyone you need to stop working with? Name the individuals here:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Have you put your agreements with members of your team in writing? If not,
take care of that today.
Find the registrar of deeds in your community and learn how to record a contract so that youre ready when the time to deliver a contract comes.
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Protecting Yourself
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D AY 25
You may have lots of cash. You may have done well in the stock market, sold a
house, or accumulated wealth in business. Whatever your situation, I recommend
that you not use your own cash. Why use your cash when you dont have to? Why
put it at risk?
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Even though youll learn ways to purchase property without using any of your
own cash or credit, many of you will still make that choice. Thats okay. Ive
done it, and I dont see anything wrong with it. But if youre out there finding a
lot of deals and using your own cash or credit, youll eventually run out of it.
Why put your own cash or credit at risk? Learn how to run your business with
O.P.M. (other peoples money).
You may have excellent credit and be able to get a good mortgage from a bank. If
thats true, congratulations. However, I suggest you avoid using your own credit to
buy property because you have other choices.
The best source for cash or funding for a property is the one thats already there
that is, the mortgage. Most properties already carry a mortgage.
Traditionally in real estate, when you buy a house, you sell your house first to
pay off your mortgage. Then you buy someone elses house, get a new mortgage,
and put your mortgage into that house. Meanwhile, they sell their house, pay off
their mortgage, buy another house, and get a new mortgage. Essentially what has
occurred? A series of transferred mortgages. Its like musical chairs; the banks
moved the mortgages around and charged a whole lot of fees to do so.
I think the best mortgage to have is the one thats already on the property
you want to buy. And if theres no mortgage on the property, its even better
because the people might let you do owners terms and make the monthly payments directly to them. This arrangement is commonly referred to in these
ways: sellers financing, owners terms, taking over a mortgage, or contract for deed.
You and your local real estate attorney or title company will come up with the
best technical solution to finance a property. Let the professionals draw up the
proper paperwork. But while youre learning the different technical terms, dont get
hung up on them. Your job is to focus on finding deals and making money.
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When I buy a property, I always try to get the property in my name. If the
deed remains in the sellers names and something bad happens (for instance,
the IRS places a lien against them, the couple gets divorced, or theyre sued),
all of the sudden the title to the house could be in jeopardy. Id prefer to have
the title in my name and so should you.
Lets assume you want to buy the house and take over payments. Your escrow
company can typically handle this in two different ways:
1. Get the deed put in your name, so that now you own the house and have to pay
the mortgage.
2. Keep the deed in the sellers name and execute a contract for deed, which says
youve entered into a contract and will make specified payments each month.
When you fulfill all your obligations and make all the payments youve agreed
to make, you get to have the deed. This is commonly referred to as getting
owners terms.
For example, lets take a house worth $100,000 that has a $70,000 outstanding
mortgage on it. They sellers are willing to sell it to you for $75,000. You could take
over their payments ($600 a month) on the $70,000 mortgage. Youd then have to
come up with $5,000 (the difference between the sales price and the mortgage). So
you could use your cash or someone elses cash, or you could give them a note for
$5,000 against the property. It would become a second mortgage that you could pay
off over timemaybe over 1 year, 5 years, or even 20 years. It would depend on
how good a negotiator you are and how motivated the sellers arehow much they
need that $5,000 in cash.
Identity Package
Why would people let you take over their mortgage? Well, they wont be willing if
they dont trust you. So I highly recommend that you create an identity package
that helps give you credibility as an investor.
How do you do this? Assemble a nice folder from your local print shop or office store that includes your picture, resume, background, recommendations from
146
your Boy Scout leader, friends, boss, people youve done business with, and testimonials from people youve helped in real estate. Take pictures of the houses
youre working on and include them. If you have good credit, you might want to include a copy of your credit report. Your identity package enables you to point out
that you have great credit, that you do what you say youll do, and that you have a
track record of making the payments. Include anything that will increase trust in
you and put peoples minds at ease about your credibility.
When youre out doing real estate, you can show prospective sellers your
business and personal information. Theyll have a bit more trust in you because
youll present yourself as a professional.
Other businesses have identity packages. I recommend you spend time and
money creating a highly professional one.
On Day 25, start putting your identity package together. Check off each
component when its completed. Your identity package should include the
following items:
Item
Completed
Your picture
Resume
Background summary
Recommendations
Testimonials
Pictures of houses youve worked on
Credit report, if its good
Other items to build your clients trust
________
________
________
________
________
________
________
________
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D AY 26
Whether you have money or credit or not, another way to finance properties is to
find someone who does. Consider approaching three to four partners who might be
interested in investing in real estate but dont have as much time, energy, or knowledge as you do.
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Today, most everyone wants to invest in real estate. A lot of people have
lost money in the stock market in the last 5 to 10 years and have now become
interested in real estate. So develop a business plan to include in your identity
package. Show them that plan and your activity list. Go to three to four people
and ask, If I find a deal, would you like to use your credit, not even your
money, to get the deal? Then well split the profits and set up a win-win
situation.
Do you know anyone who might be interested in this type of partnership? Do
you think you can find three or four people whod be interested in working with
you in this way?
Start contacting three to four potential money partners. You can go back to
your original business team to see if any of the members want to become your
money partners. Another place to look is at your local real estate association.
Youll meet people there who might want to consider investing in some of your
dealsif you approach them the right way. They may even want to buy some of
your deals.
Another way to buy a property without using your own money is to work with hard
moneylenders. Find them; theyre in your area. They advertise in your newspapers,
and your mortgage brokers might know of them.
They are people who make special real estate loans. They lend from 60 percent to 75 percent of the loan-to-value on a property. Theyre not concerned with
your credit rating; theyre more interested in the value of the property, which they
use as collateral. They can close quickly, but they charge more points and higher interest than traditional financing through a bank or mortgage company. For instance,
many hard moneylenders charge from 2 to 10 points, and from 11 percent to 15
percent in interest. Their prices vary from region to region of the country, depending on the strength of the market.
Remember, these are the lenders of last resort. They charge more points and
interest, but they can quickly and easily make decisions. They wont look at your
credit in the same way a bank or mortgage company does, which can work in
your favor.
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Business Plan
On Day 26, start to write a very simple business plan thats one to four pages long.
You can use that business plan to show potential money partners the activities
youll be doing. Assure them that theyll have a first mortgage on the properties, secured by the properties themselves, and that youll only be buying deals that are 20
percent to 30 percent below market. That investor would be fairly safe if youre following the systems laid out here, as well as running comparable sales and getting
market verifications.
Your homework for today is to find two hard moneylenders who are actively
involved in lending people money.You also want to meet these people because
theyre excellent sources for finding motivated sellers and buyers, as well as for
lending money.Again, everything is negotiable.Ask them what they want. Dont
assume anything; ask them upfront.
Hard Moneylenders:
Name: ____________________
Name: ____________________
Its time to draw up your business plan; make it from one to four pages long.
Include it in your identity package.
Whom would you like to contact to be your money partners? List them
here.
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Money Partners:
Name: ____________________
Name: ____________________
Name: ____________________
Name: ____________________
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D AY 27
To be preapproved so you can quickly buy the right property that comes along
To take a financial picture of where you are now (after you get involved in real
estate investing, this picture will look better and better)
To make you aware of your own financial and credit situation and start to take
remedial action if necessary
Once you know your credit status, contact your attorney at PrePaidLegal
.com\info\Shemin if you find discrepancies or problems. Alternatively, you
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can learn how to do credit repair yourself and start fixing it. I recommend that you
get a copy of your credit report at least every six months (definitely once a year) to
make sure that no potential problems are lurking there. Almost half of all credit reports have some type of mistake in them.
Fill out a financial statement from your bank or accountant, so that you know
exactly where you are in terms of financial assets and liabilities.
Contact one good mortgage broker and one hard moneylender and apply for a
loan just in case. Network with the mortgage broker and hard moneylender.
See if they have any deals or know anyone who is looking to buy property. List
the people you contacted here:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
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D AY 28
Wholesaling, Part 1
eres a quick description of wholesaling: First you put a property under contract, then you sell it to somebody else before you have to close. Have you bought it yet? No. Have you borrowed money
yet? No. You havent used any cash or credit. Youve put it under contract, having
from 30 to 90 days to close (whatever you agreed to), and you have a contingency
clause in the contract, so you have a way out if it doesnt work for you (so you have
very little risk). Now you control the property. You can sell it (wholesale it) or perhaps buy it yourself.
You may want to include the following phrase in your contract to make you
feel more comfortable: I may resell this property for a profit. I can assign the contract. Then youve disclosed what you plan to do in writing.
The minute youve found the motivated seller, done your analysis, negotiated,
and put the property under contract, then turn around and sell it before you have to
close. In this way, youre wholesaling to other investors and other buyers. Everything in this country has a retail marketwhere people buy and sell at full price
and a wholesale marketwhere people buy and sell at discount. Real estate also
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Wholesaling, Part 1
has a wholesale market. In addition to becoming a real estate doctor, you can be a
real estate wholesaler.
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
that will tell you what a house is actually worth is what someone is willing to
pay for it.
Then you go back to negotiating, Can you do any better, can you do any better, can you pay a little more?
No I cant. $185,000 is it.
I was thinking $193,817.
No, $185,000.
If you agree, next you sign a contract to sell the property at $185,000. Now,
youre a seller. You give your contract to buy this house for $140,000 and your contract to sell it for $185,000 to your title company. They do all the paperwork for
closing, and you pick up the check for the difference.
The one thing that will determine if youll be able to sell your wholesale properties is whether youve found a good deal. If its a good deal, someone will buy it
for more than you put it under contract for. If its not a good deal, you may not be
able to sell it.
For Day 28, focus on building your buyers list. How do you find buyers of property? You can always run an ad like this:
Possible investment properties.
Must be preapproved
or have cash. Call now.
If youve been doing the activities weve been talking aboutcalling the I Buy
Houses ads, going to the auctions, going to the real estate association meetings,
having lunch with different investors, meeting with your mortgage brokers and
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Wholesaling, Part 1
bankers and real estate agentsyou should already have begun building a list of
buyers.That is one of your most important databases.Always add to and fine-tune
this all-important list.
Buyers List
Name: ____________________________________________________________
Address: __________________________________________________________
Phone number: _____________________________________________________
Fax number: _______________________________________________________
E-mail address: _____________________________________________________
Type of property looking for (buy, fix up, and sell; hold and rent; wholesale):
__________________________________________________________________
How many properties do you want to buy? _______________________________
What areas do you want to buy in? _____________________________________
Name: ____________________________________________________________
Address: __________________________________________________________
Phone number: _____________________________________________________
Fax number: _______________________________________________________
E-mail address: _____________________________________________________
Type of property looking for (buy, fix up, and sell; hold and rent; wholesale):
__________________________________________________________________
How many properties do you want to buy? _______________________________
What areas do you want to buy in? _____________________________________
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Name: ____________________________________________________________
Address: __________________________________________________________
Phone number: _____________________________________________________
Fax number: _______________________________________________________
E-mail address: ______________________________________________________
Type of property looking for (buy, fix up, and sell; hold and rent; wholesale):
__________________________________________________________________
How many properties do you want to buy? _______________________________
What areas do you want to buy in? _____________________________________
Name: ____________________________________________________________
Address: __________________________________________________________
Phone number: _____________________________________________________
Fax number: _______________________________________________________
E-mail address: _____________________________________________________
Type of property looking for (buy, fix up, and sell; hold and rent; wholesale):
__________________________________________________________________
How many properties do you want to buy? _______________________________
What areas do you want to buy in? _____________________________________
Name: ____________________________________________________________
Address: ___________________________________________________________
Phone number: _____________________________________________________
Fax number: _______________________________________________________
E-mail address: _____________________________________________________
Type of property looking for (buy, fix up, and sell; hold and rent; wholesale):
__________________________________________________________________
How many properties do you want to buy? _______________________________
What areas do you want to buy in? _____________________________________
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Wholesaling, Part 1
Name: ____________________________________________________________
Address: __________________________________________________________
Phone number: _____________________________________________________
Fax number: _______________________________________________________
E-mail address: _____________________________________________________
Type of property looking for (buy, fix up, and sell; hold and rent; wholesale):
__________________________________________________________________
How many properties do you want to buy? _______________________________
What areas do you want to buy in? _____________________________________
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D AY 29
Wholesaling, Part 2
Wholesaling, Part 2
When I was starting out in real estate, a gentleman in my town,Tom, heard I was
buying duplexes. Back then, one could buy nice brick duplexes in a certain part of
Nashville for about $60,000 to $70,000.They were worth $90,000 to $100,000. He
drove me around, pointing out a few duplexes and asking what Id pay for each.
He pointed to one and said, Robert, see that duplex over there? What
would you pay for that? I told him, Thats a nice duplex. Id pay at least
$60,000 for that. He pointed out another one, Robert, what would you pay
for that one? Thats a really nice one, even better than the last. Id probably
pay $65,000 for that because it would be worth $90,000 at least.
Tom dropped me off, drove back to the duplexes, banged on the doors,
and asked the tenants who owned or managed the properties. He called the
owners/managers and asked what theyd sell the duplexes for.They knew what
they were worth, but had bought them inexpensively many years ago, so they
let him have them for $55,000 each.Tom negotiated and put them under contract for $54,000, called me up a day or two later, and said, Remember that
duplex that you said youd pay $60,000 for? Could you do a little better? I
went up to $62,000. He wholesaled a bunch of duplexes by finding the buyer
first (me), then purchasing the property.
I know four other investors in my town with whom Ive completed more than
100 deals in the last four years. Theyre serious, they understand the business, and
they have funds and partners. You too need to meet dedicated investors like these.
Homework: Call some of the potential buyers from your list, find out what
theyre looking for, spend two hours, and see if you can find something your
buyers might want.
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D AY 30
Wholesaling, Part 3
Double closing
Collapsed closing
Assignment of contract
Double Closing
You buy the house from Susie Seller for $200,000 and sell it to Bill Buyer for
$220,000. Bill brings his $220,000 to closing at 3:00 P.M. The escrow company
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
takes his $220,000 and gives $200,000 to Susie, because thats what she wanted.
Bill signs a closing statement saying hes buying the house from you for $220,000.
Immediately, the escrow company representative goes in the next room, gives
Susie her $200,000, and she signs the contract saying shes selling the house to you
for $200,000. Theres a $20,000 difference. You can put that in your pocket. Thats
called a double or simultaneous closing.
Its important that you disclose in writing to both the seller and the buyer
exactly what youre doing. Please meet with your own local attorney and put
this disclosure in your contract. You have to disclose what youre doing in writing to protect yourself because, basically, youre selling something you dont
ownyet.
Collapsed Closing
Bill Buyer brings in his $220,000. The lawyer takes it and gives $200,000 to Susie
Seller. One deed gets transferred from Susie to Bill. Theres also one closing statement. The back of the statement reads, Assignment fee (or wholesale fee, consulting fee, finders fee, or marketing fee) of $20,000 to (your name). That comes out
of the closing statement.
Assignment of Contract
This is probably the best and cleanest way to close a deal. You tell the end buyer,
Bill Buyer, I have the right to buy Susie Sellers house for $200,000heres the
contract. I will sell you my contract (not the property). Ill sell you the right to buy
the house for $20,000. So at closing, when you bring in $220,000, then $20,000
goes to me. The title company will assign my contract to you for $20,000, and you
give $200,000 to Susie Seller. Shes happy because thats what she wanted, youre
happy because you have a new home, and Im happy because I helped two families
and made some money.
When you sell a contract, youre basically selling your right to the property
and the person who buys it from you steps into your shoes.
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Wholesaling, Part 3
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4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
Between 50 percent and 60 percent of all properties are sold off a sign in the
yard. In fact, most people use a standard real estate sign. When I sell a property, I use an 8-foot or 12-foot or 20-foot sign that can be seen by anybody driving down the road at 80 miles an hour with one eye closed. I put streamers
on it and hand out flyers to everyone in the neighborhood. Be sure to get permission and alert the sellers that youre marketing the property because you
dont want them to be surprised. Sometimes you wont get permission; in
those cases, you really have to work your buyers list.
out flyers to everybody, with the following printed on them: Urgent. Wont last. Must
sell by the end of the week. Again, if the numbers are right and the deal is good, it
will sell. If its not a good deal, it wont sell.
Offering financing will also help sell a property, so go to your hard moneylenders, and ask how much theyd lend on the property. After you do that, you can tell
your buyers you already have financing in place. Maybe you have a partner whos
willing to put up 75 percent to 80 percent of the purchase price of the property in
return for 11 percent paid in interest. Maybe youve negotiated owners terms on
the deal with the seller. You can pass that cost on to your buyer.
Life is too short. Theres too much business out there. Id rather walk away
and go on to the next three deals than have people complaining and upset at me
whether theyre right or wrong. I would rather be happy than right.
We have a saying in Tennessee: Pigs get fat, hogs get slaughtered. To me, that
means theres enough business out there for everyone, so dont be greedy. Sometimes, its best in a relationship or business transaction thats not working to just
smile and walk away, even if you have contracts and disclosures. You have to make
your own business decision and do what you think is good businesswhatever is
ethical and makes you feel good.
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Wholesaling, Part 3
Continue wholesaling to other wholesalers. Ask what they need, find out what
they want. Go out and get it. Other wholesalers and investors will become some
of your best clients and your best friends.
Today, find three to five wholesalers, call themmaybe take them to lunch
and find out what they need, so that you can look for it, using the systems
youve already learned.
Buyer: ____________________ Property looking for: ____________________
Buyer: ____________________ Property looking for: ____________________
Buyer: ____________________ Property looking for: ____________________
Buyer: ____________________ Property looking for: ____________________
Buyer: ____________________ Property looking for: ____________________
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D AY 31
You lease a property for a set amount of time, from 1 to 20 years, for example. The
longer, the betterfor you. Lease it at the lowest rent rate that you can possibly get.
Option It
Get an option to buy the property at below what the market value is, if possible.
That gives you an option to buy it. However, youre not obligated to buy it. If the
168
market goes up, you can exercise your option to buy it and make a lot of money. If
the market goes down, you can walk away.
Turn It Around
Once you lease a property with an option to buy it, you can turn around and rent-toown it (or lease option it) to someone else for an even higher monthly payment.
So, if youve lease optioned it for $1,000 a month and the market rent is
$1,400, you can turn around and lease it for $1,400 and make $400 a month. If your
option price to buy the property is $150,000 and the property is worth $180,000, at
any time, you can sell it to someone for $180,000, exercise or use your option for
$150,000, go to closing, and pick up your check for the difference of $30,000.
Lease optioning is an excellent way to control property without all the borrowing or using credit. You can lease option the house you live in, a vacation home,
or investment property. Also, when you lease option, part of the rent payment goes
toward the purchase price every month. If youre paying $1,000 a month, you
could perhaps negotiate $200 to $300 a month of that going toward the purchase
price. So in a year, if you decide to buy it, you have $300 12 = $3,600 credit toward the purchase price, which might cover your down payment and/or closing
costs. Its an excellent way to stop throwing your rent dollars away.
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
toilets and stopped-up sinks. Say youll take care of those repairs for them up to the
first $300 or $500, or whatever amount is appropriate.
Try to lease the property for 2, 3, 4, 5, maybe 10 years with the option to buy
it. When you get your option, use your negotiating techniques to find how motivated the seller is and get as big a discount as you can.
Spend an hour or two calling 10 For Rent ads.Youre looking for people who
are interested in lease optioning their property. If you make 10 calls and no one
calls you back, make 10 more, and 10 more, until you have talked to at least
two or three people. Leave messages with the rest, so that you can start to
build your lease-option business. Record the responses and follow up.
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
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D AY 32
Ask Questions
Ask questions to learn what the landlords and property managers you contact dont
like about managing rental property:
Would they be interested in a program, if they qualify, in which they could get
out of business, out of the headache business?
What would they do with their free time if they didnt have to manage their
property?
Call 10 more For Rent ads. If you dont reach anyone, call 10 more, and 10
more, and 10 more. I believe that in a weeks time, if youre serious about lease
optioning, you should make up to 20 calls a day. That means within a week,
youve made at least 100 calls on For Rent ads.
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175
D AY 33
1. Always try to get the deed and owners terms, even if youre going to lease
option it.
2. If they wont give you the deed, then try to get a contract for the deed. That
gives you some type of ownership interest.
If they wont give you either of those, ask for a lease with an option to buy. They
still own the property, but you control it under this arrangement.
Get a title search to make sure you can get a clear title.
Make sure that on any property you have an interest in, you have insurance in
your name, because you now have an insurable interest in the property.
Again, call on 10 For Rent ads, 10 more For Rent ads, 10 more For Rent
adsup to 50 For Rent ads using your two hours, until you get a hold of a
few people.
Go back over your list of people you called over the last few days. Those
who didnt call you back, call again. Remember, a policy and procedure I use,
and you can use in your action system, is to call people every day until you
get a response.
Your goal is to get a signed lease, with a signed option. Then record that
option.
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D AY 34
Rent Credit
When negotiating your lease option, ask for as much money in the form of rent
credit as you possibly can. As an extreme example, the last lease option deal I did, I
got 300 percent of my lease payment to credit toward the purchase price. My deal
involved a high-end condominium in South Beach, Florida, with an asking rent of
$3,000 a month. Heres the contract I worked out: For the first year, every month
that I pay the rent on time, I get three times that$9,000 each monthas credit toward my down payment for the purchase of the condominium. So over 12 months,
that $9,000 will add up to $108,000.
Why would a seller agree to do that? Well, these sellers bought the condo
brand new for $450,000 four years ago and its doubled in value. Today its worth
$1.2 million. They dont really care that theyre going to give over $100,000 in
credit toward the sales price because theyre making a fortune in profit. They got an
incredible deal.
You wont usually get 300 percent credit on your lease options, but why did it
happen this time? Because I asked for it. You should at least get 5 percent to 10 percent of your lease payment, 20 percent to 30 percent if you can, going toward the
purchase price. Be sure to ask.
Repairs
The repair clause on your lease will stipulate that you, the buyer, will be responsible for the first $300 or $500 of repairs. Youve sold the landlord on helping
him get out of the repair business. This is how you do it. But you dont want to
get stuck with doing the repairs yourself. When you turn around and lease option
or rent-to-own to other people, theyre going to be responsible for the repairs.
Youll write that into their lease. Make sure to preapprove and prequalify them;
never skip that step.
Down Payment
The sellers will ask for a down payment when you take over the property. Negotiate as low an option down payment as possible. Point out that the property needs
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repairs and youd rather spend the extra money on repairs. They may request one
or two months rent as option money. Try to negotiate your way out of it. If they
refuse, make a business decision about whether to complete the deal.
Protecting Yourself
In your considerations, take into account that youve got to make sure you can
rerent the property you lease option. Protect yourself by running an ad, calling on
similar For Rent ads, and talking to market professionals to see what the market
value actually is.
Another way to reduce your risk in a lease option is to give yourself a 30-day
contingency stated like this: This lease option is contingent on my taking over the
property and trying to put it on my program for 30 days. Then advertise it or talk
to the real estate agents and managers to see if you can rent it. If no one calls you in
30 days, either exercise your contingency or renegotiate.
Remember to disclose everything you do in writing. Disclose to the original
seller that you may rerent it, sublet it, or resell it.
How would you like to have had every property in your town lease optioned
10 years ago at the rents and prices 10 years ago, and have an 11-year lease option?
Whats going to happen to property in your town in the next 5, 10, or 15 years? In
the real market, I have lease options at various terms: for 1 year, 2 years, 3, 5, 10,
and so on. Simply go out there and do the best you can.
Its a numbers game that takes calling on a lot of For Rent ads and talking to a
lot of landlords. Someday, you may even hit the bonanza and find a landlord who
has more than one property that hes tired of managing. You might be able to lease
option a lot of them at once.
Again, call on 10 For Rent ads, 10 more For Rent ads, 10 more For Rent ads
up to 50 For Rent ads using your two hours, until you reach a few people.
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Make those phone calls to those who didnt call you back from your list of people you called over the last few days. Remember, a policy and procedure I use
effectively is to call people every day until you get a response.
Your goal is to get a signed lease, with a signed option. Then record that
option.
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
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D AY 35
here is another side of lease optioningwhen you turn around and find lease optioners after youve found the
property.
Option money
Repairs
Preapproval
Length of lease
Disclosures
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Option Money
How much option money or down payment money should you collect when youre
lease optioning a property or selling it on owners terms? As much as possible.
Consider this: If someone doesnt have any money to put down, he or she probably
wont be a good renter.
Generally, you want at least two or three months of rental payment up front as
option money. If the lease optioners dont have an extra two or three months cash,
theyll probably fail to pay their rent on time. This means that if they get in trouble,
youll have a problem.
If youve set rent at $1,000 a month, youll want to collect $3,000. Of course,
you never tell them that. Youve learned from negotiating techniques (see Days 16
and 17) never to mention a number first. Instead, ask how much money they have
to put down. You know that youd like to have $3,000 up front. But what if they say
theyve got $8,000. Then you say, We might be able to work something out.
You may be amazed whom you can attract to your lease option property. A lot
of people who are self-employed dont think they have good credit, but they have a
lot of cash. Some of them are willing to put a lot of money down because they want
to park it somewhere. You solve their problem by lease optioning the property to
them for one year. After one year, if they dont buy it, they lose their option money.
They also lose their option money if they dont pay the rent on time every month.
The option money goes into your pocket. Its yours. They paid you for the
right to buy the property. However, if they do buy the property, you may need access to that cash to go toward the purchase price or the down payment. But its your
money; you dont pay taxes on it until the option to buy is exercised or they walk
away from the option. I recommend you hold it and be prepared for any of these
outcomes. I always like it best when people buy the property; you make the real
money when you sell it.
Repairs
The lease optioners are responsible for doing small repairs on the property. Be sure
to inspect it to make sure theyre doing those repairs under $500 or $1,000, because
sometimes they neglect this responsibility. If they dont do the repairs, they lose
their option money.
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Preapproval
I like to encourage homeownership, so I strive to sell the lease optioners the property. I
send them to an affiliated mortgage broker to get them preapproved. While most lease
optioners dont think they can qualify for a loan, many can. There are many great loan
programs available today. Once they have been preapproved, they can buy the property, which is what you want. Then, you can cash out and move on to the next deal.
Always get your buyers preapproved, even if they dont think they can buy.
Thats also a great way to check their credit.
Length of Lease
When Im taking over a property, I want to control it for as long as possible. When
Im selling or lease optioning the property to someone else, I want to give that person as short a period as possible. I usually suggest one year, although its even better to have only six months.
Then, after one year, I have the right to renew the option, have them move, or
let them buy the property. Then, I set up a second year. After the second year, I have
the same rights. However, I dont think its wise to lease option my property to
someone for five years. Why would I do that if I dont have to?
If a great negotiator wanted to lease option a property for three years or more,
Id say, Great. But Im going to put in automatic rent increases and have the property go to the full market value of an appraisal, and youve got to give me more option money every year. I suggest getting whatever you can negotiate for. Again,
dont give things away that you dont have to. And if youre going to give them extras, make sure you get paid for them in some way.
Disclosures
Remember to disclose everything you do in writing. For example, if youre not sure
you have a clear title to the property, disclose that to your lease optioner.
4 0 DAYS TO S U C C E S S I N R E A L E S TAT E I N V E S T I N G
benefits of buying a property, and tell them how they could get preapproved. In
fact, we can usually process a preapproval right there and then. Often, they can buy
the property for less than what theyre paying in rent, taking the tax deductions into
consideration. They become homeowners and begin to build wealth. A lot of times
when I put rental property under contract, I sell it or lease option it immediately to
the renters. Its a win-win situation.
Call on 10 For Rent ads, 10 more For Rent ads, 10 more For Rent adsup to
50 For Rent ads using your two hours, until you get a hold of a few people.
Call those who didnt call you back from your list of people you called over the
last few days. Call people every day until you get a response.
Your goal is to get a signed lease, with a signed option.Then record that option.
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
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Never rent or lease option a property without first running a credit and
criminal background check on everyone thats going to live in it. (When the
applicants sign the application, they agree to this credit and criminal background check.) Also, check with at least two previous landlords. In fact, I recommend talking with three previous landlords or hire tenant-screening
services to do that for you. Get the tenants to pay for this service through
their application fee. Make sure that you screen, screen, screen, and get
plenty of references. Its better to have a place empty for six months than
have one bad tenant.
its got to be a reasonable fudge factor because the property must actually be appraised for $260,000.)
Once you have a buyer, youre ready to pay off the original sellers. You had a
three-year lease option. Remember that you always ask for a discount, so you go
back to the original sellers and say, I had three years to pay off this money (always
count it out, 2005, 2006, 2007)so it would be August of 2007. If I get that cold,
hard cash in your hands a little sooner, what would you do for me?
Youve already asked what theyre going to do with the cash when you originally talked to them. Refer back to that knowledge. Ask them if having that cash in
hand would help them take a vacation, pay for their retirement, move out of state,
go fishingwhatever they like to do. Would that be worth something to them?
Theyll usually say yes.
Then ask, Whats the least youd take right now to cash out of this property
and be okay? You dont have to divulge that youre ready to close right now. The
seller might say, Well, under our contract I was going to get $230,000, but Ill take
$225,000. Then go right into your negotiating, asking if they can do a little better,
whats the least they could take. By the time you stop negotiating, theyve agreed to
take $220,000.
Next you go to closing. The end buyers pay $260,000, and you pay the original seller $220,000. Youve just made $40,000, an extra $20,000. You doubled your
profit just by asking for a discount.
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Call on 10 For Rent ads, 10 more For Rent ads, 10 more For Rent adsup to
50 For Rent ads using your two hours, until you reach a few people.
Call those who didnt call you back from your list of people you called over the
last few days. Call people every day until you get a response.
Your goal is to get a signed lease, with a signed option.Then record that option.
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
_______________________________________________________________
Contact ____________________ Property ____________________________
Response _______________________________________________________
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D AY 37
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Property Management
The most critical part of having rental property is management. I highly recommend that you not manage your own property. Its a high liability endeavor. Instead, pay someone from 7 percent to 10 percent to manage your property. Youll
need systems in place to screen tenants and collect rent. Set up a business plan detailing how you will manage rental property.
Dont confuse property ownership and property management. No one will
manage your property as well as you. I recommend that you implement my landlording systems, policies and procedures, put them in place, and manage the manager. Because if youre managing your property, youll be stuck answering phone
calls, doing repairs, and collecting rent. This will take up much of your timetime
you could use calling more For Rent ads, finding more deals.
Consider this: What if you were able to buy one more house each year with
the time you used managing property? You have to think about the cost of your
time. I think owning rental property long term is a great wealth builder. You just
need to reserve your time for doing the activities that make you money.
Call another 10 For Rent ads, looking for people who might let you take over
their rental property.
Talk to three real estate agents. Tell them youre looking for investment property that will generate cash flow and that you can buy at a discount.
Call three other investors youve met through the real estate association. Tell
them that youre looking for rental property.
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Run ads saying, Attention landlords and property managers: Get out of the
headache business, call me, Ill take over your rental property.
Every time you talk to landlords, ask them if they know anybody else who has
property they might want to sell. Landlords know other landlords.
Visit your local apartment association. Sometimes, there are small property
owners there who own houses, duplexes, and small apartment buildings. Meet
them, and announce that youre interested in buying property.
And as always, track your activities: How many phone calls did you make?
Whom did you talk to? What was the response?
Holding or Wholesaling?
Should you invest for the long term, or is wholesaling the best way to generate
cash?
Rental property, which is long-term investing, is a great wealth builder. I
highly recommend it at some point. But youre never going to make as much
money as you think with rental property. By the time the rent comes in, and you
pay your mortgage, taxes, insurance, and repairs, and you adjust for vacancyyou
might make some cash, but not much.
There are only two times you make money in real estate: when you sell property for profit or when you refinance it and pull some of your equity out in the form
of borrowed funds. The best way to generate cash in the beginning is through
wholesaling; lease optioning; and buying, fixing, and selling.
I recommend that most people start out wholesaling and lease optioning.
Then, when they generate enough cash, and have a big cash cushion, thats the
time to get into rental property. Most people do it backwards. They get into
rental property, and they get bogged down with cash flow problems. But if you
have six months or one year of mortgage payments in the bank, after youve
made and saved money wholesaling and lease optioning a bunch of property,
the down sides of rental property are not as big an issue because you have a big
cash cushion.
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D AY 38
Property Managers
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Property Managers
Contact five property management companies. How can you find them? They
advertise in the real estate section of the newspapers, at real estate associations, and at apartment associations. List them here.
_______________________________________________________________
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Ask property managers if they know people who would like to sell their property. Make it very clear that youre willing to still pay their management fees
and commissions.Youre looking for lease-option potentials and property that
you can buy, fix up, and sell; or buy and hold.
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D AY 39
Review Activities
Review Activities
what should you be doing more of, less of? What suggestions do they have to improve your business?
And always, ask all the people you run into if they know of any property, any
buyers, or any people with money. Youre always looking for deals and always
fine-tuning and streamlining your business.
At this point, if youre having any success or good response, or any problems
or questions, please e-mail me using the Contact Us button on my web site at
www.sheminrealestate.com. Let me know how these success plans are working
for you.
Desire or Belief
If you have enough belief or desire that youre going to do real estate investing
and succeed, you will succeed. If you dont have enough belief or desire, you
wont succeed.
As an example, consider 100 mothers who attended one of my seminars.
How many of them would like to follow this 40-Day Plan for Success and learn
how to wholesale one property to make an extra $75,000? All the mothers raised
their hands. Now, in the real world, only two to five actually wholesaled a
property. They learned how to wholesale a property, but they got busy and didnt
do it.
Lets say a really bad person kidnapped their children and said, If you dont
wholesale a property in 40 days, then something really bad will happen to them.
How many of those 100 mothers would wholesale a property? Each mother would
probably wholesale four houses, in 20 days, to keep her children safe.
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The only thing that changed was their desire or belief. If you have enough desire, nothing will stop you. If you dont have enough, everything will stop you. So
go back to Day 1. What is your desire? Why are you doing this?
Knowledge
Does Bill Gates know everything about computers? No. He hires people who do.
The secret of my business is that while I dont know everything, I do know whom
to call. If you run into a problem, dont worry or wonder about it, call an expert.
Thats why youre building your team.
You should have experts in all areas of real estate on your team. You can even
call me at 888-302-8018.
Persistent Action
If you keep executing these action plans, even if you dont know what youre doing, something is bound to happen. If you dont do anything, nothing will happen.
Persistent action is the area in which most people fail. But you wont, if you follow
all 40 days of action plans in this book.
I go to the gym several days a week. When I go at 7:30 A.M., there are about
20 other people working out at that time. Half of that 20 are employees of the
gym. This gym has thousands of members, each paying $80 a month. On the
most recent January 3 after New Years Resolutions were made, a couple hundred people showed up at the gym. It was so packed I could hardly get in the
door! They had the belief or desire to get in better shape; they also had the
knowledge. So why were there only 20 people at the gym a few weeks later? Because the hundreds of resolution makers lacked the third determinant of success:
persistent action.
Most people try something new, like quitting smoking or avoiding caffeine,
for two or three days. Thats not long enough to build up a habit. If you do something consistently and persistently for 40 days, it will become a habit. This works
for anything in your life. Make sure youre persistent.
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Review Activities
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D AY 40
AdvertisingIt Works!
How are you letting people know that youre looking to buy houses, looking for
deals, and looking for partners? Do you distribute flyers and cards? Are you running newspaper ads? You need to start budgeting money for advertising.
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Do What Works
Its time to notice what works and to do more of it. If you had success talking to
five real estate agents, talk to five more. If you had success calling For Rent ads,
call 20 more. If you had success networking at the governmental courts, go back
there. If you had success going to your real estate association and networking with
other investors, make sure you go back to their meetings.
Make a list of 10 successes that youve had. For example, did you get any positive feedback? Did calling For Rent ads work? Did you find a few people who
want to invest with you? Are you getting calls back from letters you sent out or
from people youve met?
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Make sure you have the reason youre in real estate investing posted in a
prominent place on your desk. Review it; rewrite it.
Review all of your business practices.
Go back through the 40-Day Plan for Success. See if you missed anything.What
havent you done? Is there anything youd like to do again?
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You are now armed with simple-to-follow success plans for your real estate investing career. You can succeed if you want to enough. You will do it. Just remember,
success is one step at a time, one day at a time. Happy investing!
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BONUS
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Take time to figure out what your tolerance is and how involved you need to be
in the rehab project. The deal might not have to be in your backyard (though probably
plenty exist), but having it four hours away will cost you a lot more time and money.
How to Avoid Mistake #1
The solution is simple: Target a specific area close by, and work it in depth. Sure, you
might think your market is saturated and that there are no deals left. But heres a secret.
People always say that about their own market! The grass is always greener on the
other side. In my market, Im currently rehabbing a deal that has $150,000 in equity.
Im getting ready to close three more rehabs, each with between $20,000 and $40,000
after-repair profits. Thank goodness my market is saturated with other investors!
Dont get caught up looking for greener pastures somewhere else. You will be
surprised whats available in your own backyard. If youre looking elsewhere,
youre likely just procrastinating and making excuses.
You can choose to make money or you can choose to make excuses,
but you cant choose both, so stop procrastinating and choose one!
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On my first rehab, I didnt even know what to start with. The obvious things
stuck outlike the rotted wood siding and the pool that was green with pond
scum. But I didnt know to look for or to price the small detailsthings like
the plumbing, roof, electric, and so on. I hadnt a clue what to look at or even
where to look.
Get familiar with the majors of rehab. These are the items that can cost you big dollars on a deal, things that will make or break a deal, and things that can take you
right out of the real estate game. You certainly dont want to become a motivated
seller yourself because you got into a bad deal.
The majors of rehab fall into these five categories:
1. Roof
2. Structure (foundation)
3. Electrical
4. Plumbing
5. HVAC (heating, ventilation, and air conditioner)
These might seem scary, but in reality, a little education goes a long way. And
the best type of education is hands on. I started by taking bus trips with experts who
had experience in these areas. I asked questions and got involved. I also worked
closely with my home inspector as I took on more and more rehabs in the beginning of my career.
After I negotiated the contract, I always ordered a professional inspection.
This has actually earned me thousands and thousands of dollars in my career.
After simply having a third-party expert do the inspection, I found its almost
always possible to renegotiate the price of the contract and receive credit for
repairs. (For tips on how to do your own initial inspections, visit www.fixing
andflipping.com.)
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This ones easyjust dont do it under any circumstance! It will hold up the rehab
and cause unnecessary stress. I guarantee. Currently, one of my real estate students
is living in the home hes rehabbing. He swears that hes never been so frustrated
and so stressed, and hes really angry about how long the rehab is taking.
Learn to find accurate comparable sales. Youll always hear someone tell you that
her house is the nicest one on the street or has all the upgrades that the others
dont. This simply means that the house has been improved too much for the
neighborhood. If youre going to make that home your own, then go ahead and improve it in a first-class way. But if you want to turn around and resell it, remember
to improve it to the level of neighborhood standards.
Always use your best judgment. That means if you have the option of buying
a $20 faucet rather than a $129 faucet, as long as the neighborhood supports it, go
for the $20. If youre doing a million-dollar rehab, go for the upgrades. It would be
wise to go into other houses for sale in the neighborhood so that you can see the
standards your house is competing against.
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If the deal is good, then you dont have to use your own money. People get so caught
up on funding and financing, but in reality, if the deal is good, the money will come.
You can use a credit partner, a financial partner, or even credit cards or equity lines.
My first rehab was the first and last deal I funded with my own money. From then
on, I found people who had money that wasnt bringing in a good return. Usually, Id
offer them 10 percent backed by a note or, better yet, a second mortgage on a property.
After struggling with a partner for a year because we had not tied a loan to
real estate and simply gave the investor a promissory note, I was burdened with
paying back $30,000 to the investor. So, even if the money is available, still protect
yourself with the proper security instruments.
What I learned later was that partnerships by nature rarely work. The better your
friendship or relationship is, the worse it will turn out in the end. Instead, look at
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the alternative of building many joint ventures. This enables you to do projects on a
deal-by-deal basis. You do a deal, if it works out, you do another and another and so
on. That way, youre not bound by a partnership, and youre not obligated to each
others personal finances. When you outgrow the relationship, you simply move on
to new joint ventures.
Realize that there will never be true equality in a business partnership, so protect yourself and your would-be partner by setting up joint ventures instead. It will
save business relationships and friendships. (To download a sample joint venture
agreement, visit www.yamon.net)
Put a simple contractors agreement in place. By getting a good agreement and having a local attorney review the contract, you can protect yourself from disagreements over important issues.
Always ask your contractors to bid the job in terms of labor, materials, and
time, and make your selection according to each of those factors. Then, include a
penalty if they take longer on the job than the agreed-upon date. Countless people
have told me that contractors dont go for this. This is simply not true. The key is
that you absolutely must have your contractor include a time frame in the estimate.
If the contractor tells you the project will take three weeks and the crew has to work
beyond four weeks, then its absolutely acceptable that you start penalizing them in
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an amount equal to your daily holding costs. If the contractor tries to argue, simply
say, But, Mr. Contractor, you told me it would take only three weeks, and Im giving you four. Are you saying that your bid was not truthful?
In practice, I usually give the contractor one week leeway because of unforeseen circumstances, and I also always include a clause in which environmental delays are excluded from the contract. For example, in South Florida during the rainy
season, you cant penalize someone if it takes an extra week to paint a house because its raining. Weather factors are simply out of anyones control. (To find out
how to get your own Contractor Agreement and have an attorney review it for you
for less than $30, visit www.organizedrehab.com.)
The moment you leave the closing table, head straight to your building supply store
and purchase a For Sale By Owner sign. Then immediately post it in the front
yard. You are probably saying to yourself, Surely I cant let anyone into the house
in this condition. And you are correct. You absolutely cannot and should not let
someone into a house that is only partially rehabbed. I seem to be contradicting
myself. However, all you need to do is politely explain that because of insurance
purposes, you cant let anyone in the house until the repairs are done, but you
would be happy to add them to your buyers list. Youll call as soon as the rehabilitation on the home is finished.
This policy serves you in several ways. First, it creates a list of interested people you can bring through the home the day you are ready to show it. Second, it
gives you the opportunity to get information about the kinds of buyers who are interested in the home. Third, it provides an opportunity to take customers who dont
have an interest in buying this home and turn them toward other properties you
may have. Youre looking to make money from another deal.
There are many other benefits to building a buyers list. Just remember, its
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important to begin to market on the day you close on the property. Many rehabbers forget to calculate the time it takes to sell a house, so reduce your costs by
starting to market it immediately after you buy it.
Find some kind of builders risk policy. Usually, these policies will be available
through your local agents, more so than through large insurance companies. You
can locate insurers through your local real estate investors clubs. (For a directory of
clubs, visit the links section on www.yamon.net.) Make sure their policies cover
vacant homes and ones that are being rehabbed. In addition, look for companies
that will prorate the premiums or let you pay on them monthly. I currently work
with two agents. One will prorate if the property sells in less than a year, and the
other will allow me just to make monthly payments based on the annual policy rate.
Also, consider any additional coverages that you might want. For example, if
you live in a flood zone, you could be required to carry flood insurance. Or, during
certain seasons, like hurricane season for example, you could be required to carry
wind insurance. Some of these requirements may be dictated by the lender and others not. Use your best judgment.
If you have a property in your name, you must put together a business entity and
deed the property into the entity. Its that simple. Just set up a business entity (Corporation or Limited Liability Company), and move the property into that entity.
This will help shield you from liability and keep people from trying to sue you.
Even if you close the property into an entity, its also a good idea to have some
kind of legal protection. I got involved with Pre-Paid Legal Services in order to
protect me from lawsuits, to have someone read over contracts, and so forth. (For
information on this service, visit www.yamon.net.)
Although it certainly is enticing to spend less money on supplies than you have to,
it can cost you more in time and labor down the line. If youre on a tight budget,
you might consider creative alternatives like getting several gallons of oops paint
mixed by mistake from your home supply store at around $5 a gallon. These are
usually pretty good quality brands. Then, buy a 25-gallon garbage pail and mix
them all together. You will have better quality paint at the same, if not a lower, price
than the bargain paint.
For other things, seek out local stores where you can get supplies at a discount.
For example, in many cities, there are Habitat for Humanity stores where you can
pick up materials at reduced prices. There are often wholesalers of cabinetry, carpet,
tile, and so on where you can get discounts to help defray some of the costs.
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At the end of the day, youll want to weigh the pros and the cons of time, labor, and materials. (Sound familiar? See Contractor Agreements.)
Every property has its unique challenges, but by learning what methods are out
there to move properties and using creative financing techniques to your benefit,
youll be ahead of the curve.
When I first found myself without an exit strategy, I ended up taking a
three-day training course. At this course, I listened in on a section about creative
finance. The instructor offered strategy after strategy, although some of them
went right over my head and others just confused me. But several of them made
sense, and I saw how I could implement them on the deal I wasnt able to move
otherwise.
From that time on, I realized that flexibility is one of the most important characteristics of an investor. If something isnt working, be prepared to try something
else. I realized that I had to think outside of the box and look beyond the option of
just selling the property outright. By doing so, I had the property under contract for
more than the asking price within three days.
Always, always have another alternative or two at your disposal. In rehabs, in
many cases, you simply want to flip the property and cash out of the deal. But, in
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some cases, that may not be the best strategy, so look at your alternatives. Always
be open to the idea of refinancing and then renting or lease optioning or seller financing if the underlying financing allows. The key here is to be creative and not to
limit your thinking about the possibilities. When you go into a deal, always have at
least two to three ways out.
First of all, do your due diligence. You need to see how long properties are typically staying on the market in a certain area. Median-priced homes will typically
move the fastest because the majority of people are looking in this price range.
Higher-priced homes will often sit on the market longer, waiting for that special
buyer. And with lower-priced homes it may be harder to get your buyers qualified.
These variations, of course, will also vary from market to market, but they are a
general rule of thumb.
After you have an idea as to how long your home will be on the market, you
will better be able to estimate this figure. You also must realistically estimate the
time for repairs (see Mistake #8). If the contractor goes over budget, you should be
covered on the holding costs. But its important to take into account the time for repairs. If its going to take 90 days for repairs, you obviously cannot turn the home
over in 90 days.
And lastly, you should be building your buyers list right away. This way, when
the repairs are done, you will minimize your holding time and increase your profit
potential (see Mistake #9).
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The holding costs you must account for and take into consideration are electric, water, waste, insurance, taxes (even if they arent due monthly, they are still a cost that
will reduce your profits), lawn service, snow removal, pool service, homeowners
association (HOA) fees or maintenance fees, and so on. In some cities and counties,
waste removal will be included with water. In others, it wont be.
If your property is part of an HOA or in a condo building, there will also be
fees associated with the property. You need to know what those fees cover and what
youll be responsible for individually. These little things add up and will start to
cost you lots of money each month.
You need to come up with some kind of tracking system that lets you enter all the
receipts plus keep copies of all receipts. You can simply tape them to a blank sheet
of paper and put them in a three-ring binder.
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So you think this effort is overkill? Let me explain the reasons for doing it a
little differently!
When you turn around and sell your property in 83 days, the lender for your
buyer is going to give you a friendly call in which she will politely ask you why
you are making such a big profit on a $200,000 deal. In the meantime, you have
been rehabbing the property and think that the profit is not nearly enough. Lets say
you bought it for $150,000 and are selling it for $200,000 less than three months
later. But the bank sees a $50,000 profit from this deal.
You and I both know that you arent making anywhere close to $50,000 on the
deal. But, in the world of lending, youre guilty until proven innocent!
What about closing costs? Holding costs? Interest Payments? Repairs? The
banks answer to you is Okay, prove it. If you cant prove it, youre making
money in their eyes and the deal might not go through. The banks goal is to protect
the buyers interests, and theres nothing you can do about it except overcome the
banks false impression before it becomes an obstacle.
By gathering all of the receipts and an itemized spreadsheet of all costs, you can
simply take them out of your folder or binder and fax them upon request to the lender.
This should, in a matter of moments, make the issue go away. If the documentation is
already in one place, it wont cost you three to four days of holding costs to gather all
the documentation, during which time the buyer might get scared and back out!
If thats not a good enough reason, I have three more words for you: Capital
Gains Tax. If you can prove that you incurred the expenses, youre not taxed on
them! (To find information on budget tracking and organizing the rehab project,
visit www.organizedrehab.com and www.fixingandflipping.com.)
Action Plan
Now that you know some of the biggest mistakes new investors make on their deals,
lets create a specific action plan to get through your first rehab. Follow these 16 steps.
1. Find the Deal
All real estate begins with the deal. If you dont have a deal, then walk away. As I
mentioned earlier, I recommend that you target a specific type of seller and work
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from there.There are many profit centers within each type of motivated seller category; if you dont take the time to learn each and every profit center, you could
be leaving thousands of dollars on the table. How do you find the deal?
Choose an exit strategy (wholesale, rehab or rent). If the deal doesnt fit your
goals, network with another investor whose strategy it does fit.
Once you have found the deal, track it so you know where the majority of your
deals are coming from. People spend so much money in real estate, often not having a clue as to where the profits are going.
If you get 50 percent of your deals from the multiple listing service (MLS), but
you spend 75 percent of your time and resources mailing to people on a pre-foreclosure list, you might want to reconsider your strategy.
For more information on finding deals and getting started, visit www.thecompleteguidetogettingstarted.com.
2. Do an Initial Inspection
This is when you do your own walk through.You are looking for any major problems and beginning to build your budget.You will want to take some tools with you
such as the following:
Measuring tape, to measure all room dimensions and windows and doors
Slab of marble, to see if the floors are level (if the marble shoots off in one direction, you may have a foundation problem)
Screwdriver, to check any soft/damp spots
Camera, to take initial photos that youll refer to later on
For a complete list, visit www.fixingandflipping.com.
Remember, this is only your initial inspection to help you structure your offer.
This number can, and often does, change once you have your professional inspection.You can always renegotiate later. Action is the first step! We are conditioned
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to think about things throughout our lives. I encourage you to act first and then
finish thinking about the deal later.
3. Submit Your Offer or Contract
Now that you have found the deal and completed your basic walkthrough, you
want to submit your offer. Pay special attention to the effective date, closing date,
and any key dates and dollar amounts that are a part of the deal.
Remember, the contract is not effective until both parties agree to all terms and
sign and date.Always mark the effective date so that you have an accurate record.
When the contract becomes effective, the rehab clock starts ticking.You have
anywhere from 30 to 120 days to get this thing closed.This all depends on your negotiating power and the contract that you finally agree to. Nonetheless, the countdown begins, regardless how long or short that timeline might be.
Dont do what most investors do at this point!
Most investors just stop and wait until closing. I assure you that if you do that,
you are going to lose a lot of money on each deal that you do. If you take the next
30 to 40 days to get this deal moving, you will save at least 30 to 40 days of holding
time, and time is money, literally.
4. Put Together a Memo
Do this so that you will always be able to know, at any given time, what your dates
and deadlines are.You certainly dont want to go into breach of contract because
you didnt meet a deadline. Or if you are using your inspection as one of your contingencies out of the contract and miss it by several days, you could forfeit your
deposit. (You can find these documents at www.organizedrehab.com.)
5. Set Up a Professional Inspection
You may be sitting there saying,I know enough about contracting or Ive already
done my own rehabs. Thats fine.You probably do have a good idea of everything
that needs to be done and an accurate estimate of such repairs. But lets look at it
from the sellers standpoint.You are the buyer, the investor.They are already probably a little bit guarded if you have negotiated down the price since the deal began.
You have finally come to an agreement. In their minds, that is your offer. It is very
hard for you to come back and renegotiate.
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Now is the time to bring out the professionala neutral individual who
will give an objective report. I have used the same inspector for every single property that I do in my local farm area. He provides me with a report and estimates of
all costs. I take this report back to the sellers and simply open it up, saying, I just
want to show you what came back.
Then, I stay quiet. I dont ask for anything. I dont try and renegotiate. I just
show them the report.With only one exception, I have had the seller come back
to me and tell me that they are willing to knock out $2,000, $3,000, or more. On
one deal, I got $15,000 taken off the contract price simply because I faxed the report over.That one deal paid for my next 50 inspections.
If you are going to use this strategy, then your report must have repair estimates on the report. (To view a sample report, visit www.organizedrehab.com.)
6. Prepare Your Budget
You have done your own estimates and brought in the professional inspector. You
should have a pretty good idea of what things are going to cost you at this point. I
use a software application that is simple to use. I just enter the dimensions of a
room, and the software calculates my costs to tile, carpet, paint, etc. I enter the number of fixtures or ceiling fans, and it calculates prices. I put this together because I
didnt want to reinvent the wheel. I wanted a system that is easy to use and duplicatable from deal to deal.You can either purchase a prepackaged application or create
one yourself. (For a simple budget worksheet, visit www.fixingandflipping.com or
www.organizedrehab.com.)
7. Prepare a Property Marketing Plan
You should only be about two to three days into the contract right now.The maximum amount of time invested should be a week, and the only reason to take a
week is that you couldnt schedule your inspector right away. Most investors will
be tempted to stop at this point, but I encourage you to follow these steps
through. Because youre still in the due diligence phase, you have the opportunity
to uncover additional things and renegotiate the contract if need be. Initially, I put
together a property plan to get a hard-money loan from an investor. My plan was
in the form of a 12-page report that I do on every deal. It included a project summary, a summary of the specific market, a budget, a rough timeline, comparable
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sales, and a plan to market the property. The marketing plan included three separate profit potentials from best-case scenario to probable-case scenario to worstcase scenario. Doing this property marketing plan (PMP) forces you to really
analyze the deal and look at where all of your dollars will be spent. It takes about
an hour to complete, but gives you a clear picture of the project. That hour will
save you time during the rehab and the marketing phases of every project.
To summarize, doing this plan serves three main purposes.
1. First, it makes you closely evaluate the deal by taking out the emotional aspect
and looking strictly at factual data.
2. Second, you can use this information to shop out the financing to potential
lenders. Most lenders will not require such an extensive report, but its always better to have and not need than need and not have.You are also showing potential lenders that you are treating this as a business and that you are
a professional.
3. Third, when you decide to start getting into multifamily properties or commercial real estate, youll have something tangible to show that you have treated
your business as a business rather than as a weekend hobby.
8. Find Financing
At this point, youre ready to find a lender. Even if you have the cash to do the deal
yourself, find a lender who will keep you from getting into bad deals. Much of the
time, when you are doing rehabs, you will turn to hard moneylenders who are private
lenders with funds available to rehabbers. Depending on your market and the lender,
you will pay between 1 and 10 points up front (1 point = 1 percent) and between 10
percent to 18 percent interest on the money. These lenders will typically lend between 60 percent to 75 percent of the ARV (after repair value). If you can find a willing lender, then youre safe to bet youve got yourself a deal with room for profit.
Financing can come in many forms other than hard moneylenders. In the
course of your business, youll run in to private lenders who will lend you money at
better rates than hard money, and these relationships usually develop over time.You
can also find joint venture partners to go in on deals with you. Many initial deals I
did involved hard moneylenders to cover the purchase of the property and joint
venture partners to cover the holding costs and the repairs. I would simply put together a document with another individual that would pay for all of the repairs and
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holding costs.You can pay a percentage or a give a percent ownership in the deal.
Dont hesitate to get creative when dealing with joint venture partners.
9. Line Up Contractors
In your contract, include a clause that allows you access to the property with a 24hour notice. Dont abuse this, but use it wisely to bring in your contractors to give
you estimates and bids on the projects that need to be done.
In the beginning, depending on your farm area, call between five and seven contractors for each job so you can get three to show up and find one you want to work
with. (For links to find local contractors, visit www.yamon.net in the links section.)
You should be no more than two to three weeks into the contract to line up a
contractor, depending on how long you have to close. If you have a 30-day contract,
you should have a contractor at about Day 14, for example. Put estimates together
quickly, and make your decision prior to the close. Remember, have the contractor bid
time, labor, and materials. The cheapest might not really cost you the least in the
long run. Look especially closely at time estimates! By spending a few days lining up contractors, you will be ready to start rehabbing the day you get the keys in your hand.
Can you see how this could save you days, even weeks, of paying out holding costs?
10. Put Your Budget on Paper
You are ready to put the budget on paper.You have already done your own estimates, which should come in close to where the contractors are, and you can really detail the budget. You want to know where your money is going because,
inevitably, youll spend more on your rehab than you thought. If you learn to manage the budget well, youll know when you go over in one area, and if and where
you can reduce some costs.
11. Line Up Your Insurance
Dont get to the closing table only to find out you forgot to get insurance.You will
hold up the closing, or worse, have an uninsured property.You can find insurance
agents that will insure vacant properties by asking local investors for recommendations, searching the Internet, or calling around. Keep in mind that many companies
will not insure vacant property.
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Line up this insurance about a week before closing. And remember to find
out whether you can pay monthly under a master policy or whether they will prorate the policy and credit you back if you close within the next 12 months.
In addition to your insurance policy, get copies of proof of insurance from
your contractors.They must have their own liability insurance. No discussion; this
is not an option.
12. Go to Closing
Once you have completed steps 1 through 11, you are finally ready to go to closing. It is quite a relief to be ready to go and to be organized when you are walking
out of closing! If you take these steps, then you will never be stressed or overwhelmed as you leave. Keep in mind, however, that in many deals, something always
comes up thats out of your control prior to the closing. So even if you follow each
of these steps to a the letter, its still possible that something comes up on the title
or that the seller has a change of heart or any number of other issues that could
arise.The key is to remain calm, cool, and collected! I remember coaching one of
my students through a close that he was ready to back out of. Realize that you are
getting great deals because of your ability to solve problems. Take each issue as a
miniproblem and solve it. You will do more deals than your competitors if you
learn to find solutions instead of panicking like a deer caught in headlights.
13. Rehab the Property
You have done all the prep work, and the job should be relatively seamless; from
this time forward, it is just a matter of managing the property.There are steps and
sequences that you can follow, but common sense dictates most of it.You wouldnt
think to install carpet before you paint the walls or to landscape before you bring
in the dumpster, for example. (For a complete system on managing rehabs from
start to finish, visit www.organizedrehab.com and www.fixingandflipping.com.)
14. Document, Document, Document
Take photos at the beginning, during the progress, and at the end of the rehab.
Track your numbers, and always know where you are on the project.This will keep
you from getting in over your head and will keep the job fun! You will have an ongoing documentary of the deals you are doing, and you can show others the whole
story of each property.
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This does not mean only looking at the final numbers. You want to know where
you stand financially, but you also want to take some time and look at what went
well, what didnt go so well, and what was just an absolute disaster.This is the only
way that you can make corrections on the next go around.
Things that went well. Repeat them and perfect them.
Things that didnt go so well. Correct them and modify them until they work.
Things that were disastrous. Do not ever repeat them. Consider them lessons
learned!
16. Do Another Deal
In summary, rehabbing can be lots of fun, and it can also be challenging. New things
always come up on every job, but many things stay the same.These details can be
systematized and delegated to someone else. The entire rehab system that I have
developed came from completing deal after deal. I have tweaked the system slightly
time and time again until it finally became something that I could turn over to
someone else to manage.
When I first met Robert Shemin, I remember sitting in the room and watching him make this all look so simple. I was a novice at the time and was just amazed
at how he made it all sound so easy. So, I asked him one day, How do you do so
many deals, speak, teach, write books and home study courses, and have a life?
What he said to me has stuck with me ever since that time. He told me several
things, but I consider these three the most important:
1. Set a schedule and stick to it. If your office hours are 106, shut the phone off at 6
P.M. Nothing is so urgent that it cant wait until tomorrow. You will get more
done in less time if you set limits.
2. Put systems together. If you have a system, you dont have to think about it.What
separates successful investors from mediocre investors (or those who are just
scraping by) are systems. People with systems can turn them over to employees, partners, and so on, and go on with their lives. People without systems are
tied to their businesses for the rest of their lives. Put your systems in place, and
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walk away! Im able to spend my time finding deals, negotiating contracts, and
structuring the financingthe important details.
3. Never let people leave without asking what you can do for them. Robert didnt actually say this to me, but he demonstrated it when I first met. I never realized the
impact of this until I was sitting with some speakers and one gentleman kept asking the other for something for free.After about 10 minutes, the first gentleman
turned to him and said, Maybe you should be more like Heather. She never
leaves without asking if theres anything she can do. Youll get a lot more that
way! I remember thinking at that moment just how important this lesson of
Roberts was to me. Several years later, I find that to be one of the things I cherish most about Robert, his generosity and his genuine sincerity in helping people!
I urge you to take action, implement systems, and start doing deals.The first
step is the hardest, but you cant get to your goals without taking that step. Follow
Shemins 40 Days to Success and you will be depositing checks in your bank account
in no time.
The web resources referenced in this chapter are:
www.yamon.net (general information including links, resources, etc.)
www.organizedrehab.com (rehab project management system that puts more
cash in your pocket even if youve never picked up a hammer before; faster,
better, and with less effort.)
www.fixingandflipping.com (learn to inspect properties; find out what to look
for, how to determine major repairs versus minor repairs, and in what order
you should do your repairs)
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INDEX
Accountants:
importance of, 2122
incorporation and, 139140
networking and, 95
Action plans:
business growth, 207208
buy and hold plan, 198199
contracts, 126
financial statement, 153
financing options, 147, 150151
foreclosures, 3738, 4142
goal setting, 68, 1416
lease optioning, 170171, 173175,
177179, 182184, 188189,
192194
making offers, 128129, 131132,
134136
negotiating, 107108, 112113
neighborhood evaluation, 7779,
8283
networking, 99100, 102
newspaper research, 5758
property analysis, 117118, 122
property management, 201
public records research, 8788, 9293
rehabs, 223231
review, 205
self-protection, 142143
team building, 2728
telephone calls, 6970, 7475
time and money management, 47
wholesaling, 156159, 161162,
167
Advertising:
For rent, 4952, 73, 169
For sale, 63, 73
For sale by owner, 49, 217
For sale signs, 166
in newspapers, 4955
to promote your business, 68, 206
wholesaling and, 155
Advice, three types of, 23
Affidavit, 138
Appraiser, 22, 115116
Asking price, negotiating down, 106107
Assignment of contract, 164165
Attitude:
toward business, 18
toward goals, 46, 1314
toward wealth, 2526
toward worry, 20
Attorney:
incorporation and, 139
on investment team, 21
networking and, 96
wholesaling and, 163, 164
Auction announcements, 52
Background checks, 191
Bankers, 95. See also Financing
Bankruptcy, 52, 87, 95
Business growth, 206208
Business people, as team members, 2223
Business plan, 150
Buyers list, mistake of not building,
217218
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INDEX
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Index
probate court, 87
tax sales/IRS liens, 8991
Growth, of business, 206208
Hard moneylenders, 149
Holding. See Buying and holding
property
Home inspector, on team, 22. See also
Inspection
Hours work, value of, 2526
Identity package, 146147
Identity theft protection, 142
Incorporation, 138140, 218219
Inspection:
contingency clause in contract, 124
mistake of skipping, 211212
Insurance:
lease optioning and, 177
mistake of not getting, 218
Insurance broker, 23
Investment property advertisements,
5355
Investors:
financing and, 148149
finding, 5355
networking and, 9798
as team members, 2324, 2728
IRS liens, 8991. See also Tax sales
Knowledge, success and, 204
Landlords. See also Lease optioning
networking and, 98
rental property advertisements and,
4952
Land trust, 165
Lawyer. See Attorney
235
INDEX
236
Index
237
INDEX
238