Investor Articles

 

Real Estate Investing is Hot…Don’t Get Burned!

What Makes Some Investors So Successful in Real Estate?

The Reality Show Survivor and Real Estate Investing! What do They Have in Common?

Pretty Profits With Ugly Houses

How To Find Houses with Profit Potential

Key to Maximum Success in Minimum Time: Get a Mentor

What You Believe is What You Get

How To Build  Financial Moat with Real Estate

How You See the Problem is the Problem

Real Estate Investing is Hot...Don't Get Burned

Rehabbing Ugly Houses Will Give You Beautiful Profits

The Language of Real Estate Investing: Use the “F” Words to Succeed

The Microwave Approach to Investing

The Real Deal: How To Avoid Counterfeit Real Estate Sellers

Analyzing the Deal: a Good Buy or a Good Bye?

How to Be a Perfect Failure as a Real Estate Investor

 

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Real Estate Investing is Hot…Don’t Get Burned!

By Lee Salinas, CPA, MBAL

 

In a real estate market that's almost too hot to touch, many budding investors can get a bit carried away by blindly rushing into real estate investing only to have their fingers badly burned.

 

So why are so many flocking to real estate investing in the first place? Well, rarely a day goes by without reading something in the newspaper, or hearing someone on the radio or seeing someone on TV announce that real estate investing is the best thing since the electric light bulb.

 

For most people, buying a house is something they only do a few times in their lifetime. Their plan is to live in the house they purchase and pay off the mortgage over 15 or 30 years. If they are lucky, the property will appreciate in value while they are living in it. Sooner or later, their goal is to sell it for more than they paid for it.

 

Real estate investors, however, are a different breed with different plans. Their goal is to buy a distressed property at a below-market price, quickly fix up the property, and then turn around and sell it at a higher price. It's not uncommon for a savvy investor to make $20,000 or more on a single transaction. Many seasoned investors do this a few times a month. Others even more.

 

With all the stories from so many sources about people making tremendous amounts of money in real estate, investors that go charging into investing can easily get singed. And just to make sure this does not happen to you, here are some tips on how to get through it unscathed and still make some fabulous money.

 

Not a get rich quick scheme .

You can make a lot of money relatively quickly as an investor if you have the right plan and create a lot of value for other people fast. But real estate investing is not a 'get rich quick' scheme. Unfortunately, many wannabe investors get on the real estate investing bandwagon because they give in to the fundamental appeal of get rich quick schemes – they believe they can make a lot of money without working for it. It's the “jackpot mentality” and it's much too prevalent these days.

Real estate investing can, and will, make you wealthy, but it certainly won't happen overnight and it will require work. As you work on your investing techniques and gain experience, the amount of work needed to make a lot of money will be substantially less, but it will take effort and persistence to get there.

 

As a new investor, you must learn about neighborhood values, market-rent levels, contracts, financing, how to structure a "deal", how to rehab houses, and how to help prospective buyers qualify for a mortgage. Acquiring this knowledge will pay big dividends, but it does take a disciplined approach, some effort, and time.

 

Get Started with Residential Property .

A single-family residence (SFR) is easier to understand, purchase, and manage than other types of investments. Many people getting started in real estate investing already own their own homes, so they have some experience in the home-buying process.

Other benefits of investing in SFR's include:

• Your money is in 'bricks and mortar' rather than pieces of paper

• You take real control over your assets through rehabbing and improvements

• Your rental income rarely goes down so returns from your property tend to be more constant than from other kinds of investment

• You get significant tax benefits because you can deduct interest payments and other expenses come tax time

People have to live somewhere. It's more than a cliché. It's a reality and probably the biggest reason for getting involved with SFR's if you're just starting out. Buy the house at the right price, fix it right, and you will have tenants or buyers knocking on your door.

 

You make your money when you buy .

In real estate investing, you make your money when you buy the right property at the right price, not when you sell it. Your profits are:

•  Realized when the property is purchased at a discounted or wholesale price

•  Increased by adding value through a systematic rehab process, and

•  Converted to cash when the property is sold at or near market value

This strategy is simple yet very profitable and safe. There is no need to wait for the property to appreciate in value over the long-term.

 

Apply systematic approach to buying ,

Your decision to purchase a property should be an objective one based on the property's potential profitability. Arbitrary acquisitions based on emotions or guesswork must not be a part of the buying equation. Consequently, there is never a need to rely on “gut feel” or to take a “seat of the pants” approach to purchasing target properties.

Always apply the following formula to objectively determine whether the property is a keeper or a lemon.

The formulas will require one or more of the following amounts:

•  ARV $100,000 After Repaired Value of the property based on comps

•  Less: $ 30,000 Margin for rehabber's profit, holding costs, and closing costs (30% of ARV)

•  Equals:$ 70,000 Acquisition costs (not to exceed 70% of ARV)

•  Less: $ 12,000 Estimated repairs

•  Equals:$ 58,000 Maximum offer (purchase price)

There is no need to get on an emotional roller coaster when purchasing a property for investment purposes. Use the formula and rely on the numbers. Either the numbers work for you and you will make the profit you want or you pass on the property and move on to the next one.

Don't expect to go through real estate investing without making any mistakes. The only way for you to avoid making any mistakes is to avoid doing anything. But that will get you nowhere. So take some action now and deal with the mistakes as they happen and learn from them.

 

Although mistakes are inevitable, you don't have to get burned just because the real estate market is sizzling. Think of these tips as oven mitts. Use them in your business and you can avoid getting blisters no matter how hot the market.

 

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What Makes Some Investors So Successful in Real Estate?

By Lee Salinas, CPA, MBAL

 

Have you ever wondered why some people are successful real estate investors while others – maybe even you – are not?

 

Have you ever noticed that successful real estate investors aren't always the most educated, the best looking, or even the smartest?

 

So what makes some investors so successful in Real Estate? What are their secrets?

 

If truth be known, the secrets to success as an investor are a secret, not because anyone is trying to keep them a secret, but only because few real estate investors really understand them, and only a handful of those investors even apply the secrets.

 

You might consider some of these secrets original and surprising. Others might seem ordinary or routine to you. This is no time to let appearances deceive you. Your very success depends on them. Don't be put off by the apparent simplicity of some of these golden rules. The most obvious ideas in business, as in life, are sometimes the most difficult to implement. Are you applying them already?

 

1. Decide to Decide.

Not to decide is a choice. Not to decide is a decision. Many investors live their lives in the state of indecision. They talk a good game. They talk about getting started. They talk about the private lender they're going to approach for a loan. They talk about the house they're going to buy. But they don't do it. They fear making the wrong decision, and they don't want to be responsible for the outcomes of the decisions they make. Hence, t hey decide not to decide and that really becomes their decision.

On the contrary, successful investors decide to decide. Successful investors know that there is power in a decision. To decide is to take action. T heir ability to make decisions provides them with a degree of control over their own destinies.

When you make decisions, you choose what you want. You gain a feeling of personal power as a result of simply making a decision. But this type of power is like a two-edged sword. If you choose the power of decision-making, it will catapult you to a higher level of success. However, if you decide not to decide, you will use your power to make yourself powerless.

 

2. Business Philosophy.

The dictionary definition of philosophy is a set of beliefs, principles, or aims, underlying somebody's practice or conduct. A philosophy can be a guide to growing your business as a real estate investor. By defining what you consider important, you can decide where to draw the lines when dealing with buyers, sellers, and other investors.

As you make decisions consistent with your business philosophy, others know what to expect.

I've been involved in real estate investing for almost five years and I know some investors whose primary business philosophy is to put as much money as possible in their pockets. This philosophy is not so much about what is right or wrong, but has more to do with what is good for you and what is really best for a buyer, seller, or another investor.

As you start your journey to become a real estate investor, or to reach higher goals, be sure you have completely clarified and embraced your business philosophy. As your business begins to grow, you will have many things come up and you have to respond to them. It's important to define your principles and your philosophy because if you stand for nothing, you will fall for anything.

 

3. Think Systems.

Systems force you to focus on the whole, not the parts, of a multipart system. It concentrates on the interfaces of the different components that are part of the system.

Because they create the right systems, successful investors get the right results. For example, if your goal is to find, fix and flip houses for a profit, you must create those systems that will lead you finding a house, analyze whether that house is a profitable deal, make the right offer, make the right renovations, and then sell the house quickly. Each component must interface with the others to create a system that is more than any single component.

Can systems really make the difference for an investor?

Well, let's consider McDonalds.

I'm certain that if I assembled a group of 100 people on any given day in any given city, virtually all of these people could make a better hamburger than McDonalds. Yet, McDonalds advertises, “billions served.” Is it true? Their hamburgers are so-so, at best. Their prices are OK. Their service is not much better. But McDonalds has locations everywhere. How does McDonalds do it?

Whether you are in Sarasota Florida , Seattle Washington , San Antonio Texas or Syracuse New York , you're going to get the same hamburger. Same condiments. Same taste. And it doesn't matter if the hamburger is prepared by John, Juan or Joan; their hamburger looks and tastes the same. McDonalds follows the same system each and every time in every city. That's why MacDonald's consistently performs way above the competition. They have better systems.

Successful investors create the right systems so they can consistently achieve the right results. By building the right systems, investors can transition, if they choose, out of the daily oversight function, and into the passive roles of hands off investors overseeing their investing business.

 

4. Failure Is Not Fatal.

One of my favorite questions to successful investors that I meet is whether they have made any mistakes or experienced any failures since getting started. Without exception, every investor has readily admitted to making mistakes and having failed at some point as investors.

But these successful investors also share with me that everyone fails, and not just once or twice. They also know that a failure is just a lesson in investing and it certainly does not mean they're a failure as individuals. Everything in real estate investing is about learning. Without failure, no investor would ever learn. So they learn from their mistakes and failures and go on because as a wise person once said: If you have tried to do something and failed, you are vastly better off than if you tried to do nothing and succeeded.

Now you know a few of the secrets that make some real estate investors so successful. If you want to master the art of real estate investing – so you can create wealth for you and your family – you need to apply the secrets by duplicating, as closely as possible, the actions of successful real estate investors.

 

Do it now. Pursue your dreams and you can acquire more of the things money will buy and most of the things money won't buy.

 

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The Reality Show Survivor and Real Estate Investing! What do They Have in Common?

By Lee Salinas, CPA, MBAL

 

What does life as a real estate investor have in common with the TV reality show "Survivor"?

I know what you're thinking. Absolutely nothing. But you might be wrong and it could be just enough to get you voted off the island.

There are some amazing parallels, as I reflect on the reality TV show. L et me share three similarities common to real estate investing and the Survivor reality show:

 

1. Survivors vs. Castaways

On the Survivor reality show, some participants are “survivors” and some participants become “castaways”.

 

In any corner of the world, the contestants come face to face with one essential fact. They must each eat creepy bugs they would have despised at home - or risk starvation.

 

The Survivors will eat anything to keep going because they keep their eye on the $1,000,000 prize. The Survivors swallow the insect and stay focused on staying on the island.

 

In real estate investing, some investors are “successful” and some investors become “quitters”.

 

In real estate investing, the investors come face to face with one essential fact. They must deal with people they would never invite to their home – or risk failure.

 

The Successful investors will reject rejection and keep going because they keep their eye on their own goals. Successful investors do not let a “NO' get in the way of their goals. A rejection is just something they swallow and go on the to the next person.

 

2. The Smartest vs. The Fittest

The Survivor is a game of perseverance. The personal drive to win is a big factor in winning on the Survivor reality show. The winning contestants have the tenacity to stick with it.

Real estate investing is also a game of perseverance. The desire to succeed is a huge factor in winning at investing. The successful investors get past the obstacles that all investors must deal with to achieve their goals because they have the tenacity to stick with it.

The constestants on the Survivor show and real estate investors that make the grade have several things in common: motivated, extroverted, full of pep, and people skills. They have a genius for adapting, for fitting in. Maybe that's why we call it “survival of the fittest.” Not the best. Not the smartest. Not the most profound. The fittest. These people find a way to deal with the challenges their facing right then and there. That's an important distinction to remember if you want to walk away with the loot as a contestant or achieve your goals as an investor.

 

3. Beware of Bad Alliances

One tactic used by would be millionaires on the TV program Survivor is the alliance - an agreement between two or more players not to vote against each other (at least not right away). Ironically, alliances have been the downfall of some contestants when their supposed allies deceived and backstabbed their partners.

 

A common tactic among real estate investors is to retain subcontractors to do most, if not all of the rehabbing work, on the ugly houses. As luck would have it, some lousy and unscrupulous contractors have been the downfall of some investors when they are deceived and backstabbed by their contractors.

 

Successful investors get the low down on contractors they are considering using by thoroughly checking their backgrounds. At a very minimum, proceed with caution.

 

So the successful investors are those real survivors that focus on staying on the island or remaining in the game of investing. They are not always the smartest or the best, but they adapt to their circumstances and face the challenges as they come. Finally, they never forget that any alliance can turn bad before the ink dries on an agreement with a subcontractor.

 

Remember that real estate investors don't get voted off the island. They voluntarily ship out. Stay on the island!

 

Be a Survivor!

 

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Pretty Profits With Ugly Houses

By Lee Salinas, CPA, MBAL

 

There are quite a number of ways to invest in real estate, but there is one strategy that is head and shoulders above all others when it comes to consistently making money for you. Here's a simple approach that is practically fail-proof for the average investor.

•  Buy a run down house at a bargain price

•  Fix it up

•  Resell it for a profit

Who hasn't heard of people who've made a fortune buying ugly houses, doing the necessary renovations and then selling these houses for a pretty profit?

The concept's simplicity makes it very alluring to many investors, but it's not an easy route to wealth. However, there's money to be made if you're willing to learn some fundamental principles for intelligent investing. These rules will help you break down the decision-making process into a simple plan so you will consistently generate a profit each time you flip a house.

 

1. The Formula is Your Friend . Because you make your profit when you buy the property, correctly calculating how much to pay for a property is crucial to making a profit and your success as an investor. The formula's principal job is to keep you from stubbing your financial toe. You'll realize your profit when you sell the property if you correctly crunched the numbers before you purchased it. Remember that what you get for your house after you fix it up will depend on what comparable properties SOLD for in the area. It has nothing to do with what you spent to repair the house.

 

The following formula has worked well for me and it will be valuable to you:

1. The proper starting point is determining the “After Repair Value” (ARV) or the likely sales price of the house you're considering to purchase. Generally, you can determine the ARV by obtaining a list of comparable sales (“comps”) in the area from a realtor. If relying on comps, be sure you obtain the actual sales price of houses sold and not rely on the list price.

2. After you determine the ARV, subtract all the costs associated with acquiring, rehabbing, holding and reselling the property. 

•  Closing costs related to your purchase (loan origination fee, title insurance fee, property taxes, deed recording fees, and incidental closing costs)

•  Rehab costs to get the property to current neighborhood standards

•  Holding costs incurred while you own the property (interest payments, homeowners insurance, property taxes, utilities, maintenance (yard work), and other incidental fees)

•  Sales costs incurred when you sell the property (realtor commissions, title insurance, survey costs, sales incentive expenses such as home warranty, providing appliances, cash back at closing, or free plane tickets to some vacation spot)

After you determine your estimated costs for each of the four categories, subtract these total costs from the ARV.

1. Subtract the amount that "makes it all worth it”. The final factor of the formula is by no means the least important. Once you subtract your costs from your anticipated ARV, you include the amount of profit you need to pursue the deal consistent with your efforts and the risk involved. After subtracting each cost and your minimum desired profit from the ARV, you'll have your highest or maximum purchase price. This is the amount you offer to the seller.

 

As you can see, the numbers play a critical role in the entire buy, rehab and sell process. Applying this formula to each property that you purchase provides a framework in which you make smart and profitable decisions. If you fail to accurately account for all expenses for the property you purchased or you make incorrect assumptions -- you may end up with a loss instead of a profit.

Also, do not get in a hurry and make a seat of the pants decision that you will regret later. It is more important to be RIGHT than QUICK when using the formula. Accuracy trumps speed and makes for a fatter wallet. Evaluate each property carefully before investing. If the numbers don't add up based on your desired profit, you should probably walk away. There are plenty more houses out there. Just be patient.

 

2. Work With Investor-Friendly Realtors . I find it incredible, but many investors think that all realtors are created equal. Not true. If your goal is to buy run down houses, then you need to find a realtor that specializes in foreclosures, HUD properties, etc. I actually had one inexperienced investor tell me that he thought any realtor could help him achieve his goal. It's possible, but not probable. To get the right result, you have to go to the right realtor. You will want to work with an investor-friendly realtor that understands and appreciate how you do business.

3. The Power of Leverage . One of the reasons real estate is the fast track to wealth is the power of leverage that it provides. Leverage is the use of borrowed money to increase your profits when you buy an ugly house. Using little or none of your own money to buy more houses allows you to make a pretty profit using someone else's money.

 

Although your goal must be to buy the property for well below its market value, and you can sometimes buy it with no money down, it is important to understand that it does not necessarily mean that the seller doesn't receive any cash at closing. Rather it means that there is little or no money out of your pocket to make the deal happen.

 

Some investors think there is something wrong with using someone else's money to buy houses. Well, for most working families, leverage provides them with not only a roof over their heads and extraordinary tax relief, but also the single best investment they'll ever make.

Most real estate investors work hard at house flipping, have a long-term plan and stick to it. You will certainly shorten your journey to achieving your financial goals by using leverage.

 

4. Diminishing Returns . When fixing up the house, don't overspend. Often, an investor will take the idea of rehabbing a property to the point of perfection. This is a recipe for disappearing profits and great disappointment. If you don't rely on a rehab budget and instead choose to be guided by your emotions alone, you will quickly reach the point of diminishing returns. Beyond this point, every additional dollar you spend on repairs will not produce an additional dollar in profits. Quite the contrary, every additional dollar you spend in repairs will negatively impact your potential profits by the same amount.

 

Let me remind you that you don't have to like the house. Your potential buyer has to like it. You're not going to live in the house, so don't go overboard on the repairs.

 

Once you have carefully defined your niche market and your target neighborhoods, you will know what you must do to the house to get it to market standards, and then stop. Now it's time to put a “For Sale” sign on the front yard or list it with a Realtor. I have talked to new investors who frankly admit to doing too much to the house, but they couldn't help themselves because they didn't like the way it looked. Doing too much to a house is no different taking your money and throwing out the car window. Either way you lose.

 

There is almost no other business that allows you to make $10,000, $15,000, even $20,000 or more on every deal with virtually none of your money in a short time. It's common knowledge that more millionaires have made their fortunes in real estate than in any other business.

 

So what are you waiting for? The more ugly houses you rehab, the prettier the profits. It's almost intoxicating.

 

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How to Find Houses With Profit Potential

By Lee Salinas, CPA, MBAL

 

For many investors just starting out in real estate, finding a profitable house to buy, fix and sell is like spinning the wheel of fortune and it’s their chance to spin it… I’m reminded of some of the lyrics from the Kay Starr song that was very popular in the early 1950’s – The Wheel of Fortune.

 

The wheel of fortune

Goes spinning around

Will the arrow point my way?

Will this be my day?

 

Many investors decide to look for a profitable deal, but they have no clue, no plan, and no system for finding the right deals. In fact, some investors expect to just stumble upon a good deal. They want to believe it must be their day.

This business of finding the profitable deals seems so random, so out of the control of some investors. As long as they continue to search for houses in a hit and miss fashion, they will continue to be hampered by unpredictable results.

So how do you consistently find and buy properties at prices well below market value? It can be done, but don't expect it to be easy. Here are some basics you should keep in mind when you begin your search for the profitable deals.

1. Choose your target neighborhoods.

Your metro area is probably very much like mine. It is made up of a wide array of neighborhoods – from the low income to the very plush. Your first step is to identify your target neighborhoods. In selecting your target neighborhoods, you will want to find houses that will appeal to a large number of people because you can only sell what people want to buy. Also, the houses must be located in neighborhoods where people want to live and can qualify for the loans. My plan from the very beginning was to target certain low-to-moderate income neighborhoods and it has worked incredibly well for me. Although I did not realize it at the time I formulated my plan, targeting certain neighborhoods actually gives you several competitive advantages over other investors.

a. You don't squander your limited resources chasing after every lead that you get. Your time will be better spent where the profitable deals are found. You focus your attention and efforts on only those leads that are in your targeted neighborhoods.

b. By working in only certain neighborhoods, you actually become an expert at what houses sell for in the neighborhoods you have chosen as part of your investment profile. You get to know your market and your product better than most other investors. Consequently, while your competitors are scrambling to get comparable sales for houses in the same area, you're able to determine a property's after repaired value in a fraction of the time because you've been there…done that.

c. Other investors will get to know about your investment criteria. Therefore, you will get more and better leads that mean you have the opportunity to buy more houses.

d. You get to the point that you don't have to do a deal just because that's all there is. You actually get to be more selective about which properties to buy because you have more properties from which to select.

2. More Than One Way To Create Leads.

There are several ways to create or find leads for profitable houses that you intend to buy, fix and sell.

•  Driving for Dollars. Drive through your target neighborhoods in search of vacant properties. The houses you're generally searching for will be easy to spot because they will not blend in with the rest of the neighborhood. They will have high grass, the front yard riddled with old newspapers, broken windows, lousy paint job, and usually a roof that has had better days.

•  Dialing for Dollars. Look in your local newspaper for ads regarding houses that are for sale by owners, realtors and other investors. You're especially looking for classifieds with key phrases like “seller motivated”, “needs some TLC”, “handyman special” or “fixer upper', “divorce – must sell”, “job transfer – must sell.” These are all indications that the house is probably not in great shape or that the seller is motivated to sell. Fortunately, the classified ads for “For Sale” houses are divided into different geographic areas of our city. That's makes it easier to target properties that might be in my selected neighborhoods.

•  Multiple Listing Service (MLS). You must forge a relationship with a real estate broker or agent if you truly expect to succeed as an investor. A savvy real estate agent will want to work with an investor like you because they will understand you are a serious player and, more importantly, a repeat player. Having the right agent to work with will give you a distinct investing advantage because you can find the good deals before other investors learn about the same deals. By the time they react, you're on your way to the next one.

•  Wholesalers. You can establish relationships with several people that will consistently bring you good deals that are in your targeted neighborhoods. These investors find the bargain priced houses and assign them to you so you can buy, fix and sell the houses for a profit.

•  Networking. You will create and build relationships with other people that have the opportunity to bring you leads that you would otherwise miss completely. One of the best places to network is your local REIA and meet with other investors. Additionally, you will want to meet with attorneys, CPAs, appraisers, escrow officers, contractors, and even the mailman in your targeted neighborhoods.

3. Is The Lead Legit?

After you've created your system for finding the profitable houses to buy, fix and sell, you will inevitably generate plenty of leads through one or more of the subsystems noted above. You will have to sort through the many leads to get to the legitimate property candidates.

Naturally, if you're sorting the leads, you must have established some sort of criteria to determine which houses fit into your investment profile. For example, my first test is whether the house is located in one of my target neighborhoods. If it satisfies this crucial factor, then I go on to determine its after repaired value. I then inspect the house to ascertain its rehab costs. After I run the numbers and I estimate that the profit available will satisfy my own investing criteria, then and only then, do I go for the deal.

There are many people who make a great living buying, fixing and selling houses. It can be a very exciting and profitable investment strategy. If you're thinking of getting into the business, you should master the art of continuously finding the profitable deals. Do your research and be well prepared to act when you find the deals.

When you create the right system for finding the profitable deals, you're in control of your own fortune and your results will be very predictable. Finding the right deal does not have to be a random act of the wheel of fortune arrow pointing your way!

 

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Key to Maximum Success in Minimum Time: Get a Mentor

By Lee Salinas, CPA, MBA

A funny thing about real estate investing. It continues to be one of the best ways for individuals to achieve financial freedom. But it’s also one of the toughest businesses to stay in. Adding to the challenge is that today's real estate landscape has a number of pitfalls, but a savvy investor can avoid them by getting the right mentor. The right mentor will help you see where the traps are and how to avoid them.

But let’s not get ahead of ourselves. Just in case you’re not familiar with mentoring, let’s start with what mentoring is all about.

What is mentoring?
Mentoring is a relationship built on learning. Typically, it is a one-to-one relationship between a more experienced and a less experienced real estate investor. It is based upon a mentor that is committed to your growth and development. Having a good mentor can be a short cut to success because you learn from other people’s mistakes, enabling you to avoid the same traps and progress quicker. It’s about applying learned knowledge that is hard to do on your own. Most of us don’t succeed alone. That’s were mentoring comes in – you’re not alone.

What is a mentor?
A mentor is a real estate investor who will provide you with needed advice, consultation, direction, or practical help for the effective achievement of your investing goals. A mentor has already done what you want to do. A mentor should be your learning coach: someone you can talk to and trust. A mentor should help you focus on your goals and give you direction that helps you succeed more quickly than you could alone.

A mentor has knowledge, expertise, and experience and is willing to share those skills and know-how with others. If you decide to go at it alone without a mentor, it quite possible that what would have been a temporary setback can become a permanent failure.

How to find your mentor
Unfortunately, finding a mentor can be easier said than done, but networking is undoubtedly the best way to find a mentor you can trust. Join a local real estate investment association (REIA) near you. Attend the monthly meetings and look for investors that are walking the talk – really doing the business. If you keep your eyes and ears open, you will find someone who not only shares their passion for real estate investing, but also is interested in mentoring less experienced investors.
 

Choosing a real estate mentor

To help you choose your mentor, look for people who have at least the following credentials:

1. Currently investing in real estate using the strategies they’re teaching.
2. Purchased and sold a minimum of 25 properties so they have dealt with different buying and selling situations.
3. Someone who doesn't have property to sell you. If a mentor is teaching you how to buy a property, and they are selling you one of their own properties, there is a possibility for a conflict of interest. Certainly not in all cases, but a word to the wise.

Why choose a mentor that has purchased and sold a certain number of properties? Very simple. You will certainly want a mentor that is actively involved in real estate investing.

Look at it this way. If you want to learn how to build a watch, you’ll do better with a mentor who’s a watchmaker than with a mentor who only knows how to tell time.

Relationship With Your Mentor
To maintain a successful relationship with your mentor, you must truly understand the role of your mentor. Starting a relationship based on flawed assumptions will lead to disastrous results.  Unfortunately, some people erroneously think that their role as a mentor is to take new investors under their wing, but it’s actually to teach them to fly. 

Conversely, some people that elect to work with a mentor mistakenly believe that their mentor’s sole responsibility is to make them wealthy. A mentor can no more make you wealthy than a weight trainer will lose weight for you if you decide it’s time to lose weight before you qualify for group insurance all by yourself. 

A weight trainer will guide you and advise you on the best way to successfully reach your desired weight goals. But the actual weight loss is something you do yourself.  A real estate mentor will guide you and advise you on the best way to successfully reach your desired financial goals. But actually achieving those goals is something you do yourself.

So going in to the relationship, it’s important that you know what to expect from your mentor before you launch out.

Benefits of having a mentor
Possibly the greatest benefit of having a mentor is that it gives you the confidence you need to push ahead with your investing plans. And once you decide to forge ahead, you will realize even more benefits.

• Overcome the learning curve faster
• Increased skills and knowledge
• Failures can be evaluated in a non-confrontational manner
• Powerful way to acquire experience
• Networking opportunities
• Stay motivated and on track
• Make Investment in Yourself

A common sticking point in mentoring relationships is the creation of a cordial compensation plan. To maintain your relationship with a mentor, you must recognize their value and reward them for it.

How much should you pay a mentor?
Of course, it will be no more than your pocketbook will allow and no less than what the mentor thinks is adequate.

Generally, a mentor’s fees will depend on how much of their time you believe you need to achieve your goals. A financial commitment clearly demonstrates that you are serious about achieving your goals.

A mentor will share their expertise in exchange for a fee. This levels the playing field because both parties have a stake in the relationship. Why should a mentor spew out all sorts of practical and valuable information to put you on a fast track to success, but then you abruptly quit as an investor?

The mentor made an investment in terms of their time and talent so you don’t have to go at it alone. Adequately compensating your mentor is the right thing to do.

Real estate investing is not a get rich quick scheme. Learning the ropes is not something you do overnight or over a weekend. A mentor can help you accelerate the process. You can achieve maximum success in minimum time. Get a mentor because working with a mentor is an investment in yourself.
 

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What You Believe Is What You Get

By Lee Salinas, CPA, MBA

Success demands that you believe you will achieve it. If you don’t believe you can do it – whatever “IT’ is - you’re doomed to fail. History is replete with examples where people’s unbelief resulted in failure. Big time failure.

Let me give you just one example from one of my favorite stories in the Bible that you have probably read or heard about yourself.

The Israeli people had been living in bondage for over 400 years in Egypt. They were forced to live in a foreign land. They were forced to work at hard labor. They were forced to do without even the basic comforts of home. They were forced to do without those things that you and I would take for granted.

The Land of NOT ENOUGH.

Egypt signified the land of not enough. For 400 years, they had just enough to get by every day. Every day was a carbon copy of the day before. But deep down, they knew there had to be more to life. Like them, maybe you’re just getting by. Maybe you’ve been getting by for so long that you no longer think it can ever get any better.

The Land of MORE THAN ENOUGH.

But the Israelis prayed to their God for what we all want. They were sick and tired of living in the land of just enough. Like you, they wanted a better life. In due time, God did what He always does. He answered their prayers. In fact, although they didn’t know it at the time, the long wait for their prayers to be answered was worth it. God promised to give them a choice piece of real estate. God promised them safe passage to, and possession of, the “Promised Land.” In the Promised Land, they would never lack for anything again. In fact, God described it as the land flowing with milk and honey. The Promised Land truly represented the land of more than enough.

I suppose all of us have a reluctance to believe. We say we want evidence, but even when we get evidence, we remain skeptical. That was the case with the Israelis, and it is also the case with us. Think about it. God himself told them they could have the land! Yet they took it upon themselves to put a question mark where God had placed an exclamation point.

They had been living in bondage for 400 years. They were living hopeless lives of quiet desperation. They had accepted their lot in life. They didn’t question. They just did the same thing they were told to do day after day. Sameness was their security. They didn’t realize they were capable of much, much more.

Not surprising, taking over the “Promised Land” sounded too good to be true. So the Israelis asked their leader, Moses, to send 12 of their own folks to go spy on the inhabitants of the “Promised Land” to make sure they could really take it over.

Well, sure enough, 10 of the 12 spies returned from the Promised Land with a negative report. They were consumed with the fear of unbelief. They didn’t measure up to the inhabitants of the land. They considered themselves mere grasshoppers compared to the “giants” that occupied the land. Their fear was all-consuming. Their fear was contagious. It spread to everyone in the camp. Because of their unbelief, God told them would never possess the “Promised Land.”

But wait a minute. What about the other two spies? What did they think about occupying the “Promised Land?” Not surprisingly, they were ready to invade the land and take it over. Why? Did these two men have a better plan? Were they more intelligent than the other 10 spies?

No.

In a word, they simply believed. They had an unshakable belief that they could take the “Promised Land.” But they were in the minority so the majority prevailed. The entire camp made a bad choice and turned their backs on the chance of a lifetime. Because of their unbelief, they forfeited the opportunity to live in the land of milk and honey given to them by God himself.

The Land of JUST ENOUGH.

So what were the consequences of not taking over the “Promised Land”? God did not allow them to enter the “Promised Land.” Instead, they were relegated to wandering in the wilderness. Day after day they wandered in the desert. Sure, God took care of them. He provided them daily ‘manna.’ They had just enough to survive that day. The next day, they got more of the same to survive. They wandered for 40 years. For 40 years, the desert represented the land of just enough.

God’s plan was for them to leave the land of not enough and go directly to the land of more than enough. God never intended for them to wander for 40 years in the land of just enough. God’s desire was for them is the same desire He has for you and me - to live in the land of more than enough – the “Promised Land.”

But they didn’t believe.

Don’t make the same mistake yourself.

You graduated from high school. Maybe college. You got your first job where you probably made just enough for you and your family to get by. But you want a better life for you and your family. So you wander around from job to job certain your next job will pay you enough to get you to the land of more than enough. But perhaps, like the Israelis, you’re just going around in circles. You will continue to wander in the desert of your life for 40 years. Then retire broke.

Or you can decide to believe you can do it – whatever “IT” is – and proceed directly from the land of JUST ENOUGH to the land of MORE THAN ENOUGH.

It’s your choice. Choose wisely because…what you believe is what you get.
 

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How to Build a Financial Moat With Real Estate

Lee Salinas, MBA, CPA

Ages ago, people lived in elaborate and magnificent castles that were often protected by moats. A moat is a wide, deep ditch dug around a castle to prevent enemies from overtaking the castle. By surrounding the castle with water, moats served as an effective deterrent and provided the castle with the security it needed to prosper.

Today, many of us live in our own plain and simple financial castles that are much more vulnerable than the castles of yesterday. Not only do our financial castles not have any sort of moat for financial security, many real estate investors do not know how to build a moat to accumulate wealth and retain it.

Why do most people today not have a financial moat? Why no financial security? Why are most people so financially vulnerable? We live in a culture that has brainwashed us into thinking that we should be paid per hour of work.

If you are like most people, you have to work for a living. If you don't work, you don't get paid. You see, most people have “linear” income. So while linear income may be the way most people earn their paychecks, it is also the reason many of us cannot afford to retire. This type of income continues only as long as you continue to work.

• If you are an attorney, you get paid whenever you represent a client. If you don't provide legal services, you don't get paid.
• If you are a teacher, you get paid when you teach our children. If you decide not to teach, you don’t get paid.
• If you wholesale or retail houses, you get paid when you flip a house to another investor or sell it to an owner occupant. If you quit wholesaling or retailing houses, you don't get paid.

The real test is that if you are let go by your employer as I was in June 2002, your income definitely stops. After almost 30 years of working for “security” for different companies, I was left out in the cold in the middle of summer. I discovered I was not secure; I only had the illusion of security. Working for a company is fine, but you must understand it will never give you security.

That's how linear income works. You receive income when you work. Usually you earn just enough income to pay your bills. When your income stops, you’re on the brink of disaster. In fact, if you’re like most folks, you’re no more than two or three paydays away from a serious financial catastrophe.

OK, so how do we start to build the moat that will provide us with financial security?
You start digging a ditch around your financial castle with “residual’ income. A complete change happens when you start earning residual income. Residual income means you continue to earn money for a long time. When you do something right just one time, you get paid over and over again for what you did.

• If you write a hit song, you get a small royalty every time the song plays on the radio.
• If you write a book that becomes a best seller, you receive a regular royalty check from your book sales.
• If you’re already a multi-millionaire and had a few million to invest in quality stocks and bonds, you now get a regular dividend check.

Residual income sounds nice, doesn't it? Unfortunately, most people have trouble developing a residual income.

Why?

We can't sing or write music. We don't know the first thing about writing a book, much less how to go about having it published. And I really can’t remember the last time someone came up to me and told me they had a few million dollars sitting in their checking account waiting to be invested.

However, there is hope.

There is another way to develop residual income. There’s a way to get monthly checks so that we can do the things we want in life. So that we can achieve our dreams. And best of all, almost anyone can develop this residual income that will give you the financial moat you need to accumulate and retain your wealth.

It was only after my wife asked me how many properties I had kept for ourselves at the end of 2004 that I realized that my “buy and sell” plan was making us very good money, but it would not make us wealthy. I realized I had to keep buying and selling properties to keep making the money. So I launched a strategy that complemented our buy and sell strategy. The approach is to buy properties at substantial discounts, rehab the properties, and then rent them out. And the best part is that the tenants pay for my properties. Once the properties are paid for, I will continue to have rental income for the rest of my life.

But what about tenants and toilets, you ask. Well, everything has a price and you’ll have problems with your tenants. But you have options. You can (a) develop a system to minimize your problems with tenants, (b) retain a realty management company to deal with the tenants or, (c) offer seller financing to your tenants so they become owners and they no longer call you.

Personally, I like the buy and hold strategy for two principal reasons. First, I continue to accumulate assets or rental properties. Second, I will continue to receive residual income for the rest of my life whether I continue to rent the properties or elect to use a seller financing approach so I deal with a buyer/owner and not a tenant.

The more properties you accumulate, the more residual income you receive. And the more residual income you get, the wider and deeper the financial moat you will build for yourself. The wider and deeper your financial moat, the more difficult it will be for circumstances to penetrate your financial castle. You will have the security you need to truly prosper.

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How You See the Problem Is The Problem

Lee Salinas, MBA, CPA

No real estate investor ever gets beyond the reach of problems. Every investor faces personal and professional problems. The problems come in all shapes and sizes. They can be business-related, financial, physical, or emotional. Although no one escapes problems, your perception of the problem will determine your response to the problem.

Unfortunately, no one has a magical formula to deal with them. You can, however, implement certain principles to help you succeed. At first blush, these principles may seem over simplified, but don’t underestimate their power. If you choose to use them, you’ll reap a harvest of achievement that will far surpass your efforts. Here’s five ways to solve your problems.

1. Be Responsible. When something goes wrong, when you have a problem, it is only natural to think immediately of who made it go wrong, who is to blame for the problem. Most often this makes the problem worse. The person blamed, in order to exonerate himself or herself, promptly finds someone else to lay the blame on or with whom to share the responsibility for failure. It frequently turns into a shouting match of exchanged accusations. "It's all your fault.... "You did....." "Yes, but you said....." All too familiar dialogue, isn’t it? Don’t blame your problem on others. Accept responsibility for your actions. It’s not what happens to you that matters. It’s your response to what happens to you that matters. The consequences of your actions and choices are yours. Choose wisely.

2. Be Proactive. The worst thing you can do when dealing with a problem is nothing! The world is full of people with great intentions. Take action. Successful investors are not necessarily those who make the right decisions all the time when trying to solve a problem. No one can do that. But once you have made a decision to do something, you will begin to attract the people and things you need to conquer your problem. Your ability to attract the people and things with the right solution may not make sense to some of you. Honestly, I don’t fully understand it myself, but it works for me and it will work for you. I really don’t understand how a black cow can eat green grass, and produce white milk and yellow butter, but it happens. I don’t understand how it happens, but that doesn’t keep me from having butter - and I have the waistline to prove it. So don’t let your lack of understanding sabotage your willingness to solve the problem. Take action.

3. Re-Act. Take charge over your inner-voice. Something in all of us wants to do what's convenient rather than what's necessary. It’s easier and so natural to be negative rather than positive. The voice inside you will tell you why you can't solve your problem and why you don't deserve to solve it. You cannot solve your problem without some change in your perception of the problem.  So how do you change your perception? Change your thinking and change how you act. As simple as it sounds, changing your attitude toward the problem will change your perception of the problem. A change in your perception will trigger a change in how you act. So you will solve your problem by re-acting. That is, acting differently. In a positive way, of course.

4. Believe in yourself. Sometimes you are your own biggest problem, when you allow your fears and self-doubt to stand in the way of your success. A critical step to conquering a problem is to realize that the answer lies within you. Maturity and experience will give you the confidence that you can overcome any impediment. Problems are an asset Problems are character builders. Improvements I’ve made in my life and in my business were the result of problems.

5. Wear Your Knees Out. If there were one sustainable remedy I could offer you when the going gets tough, it would be prayer. Many people, depending on their faith, might call it meditation. It doesn’t matter to me what you call it, as long as you have a place to run to. Mahatma Gandhi said, “Religions are crossroads converging upon the point.” Well, I don’t often discuss religion, and I don’t know what works for you; but Christianity is the way I know. However, I am sensitive enough to respect your faith. My whole point is that when everything else fails, prayer works!

A problem can become your breaking point if you let it become the one thing that defeats you. Alternatively, a problem can become your turning point if you choose to take action to defeat the problem. You will never realize what heights you can reach in real estate investing or in your life until you stop blaming reality for what happens to you as you go through it.

Thomas Paine said, “The harder the conflict, the more glorious the triumph. What we obtain too cheaply, we esteem too lightly; 'Tis dearness only that gives everything its value.” In the thick of the fight to overcome a problem, you may not believe it, but the more problems you conquer, the easier the process becomes. Your confidence will be self-perpetuating, and you may come to believe you can conquer a whole range of “mountains.”

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Real Estate Investing is Hot…Don’t Get Burned!

By Lee Salinas, CPA, MBA

In a real estate market that’s almost too hot to touch, many budding investors can get a bit carried away by blindly rushing into real estate investing only to have their fingers badly burned.

So why are so many flocking to real estate investing in the first place? Well, rarely a day goes by without reading something in the newspaper, or hearing someone on the radio or seeing someone on TV announce that real estate investing is the best thing since the electric light bulb.

For most people, buying a house is something they only do a few times in their lifetime. Their plan is to live in the house they purchase and pay off the mortgage over 15 or 30 years. If they are lucky, the property will appreciate in value while they are living in it. Sooner or later, their goal is to sell it for more than they paid for it.

Real estate investors, however, are a different breed with different plans. Their goal is to buy a distressed property at a below-market price, quickly fix up the property, and then turn around and sell it at a higher price. It’s not uncommon for a savvy investor to make $20,000 or more on a single transaction. Many seasoned investors do this a few times a month. Others even more.

With all the stories from so many sources about people making tremendous amounts of money in real estate, investors that go charging into investing can easily get singed. And just to make sure this does not happen to you, here are some tips on how to get through it unscathed and still make some fabulous money.

Not a get rich quick scheme
You can make a lot of money relatively quickly as an investor if you have the right plan and create a lot of value for other people fast. But real estate investing is not a 'get rich quick’ scheme. Unfortunately, many wannabe investors get on the real estate investing bandwagon because they give in to the fundamental appeal of get rich quick schemes – they believe they can make a lot of money without working for it. It’s the “jackpot mentality” and it’s much too prevalent these days.

Real estate investing can, and will, make you wealthy, but it certainly won't happen overnight and it will require work. As you work on your investing techniques and gain experience, the amount of work needed to make a lot of money will be substantially less, but it will take effort and persistence to get there.

As a new investor, you must learn about neighborhood values, market-rent levels, contracts, financing, how to structure a "deal", how to rehab houses, and how to help prospective buyers qualify for a mortgage. Acquiring this knowledge will pay big dividends, but it does take a disciplined approach, some effort, and time.

Get Started with Residential Property
A single-family residence (SFR) is easier to understand, purchase, and manage than other types of investments. Many people getting started in real estate investing already own their own homes, so they have some experience in the home-buying process.

Other benefits of investing in SFR’s include:
• Your money is in 'bricks and mortar' rather than pieces of paper
• You take real control over your assets through rehabbing and improvements
• Your rental income rarely goes down so returns from your property tend to be more constant than from other kinds of investment
• You get significant tax benefits because you can deduct interest payments and other expenses come tax time
People have to live somewhere. It’s more than a cliché. It’s a reality and probably the biggest reason for getting involved with SFR’s if you’re just starting out. Buy the house at the right price, fix it right, and you will have tenants or buyers knocking on your door.

You make your money when you buy
In real estate investing, you make your money when you buy the right property at the right price, not when you sell it. Your profits are:
• Realized when the property is purchased at a discounted or wholesale price
• Increased by adding value through a systematic rehab process, and
• Converted to cash when the property is sold at or near market value
This strategy is simple yet very profitable and safe. There is no need to wait for the property to appreciate in value over the long-term.

Apply systematic approach to buying
Your decision to purchase a property should be an objective one based on the property’s potential profitability. Arbitrary acquisitions based on emotions or guesswork must not be a part of the buying equation. Consequently, there is never a need to rely on “gut feel” or to take a “seat of the pants” approach to purchasing target properties.
Always apply the following formula to objectively determine whether the property is a keeper or a lemon.

The formulas will require one or more of the following amounts:

• ARV $100,000 After Repaired Value of the property based on comps
• Less: $ 30,000 Margin for rehabber’s profit, holding costs, and closing costs (30% of ARV)
• Equals:$ 70,000 Acquisition costs (not to exceed 70% of ARV)
• Less: $ 12,000 Estimated repairs
• Equals:$ 58,000 Maximum offer (purchase price)

There is no need to get on an emotional roller coaster when purchasing a property for investment purposes. Use the formula and rely on the numbers. Either the numbers work for you and you will make the profit you want or you pass on the property and move on to the next one.

Don't expect to go through real estate investing without making any mistakes. The only way for you to avoid making any mistakes is to avoid doing anything. But that will get you nowhere. So take some action now and deal with the mistakes as they happen and learn from them.

Although mistakes are inevitable, you don’t have to get burned just because the real estate market is sizzling. Think of these tips as oven mitts. Use them in your business and you can avoid getting blisters no matter how hot the market.

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Rehabbing Ugly Houses Will Give You Beautiful Profits

Lee Salinas, MBA, CPA

Owning a home may be the American dream, but many people are dreaming about making money in real estate. We have all read stories about someone that made millions in real estate. The fact is many people are living out their dreams buying ugly houses and then selling them weeks or a few months later – often for beautiful profits.

But how are some people able to do this, sometimes even the newbies?

Not surprisingly, there are some rules to follow. And the more attention you pay to the rules, the better the chances of you earning some serious money. I got my start in real estate several years ago by “flipping” houses. What is house flipping?

Flipping a house is the process of buying a house in need of repairs, at a price much lower than market value, quickly adding value by making the necessary repairs to get the house to market standards, and then selling the house for a profit. And you do this by using little or none of your own money. Sounds easy enough, doesn’t it? But flipping houses is not the path to get rich quickly, and it’s certainly not for everyone.

Here are some rules to follow if you decide you want to make some good money investing in real estate – especially by flipping houses.

1. Use The Formula. Buying the ugly house at the right price is crucial in making a profit. You actually make your profit when you buy the house, not when you sell it. You realize your profit when you sell it. Remember that what you get for your house after you fix it up will depend on what similar properties are selling for in the area. It will have nothing to do with what you spent to repair the house.

The following formula has worked well for me and it will work for you:
a. Determine the “After Repair Value” (ARV) of the house you’re considering to purchase. Generally, you can determine the ARV by obtaining a list of comparable sales (“comps”) in the area from a realtor. If relying on comps, be sure you obtain the actual sales price of houses sold and not the list price. Determining the likely sales price of your house is the starting point.

b. Subtract your total costs from the sales price:

• Closing costs
• Loan fees
• Document preparation fees
• Homeowner’s insurance
• Title policy
• Repair costs
• Interest on the loan
• Property taxes
• Sales commissions
• Other fees

You will want to project your costs based on four major categories. Buying, Repairs, Carrying or Holding, and Selling. After you determine your estimated costs from all four categories, subtract your total costs from the sales price.

c. Once you subtract your costs from your anticipated sales price, you will generate your estimated profit. You will have to decide how much of a profit you want to make on the deal to make it worth the effort. When you determine your desired profit, you’ll have the highest price you will want to pay for the house.

If you consistently use the formula, you will make better and faster decisions regarding a potential ugly house. Always start with the after repaired value and then work your way through the costs to calculate your desired profit. Also, do not let your emotions get away from you and make a seat of the pants decision that you will regret later. If the numbers don’t add up based on your desired profit, move on. There are plenty more ugly houses out there. Just be patient.

2. Work With An Experienced Realtor. I find it incredible, but too many investors think that all realtors are created equal. Not true. If your goal is to buy run down houses, then you need to find a realtor that specializes in foreclosures, HUD properties, etc. I actually had one fairly inexperienced investor tell me that he thought any realtor could help him achieve his goal. It’s possible, but not probable. To get the right result, you have to go to the right realtor.

Doctors are doctors, but some have their own specialty. If you have a serious case of the flu, would you go to just any doctor to help you get over your misery? For example, would you go to a gynecologist? Of course not. So why go to just any realtor to help you find distressed properties? You get the idea.

3. Use Leverage. Aptly named for the lever, you’ll want to take full advantage of leverage because it is the key to wealth in real estate investing. Leverage is the use of borrowed money to increase your profits when you buy an ugly house. Using little or none of your own money to buy more houses allows you to make a beautiful profit on someone else’s money.

Although your goal should be to buy property for thousands below its value, and you can sometimes buy it with no money down, it is important to understand that it does not necessarily mean that the seller doesn't receive any cash money at closing. Rather it means that there is little or no money out of your pocket to make the deal.

Some investors think there is something wrong with using someone else’s money to buy houses. Well, for most working families, leverage provides them with not only a roof over their heads and extraordinary tax relief, but also the single best investment they’ll ever make.

Most real estate investors work hard at house flipping, have a long-term plan and stick to it. You can certainly shorten your journey to achieving your financial goals by using leverage.

4. Use Psychology. When fixing up the house, let psychology drive you. It’s not you who has to like the house. Your potential buyer has to like it. Remember, you’re not going to live in the house, so don’t go overboard on the repairs. If you have carefully defined your niche market, you will know their likes and dislikes. Make the right repairs to get the house to market standards and then stop and put a “For Sale” sign on it. I have talked to new investors who frankly admit to doing too much to the house, but they couldn’t help themselves because they didn’t like the way it looked. Doing too much to a house is no different taking your money and throwing out the car window. Either way you lose.

There is almost no other business that allows you to buy ugly houses and make beautiful profits with almost none of your money in a short time. It’s common knowledge that more millionaires made their fortunes in real estate than in any other business. So what are you waiting for? Rehabbing ugly houses can give you beautiful profits.

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The Language of Real Estate Investing: Use the “F” Words to Succeed

Lee G. Salinas, MBA, CPA

If you’re new to real estate investing, you probably haven’t figured it out yet. But you will. It’s inevitable. Stick around long enough and you’ll discover that successful real estate investors have their own lingo. Yes. Their own language. And if you ever talk to these investors, most of them will quickly resort to certain “F” words to explain their success.

Let me share just a few of these “F” words.

Focus
The all-important concept that keeps you on a clear, purposeful, directed path is focus. We are all focusing on something at every moment. For example, right now you are focusing on this article. How often are we focusing on the wrong thing? The key is to be focusing on the right thing. If you carry a lighted flashlight that is focused up instead of down at your feet, what would be the odds that you would trip in the dark? The odds, I say, would be fairly good. The flashlight is pointing at something; it just might not be pointing at the right thing.

For example, successful real estate rehabbers focus on the process – the rehab process - not the product. The product is a natural outcome of doing the rehab process well. Real estate achievers focus on implementing a duplicatable process to keep their rehab business growing. Non-achievers lack focus and haphazardly rehab the home. If the rehabbed house turns out all right, they credit their lucky stars. If the house is a dud, well, their lucky stars were not aligned just right.

Focus is the act of actually doing those actions that lead to the desired outcomes that you have chosen for yourself. Focus on the right things and you will get the right results.

Fix and Flip
If you are just getting into real estate, fixing and flipping properties is one of the best ways to realize substantial profits without using your own money. You start by searching for motivated sellers with junkers. In other words, find people desperate to sell their house that is in bad condition. Once you acquire the house, you fix it and quickly add value through a systematic rehab process. Then you resell the house quickly for a profit.

Let’s suppose you stumble on a property suffering from neglect by its prior owners. You sense that there is a lot of money to be made because you can buy the property well below its market value, make the necessary repairs, and then sell the property.
To successfully implement a 'fix and flip' strategy, you don’t need perfect credit, but you must have access to some cash. Preparing a real estate business plan to present to prospective lenders will vastly improve your chances of getting all the money you need to purchase the property including the repairs.

You can use the real estate business plan to provide your potential money lenders with your approach to your rehabbing business. You need to assure them that they’ll have a first mortgage on the property that will be secured by the property itself. Most importantly, your lenders need to know that that you’ll only purchase deals that are 20 to 30 percent below their after repair value.

After you purchase the property, the average turnaround on a 'fix and flip' property is approximately 90 to 120 days from the date you purchase the property to the date you cash out on the property. This timeframe is based on 30 days to fix it up, 30 to 45 days to sell it on the market, and usually 30 to 45 days to close. This process can be done faster, of course, under the right circumstances. However, the process can also take longer if you don't get the property up to market standards and in selling condition in this time frame.

How many houses do you want to do? How much money do you want to make? Even on a part-time basis, doing a ‘fix and flip’ several times a year can generate a nice second income. Yes. A second income that can quickly surpass your full time income.

Financial Freedom
Real estate is one of the best and easiest ways to create wealth. More millionaires have made their fortunes in real estate than anything else! Here is what some of the wealthiest Americans have said:

• “Real estate is the basis for all wealth.” - Theodore Roosevelt
• “Buying real estate is the best, safest way to become wealthy.” - Marshall Fields
• “90% of all millionaires made it through real estate.” - Andrew Carnegie

Generally, most individuals that are looking for ways to get ahead financially give some serious thought to real estate investing. And many take the plunge. But why do so many that take the real estate investing plunge fall short of their financial goals?

Well, there are plenty of reasons to go around, but the principal reason centers around unrealistic expectations.

Many new investors are unwilling to pay the price. All worthwhile endeavors require some sustained and focused effort. In other words, some real work.

But many of us are searching for the magic key that will open the “real estate treasure chest” to instant wealth. Is it possible this magic key exists? Honestly, I think I have a better chance of getting my face carved on Mount Rushmore than you have of truly finding that magic key just lying around somewhere.

By now you know that success comes before work only in the dictionary. Sure, it’s a cliché, but it’s also a profound truth.

There are other “F” words that permeate the vocabularies of successful real estate investors. But if you will make focus, fix and flip, and financial freedom a part of your vocabulary, you will be on your way to reaching your financial goals.

I should know. Seldom a day goes by that I don’t use one or all of these ”F” words in my business.
 

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The Microwave Approach to Investing

Lee Sallinas, MBA, CPA

O.K. I know you’re in a hurry, so let me make this fast. We live in a society obsessed with a microwave approach to life. We want what we want and we want it NOW! No doubt, we’re impatient. So how do you and I cope with our desire for instant gratification?

Sure enough, we want it right now. Instant breakfast. Fast food lunches. Three minute dinners. I’m even guilty of doing something surely none of you has ever done. I’ve screamed at our microwave because it’s taken too long to warm up my cup of coffee.

Some people, especially those new to real estate investing, have not been spared by this infectious “I want it now” mentality. Satellite dishes, cable, the Internet, pagers, cell phones, fax machines and, of course, email. Is it any wonder they just naturally expect to achieve instant results? It’s become a way of life.

Then they get involved in the wonderful wacky world of real estate investing. Not surprisingly, they expect private lenders to line up at their doorsteps. Realtors should immediately find them the houses they’re looking for. They want overnight success. They expect to become wildly wealthy after purchasing just a few houses. They want to become successful with no effort and no risk.

Heck, why not? After all, everything must be done instantly – now.

Well, not exactly. If you’re just getting started as a real estate investor, it’s critical that you reject this notion of “instant gratification.” If you’re searching for the “shortcut to success”, the “magic key to open the real estate treasure chest”, or the “instant wealth pill” to propel you over the top, you’re setting yourself up for a huge disappointment and inevitable failure.

Realistically, can you have all the money you need to finance your deals?
Yes.

Can you have realtors referring to you the right properties at the right price?
Yes.

More importantly, can you become wealthy as a real estate investor?
Yes.

But let me share a little secret with you: There is a price to be paid because there really are no shortcuts.

People who pursue success as real estate investors must have passion, perseverance, persistence, and most importantly, patience. It takes a lot of patience to really succeed as a real estate investor. Just ask anyone who’s made it.

Most of us know that patience is important in life and is a respectable quality and virtue to possess, so why is it such a rare virtue? Because we’re afflicted with impatience and don’t want to wait for our desired outcome or result.

But those investors that are able to rehab their minds and achieve patience can and do achieve success. Patience is a state of mind. I can just hear you saying in a very lively way as you read this, “But I don’t have any patience.” Well, patience can be developed.

Here’s some tips on how you can acquire a capacity for patience.

• See the big picture. Put things in perspective. I recently had a birthday and I had to renew my driver’s license. So there I was in this long line at the department of motor vehicles waiting for over an hour to get my drivers license renewed. I was getting very impatient. But then I realized that renewing my license is something I need to do just once every five years. Waiting one hour for the privilege of being able to enjoy the freedom of driving for five years is not a bad deal.
• Think long term. Impatience is usually the result of shortsightedness and focusing only on the now. If I discipline myself to make four phone calls a day or twenty a week, I will be able to find motivated sellers. If I’m able to purchase just one house per month from motivated sellers, I will purchase twelve in one year. So what if you don’t purchase a house in a couple of days? But where will you be a year from now if you continue to make the daily phone calls?
• Focus your mind on the right things. When you are impatient, you are only impatient because of what you are focusing on or thinking about. Be a positive thinker. Do not focus on the fact that you’re having to make 20 phone calls a week; rather focus on the positive result you want to achieve – buying a house.
• Waiting adds value to the reward. My dad always knew I was cursed with impatience, so he always reminded me of the old adage that says, “Good things come to those who wait”. Success itself is one of the greatest examples of this. Real success takes time, and therefore takes patience.
• Avoid comparison. Impatience is usually the result of making faulty comparisons. If another investor has reached a level of success that you desire, realize that he or she has already paid a price. Instead, you will probably compare your worst virtues to another investor’s best virtues. Really, don’t go there. Instead, decide to do what the other investor has done. Pay the price.

It is not easy to practice patience, but those investors that are able to master patience are able to master the art of real estate investing. Patience can be learned like any other skill. The microwave approach to successful investing dies hard, but lasting success requires that a real estate investor practice patience.

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The Real Deal: How to Avoid Counterfeit Real Estate Sellers

Lee Salinas, MBA, CPA

If someone owed you money, would you accept payment in the form of Monopoly money? Unless you were playing Monopoly and really wanted to buy Park Place, you would not. No, you would not accept it because it is not real money.

Most of us can easily distinguish the difference between genuine money and play money from a board game. We recognize the characteristics of real money.

However, many investors do not recognize the characteristics of counterfeit sellers. And because these folks sound genuine and say or ask some of the right things, too many investors waste their time dealing with counterfeits or pretenders. Some investors, do this much too often, get stressed out because they can’t buy a property, and ultimately cave in and quit the business of real estate investing.

But it does not have to be that way.

Trained people can distinguish between a real $100 bill and a fake. There are some distinguishing marks on a real bill that most counterfeits cannot duplicate.

And armed with a little bit of knowledge, you can also differentiate between a really motivated seller and a phony that says some things that would make you think they are the real thing.

Here’s some indicators to help you when you’re dealing with one of these individuals. Of course, there’s always exceptions, but generally these will help you gauge when it’s time to walk away from a counterfeit.

What is a motivated seller?
I have yet to meet someone walking around with a “bandit sign” that identifies them as a motivated seller. And I confess that I have only been an investor for slightly a little more than three years, so it’s not impossible, but I have yet to have a motivated seller put a gun to my head and drag me over to their house because they just don’t want it anymore.

If only it were that easy. Even an investor with the I.Q. of a catfish would be a phenomenal success investing in real estate.

The reality is that you have to know what to look for in a genuine motivated seller. They have an urgent need to sell their house. In other words, they have a problem that needs immediate attention. Selling the property the traditional way by listing it with a real estate agent at market value is not an option. The property needs to be unloaded NOW.

So what are some of the pressing problems that will motivate a seller to accept an offer at less than full market value?
• Foreclosure
• Bad health
• Retirement
• Divorce situation
• Property condition
• Death in the family
• Job transfer and need to move quickly
• Job loss and can't afford the payments
• Financial problems triggered by too much debt
• Purchase another home and are now making two mortgage payments

The seller just needs some relief from their mortgage payments.
And that’s where you come in. You must find out if they are motivated sellers. But how you ask?

Well, you just ask them a simple question like, “why are you selling your house?”
If they tell you that they heard real estate is hot and just want to know what their house is worth, do you think you have a motivated seller?

If they tell you that the neighbor across the street just sold their house for $90,000 and they are wondering if their house will sell for more because their house is larger, do you think you have a motivated seller?

If they tell you they want to sell the house but are in no hurry to sell unless they absolutely get top dollar because they have done all sorts of things to the home since they bought it, do you think you have a motivated seller?

NO. NO. NO.

You’re dealing with counterfeits. You’re wasting your time. Next.

A motivated seller will disclose why they need to sell their home pronto. If they give you one of the reasons noted such as a pending divorce or a death in the family, and insist they will move out as quickly as you can close, you have a no-kidding, genuine motivated seller. So does this mean you automatically buy a property every time.

Not exactly.

After you find a motivated seller, you must submit offers that provide benefits for both the motivated seller and for you. Real estate investing is not about stealing property from someone in dire straights, but about solving problems in a way that benefits the seller.

It’s still a matter of you finding out what the real problem is and then providing the solution. If the seller needs to sell quickly, you need to be in a position where you have the ability to use creative techniques, the cash, or access to cash so you can quickly do the deal. The faster you can do the deal, the faster the seller gets the relief they are desperately seeking to get from you so they can get on with the rest of their life.

It’s true about money and it’s just as true about real estate sellers. A real thousand-dollar bill is worth a lot of money. So is a real motivated seller. Counterfeits abound everywhere. No one wants to get stuck with a counterfeit bill because it’s worthless. And no serious real estate investor wants to get stuck with a counterfeit seller because they can also be worthless. In either case, you lose. So make it a point to spot the real sellers from the pretenders and your business will take off to new levels.

 

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Analyzing the Deal: a Good Buy or a Good Bye?
By Lee Salinas, CPA, MBA

Real estate investing may not be everyone’s cup of tea, but many people that take the time to taste the tea know that it can be profitable. In fact, there are many different ways to make substantial profits in real estate investment deals. But it starts with you analyzing the deal to make sure it’s a profitable one. And when the deals are profitable, you will certainly be well on your way to success.

So why is analyzing the deal so important? In real estate investing, you make your money when you buy, not when you sell. So finding a motivated seller - an owner who for whatever reason is desperate to unload their home - that will offer you a good deal in exchange for a quick sale is the single most important factor to doing the deal and your real estate investment success.

Surprise. Surprise. Most sellers want to sell their property for full fair market value. In fact, some owners are so proud of their real estate they want you to pay MORE than fair market value. Most real estate sellers don't want to give you a 30% discount on fair market value. But this is what you need if you intend to fix up and resell the property for a profit.

However, once you find a motivated seller, you must be able to quickly and accurately analyze each real estate investment deal so you’ll know exactly when to proceed and when to pull the plug.

In the case of junkers, you'll need to know how to find the after-repaired value (ARV) and the cost of the repairs. If you’re just getting started, you will probably rely on a real estate agent to help you obtain “comps.” “Comps” or comparables are the recent sales of similar properties in nearby areas that you will use to help you determine the market value of a property.

Even if you find the right property at the right price, determining the cost of the repairs is the second crucial piece of information you need to make the right investment decision. Again, if you’re new to real estate investing, you will rely on contractors to help you determine the cost of the repairs. You’ll want to call at least two contractors to give you the repair estimates.

Once you have determined the after-repaired value and the cost of repairs for the property, you will apply a proven formula to help you decide what to offer the seller for the property. The standard formula: your "maximum allowable offer" (MAO) is 70% of a property's projected "after-repair value" (ARV) minus the repair costs.

Let me reiterate that this is the maximum allowable offer. You would be wise to submit an offer that is less than the MAO to give you some room for negotiation with the seller. The MAO provides you an objective measure to use when submitting an offer. A “seat of the pants” or “relying on your gut feeling” or “feeling lucky” approach is best left to fiction writers and their novels. Seasoned and successful investors always know the ARV and the cost of the repairs when analyzing the deal.

Cutting corners, either by design or through ignorance, will put you in a financial ditch that will cause you to give up on real estate investing. Give up on real estate investing and you give up a lot. Unfortunately, I’ve known some folks that gave up prematurely on real estate investing, but they will never know they forfeited their future.

If the seller accepts your maximum allowable offer, you have a good buy. You should always have an earnest money contract with you so you can get the deal wrapped up. You’re on your way to a profitable deal.

However, if the seller is unwilling to accept your offer for whatever reason, then it’s a good bye. Of course, not all good-byes are permanent, so make sure the seller has your name and phone number in case their circumstances change and decides to sell.
 

Lee Salinas, CPA, MBA became a corporate refugee when he was blind-sided by a layoff in 2002. But Lee discovered life outside the corporate rat race when he became a real estate investor. In four years, Lee has purchased nearly 200 properties. Lee now provides coaching and mentoring to help others achieve their dreams at www.LeeSalinas.com. Additionally, Lee has created a real estate business plan that helps investors get all the private money they need to fund their deals. The business plan is available at www.realestatebizplan.com.

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How to Be a Perfect Failure as a Real Estate Investor
Lee Salinas CPA, MBA

You know, lots of people can tell you how to succeed. There are thousands of books on the subject of achieving success. No doubt, there are lots of books on how to succeed as a real estate investor. The blueprints and formulas are all there for you to follow.

What is not found very often is a set of directions on how to fail. Each of us has the talent to fail. Some of us are better at it than others. And if you’re going to fail as a real estate investor, you might as well remove all doubt and be a perfect failure.

So let me help you become a perfect failure by offering these tips on how you can absolutely sabotage your future as a real estate investor. In fact, if you only follow one or two tips, it may seem that failure is eluding you. But don’t give up! If you discipline yourself to take advantage of all the tips, you’ll start to experience real progress – not just motion that seems to go nowhere.

Tip #1: Don’t Do. Just Talk.

Because talk is easier than action, this first tip is one that will put you on the right track to failure. Try to fill up as much of your day by doing as little as possible. Putting things off that need to be done is even better. Doing what is important right now will only get you one step closer to attaining your goals, and you certainly don’t want that, do you?

Instead, talk about all the houses you’re going to buy someday or that you were going to wholesale last week. Talking about what you’re going to do is easier, certainly less stressful and something you do just to occupy your time so that you don't need to think about what you should be doing in your business. Just make sure you don't mess it up by doing anything productive.

Action is your enemy. Embrace talking about what you’re going to do!

Tip #2: Be Afraid. Very Afraid.

We all have occasional doubts because we’re unsure if we can manage the challenges that surely come from rehabbing ugly houses, dealing with contractors, or satisfying code compliance issues. For some, however, the doubts can be blown out of proportion and literally have a crippling effect on your ability to get ahead with your business.

If this describes you, why not make today the day you actively go out of your way to fail. After all, successful people overcome their fear of failure, but fear incapacitates unsuccessful people. It’s time you took any criticism and any failure personally and as permanent.

Decide today that you will never believe in yourself or what you’re really capable of achieving. Decide today that you will continue to set unrealistic expectations for yourself. If you can’t be perfect and better than other investors, you’re just not going to do anything.

So go ahead. Take the easy path. Remain snugly tucked inside your comfort zone. That's the best way you can fail in record time.
 

Tip #3: Assign Blame. Be a Victim.

You must guard against taking responsibility for your actions and outcomes because that’s what successful people do. Successful people are victors. Instead, you must believe that for some strange reason, bad things happen to you that are beyond your control.

Nothing is ever your fault and you absolve yourself of any responsibility if a course of action doesn’t work out the way you planned. For reasons you can’t fully explain, you are always a full-fledged victim of circumstances.

Like many people victimized by life, you must never be accountable for your actions even if you’re out of touch with the consequences of your actions. You’ll have to get creative here. You can blame your failures on the fact that you didn’t get enough Girl Scout cookies when you were a little kid. Or you can make excuses and assign blame on the economy, the President, maybe even being in the wrong place at the wrong time.

Just make sure you believe it. If you need more ideas, try blaming your failure on your parents, your spouse, your boss, your lack of education, your age, or your looks. It really doesn’t matter who you blame or what excuses you make as long as nothing points to you.

The goal is to blame someone else so you can make yourself feel better. Probably the more people you blame, or the more excuses you can manufacture, the better you’ll feel about yourself.

Tip #4: Self Talk. Be Negative.

The starting point to all success is having a positive attitude. But failure is our goal here. If you can master this final tip, you’re on the fast track to failure. Why is developing and maintaining a negative mental attitude probably the single most important thing you can do to fail as a real estate investor?

If you don’t think you deserve to be a successful investor, you never will be. You can become your own worst saboteur by having a negative attitude. Think and speak negatively about your goals. Using words like "I can never find any good deals" or "Investing will never work here" are a good start.

You have probably not taken the time to think about it, but carrying a negative attitude has a twofold benefit. You feel bad about yourself, and you make others feel the same way.

The good news is that with a conscious effort, you can reign supreme when it comes to negative thinking. If you get really good at it, you will instantly repel people. Realtors, wholesalers, subcontractors, and practically anyone else will avoid you like the plague. This can be a very good thing and it will help cement your failure.

I know you might be a bit overwhelmed with all the work you have to do to avoid being a success. You might think it's even more work. Never fear! You can do it. Internalize these tips and you can reach depths of failure you have possibly never imagined! You can be a perfect failure. But you will have to "fail" over and over to achieve that distinction -- so get busy failing!

Then when you do, you can chalk it up as a success!

Lee Salinas, CPA, MBA became a corporate refugee when he was blind-sided by a layoff in 2002. But Lee discovered life outside the corporate rat-race when he became a real estate investor. In four years, Lee has purchased nearly 200 properties. Lee now provides coaching and mentoring to help others achieve their dreams at www.LeeSalinas.com. Additionally, Lee has created a real estate business plan that helps investors get all the private money they need to fund their deals. The business plan is available at www.realestatebizplan.com.