Make a Plan

What does a plan look like? I’m not sure what anyone else’s plan would look like; I’m only sure what mine looked like when I started. It has been modified over the years as I progressed, as unforeseen circumstances necessitated some agonizing reappraisals from time to time. The key elements, however, are probably similar in everyone’s plan.
First, I believe you should chart your available and foreseeable financial resources. Extrapolating your career path, and charting it against industry norms, can accomplish
this. You should know where you fit into the scheme of things, and, being realistic,
be able to outline this fairly accurately.

Second, start with the desired end result and back into a program to get there. If, for instance, you want to own a building worth $3,000,000 by the time you’re 40, then you know that you will need approximately 25 percent ($750,000) of the purchase price as equity to make that purchase. How do you accumulate this by the age of 40 with your available resources? Your solution could be to invest $25,000 per year until you have a down payment for a smaller investment, then, through astute management,
roll this over with your ever-increasing capital pool until you can exchange into the property you want.
Your plan may be too ambitious, or a little too shortsighted. Don’t worry about it. As along as you set your resource goals realistically, you can fine-tune the plan as you go along.
Where to Start
Start today, looking at what you have accumulated so far. Is it enough to start with? Do you need to readjust your lifestyle to accommodate a pattern of investment? Do you need to sell the Ferrari and buy a Chevy to have the money to accomplish your goals? Are you married? Do you have children? Do you plan to have any, and, if so, how much will they cost? What about saving for their education? Does your wife or husband work? Will he or she continue to do so?
These questions and the corresponding answers will have a vital bearing on your plan and the probability of its successful fruition. If you are married, you will have to get the wholehearted cooperation of your spouse. You will have to agree on the program,
and, further, will have to formulate a plan of dissolution
should you face a divorce in the future. It would Better Believe It! be pointless for you both to successfully implement Your first deal is similar an investment strategy only to find that you will both to a hunter’s first kill. The agony lose it to attorneys in the event of a divorce. Be real-and the ecstasy are all part of istic. These things happen. Plan for the worst, and the deal. you can safely enjoy the present and whatever happens
in the future.
Stay Local
Unless you live in Farmtown, U.S.A., you should start your investment program by selecting an investment locally. Chances are that you are fairly familiar with your local environs, and with a little work can get an accurate handle on its potential for real estate appreciation.

If you live in a small town, chances are that you are part of a larger SMSA (Standard Metropolitan Statistical Area). Any SMSA can be divided into quadrants that can be charted almost uniformly throughout the United States. The NE (northeast) quadrant usually contains the most expensive residential areas, the SE (southeast) quadrant the medium-priced homes, and the SW (southwest) quadrant the “starter” or “blue-collar” homes. The remaining SE quadrant is composed of the old core city area and/or the industrial area of the SMSA. Why is this, and is it consistent throughout the country? The simple answer is that wealthy people do not drive to and from work with the sun glaring in their faces through the windshield. This rule holds true all across America unless there is some natural barrier such as a mountain, ocean, or a river to prevent it. Obviously there are exceptions, and your community may be one of them. The important
thing is that if you intend to invest your hard-earned cash in a community, you had better know what is where, and how and why it is growing or shrinking.

Draw a financial and real estate map of your area, and check your assumptions with the local real estate professionals. Talk to real estate brokers about your program. After all, they will be the ones looking for properties for you to buy.
Enlist the aid of a good investment broker, and take him into your confidence. Convince him that you will stick with him throughout your program if he will commit
to giving your portfolio preferential treatment when buying and selling investment
properties. You will have to pay a broker anyway, so get one on board early, and get him on your side for the long haul.
If you live in a rural farming community, there will be little or no opportunity for investment, and you will have to compete with the local movers and shakers for what limited opportunities there are. You are better off searching in areas of growth and consistent demand. The best examples of this type of area are found in the Sunbelt states, as they are the ones experiencing consistent, annual, net immigration.

Other areas of opportunity lie in states that experience high rates of population turnover, transient areas such as Arizona, Nevada, California, and Florida. Change breeds demand for diverse real estate products.
How to Get There
Having made your plan and done your research, the next step is to actually do it. The first step is the hardest, and the uncertainties are rampant. Remember, real estate investment
is the business of taking calculated risks, and the process is the elimination of as many uncertainties as possible, so that you enter your comfort zone. When you feel comfortable with the resulting facts, understanding the potential problems to the extent that they may be foreseen, then you will be able to pull the trigger with confidence.
The Least You Need to Know

Do the research, as there is no shortcut to knowing firsthand what the shape and texture of your market feels like.

Make a realistic plan, based on your resources, background, and abilities.

Work like mad, keeping in mind that success is a mixture of sweat and common sense.

Stay loose. Don’t become too narrowly focused; the ability to think on your feet and adapt will put you ahead of the competition.

At all times, keep looking for innovative ways to enhance your investment.

Negotiating Deals and Making Offers

To get great deals on property and
buy them without using your own money, you’re wise to learn how to
negotiate well. Often you can negotiate a no-money-down deal if you
are willing to learn how and apply it to many transactions.
You can actually negotiate in all areas of a real estate transaction: price,
terms, closing time, earnest money, contingencies, conditions.
Negotiate for all of it. Most real estate investors and Realtors negotiate
only on price. Learn to negotiate in many areas, using price as the
beginning step.
Rule 1: Negotiate only with the decision maker.
 Go out in the next 24 hours and negotiate for something. Remember, only
negotiate with the decision maker. When you’re at a restaurant, for example,
ask for the manager and build rapport by chatting and start a dialogue
like this:
“How long have you been working here?”
“I’ve been working here two years,” the manager says.
“What a great restaurant; Cindy the waitress is awesome. It’s our first
time here. We’re just wondering, do you sometimes do special things to get
people to come back?”
“Yes, we do. There’s a little discount or sometimes dessert. Do you want
some dessert?”
“We’ll take some dessert.”
“I’ll bring a piece of cheesecake.”
“Well, since there are two of us, can you do any better?”
You might think this is funny and crazy, but if you go out and start practicing,
you’ll get better at asking. When you buy a car, you negotiate with
the salesperson, who rarely can do any negotiating. The sales manager
there might make all the decisions on the pricing of the car, but it’s the
finance manager who makes all the decisions on the financing of the car.
Talk with the right decision maker, no matter what the situation.
Remember, rarely in life does something work all the time. However, if you
try these negotiating tactics many times, they will work some of the time.

Have you have ever gone to a restaurant and seen people yelling at the
waitress? The food is no good, the chicken is cold, the fish is bad, and
the poor waitress is about to cry. She wants to help, but what can she
do? Nothing; she’s not the decision maker. Then she goes to the manager
and the manager comes over to your table. This manager is the person you should complain to . . . the person in charge. Negotiate on a
property only with the people who control it and can make a decision.
Ask them, “In whose name is the property? Is it yours? Are you the one
who can make the ultimate decision to sell?”
Here’s a good example of how a few well-selected words can bring in
thousands of dollars as a result of skilled negotiations.
When you call on a house advertised at a price of $200,000, and if
that’s a good deal, many investors may just offer the listed price. Let’s
say the property is worth $280,000. The seller tells you it’s worth
$280,000, and it is. It is a great deal. Many investors would just accept
that great deal and have $80,000 of potential profit. Not bad!
However, what if you ask, “Why are you selling?” What if they respond
that the mortgage is $150,000 and it’s going into foreclosure. The sellers
need to pay off the debt—$150,000—plus they need $15,000 cash
so they can move. Now you know that they may take $150,000 plus
$15,000, or $165,000 instead of $200,000. That one question could
possibly save you $35,000.
Then you ask, “Can you do any better? What is the least you would
take?” What if they say, “Well, if you could get me $10,000 soon, I’ll
take it.” You just saved or made another $5,000 by asking some key
questions. Perhaps you are skeptical and think that this does not work.
It definitely does not work if you do not try it! This is exactly what happened
to a student of mine, Carl, in Atlanta. By asking those key questions,
he saved or made an extra $40,000 on what he knew was already
a good deal!

Property Owners

I suggest you learn every possible way to finance mortgages and use
them so you are never stuck not being able to do a deal because you
don’t have access to funds.
Normally, when you buy a house, you get a new mortgage to buy it. If
the house costs $1 million, you borrow $900,000 and put $100,000
down. Depending on your credit, income, and the collateral or property,
the bank or mortgage company will determine how much it will
lend you. A homeowner’s loan, meaning you are going to live in the
property, is less risky for a lender than a loan for a non-owneroccupied
property or an investor loan. People are less likely to default
on a home loan and risk losing their residence. Of course, there are
hundreds or thousands of loan programs out there. Here are a few that
may be of interest to you:

■ There are many 100 percent homeowner loans for people with good
■ For first-time home buyers, there are special city, state, and national
programs that don’t require borrowers to have much of a down payment,
even if their credit is less than perfect: They may need only
$500, $1,000, $3,000, sometimes $0 down.
■ Home buyers with marginal credit who are going to live in a house
can sometimes get a 70 to 80 percent loan to value. That is, if they
find a house worth $100,000 for $80,000, they might be able to get
a loan for the entire $80,000, or 80 percent loan to value. Some
lenders might require them to put in some of their own cash as a
down payment.
■ Home buyers with bad credit can often get loans that are 65 to 75
percent loan to value.
■ Real estate investors or nonowner occupants can often get loans on
single-family homes, duplexes, or buildings with up to four units at
90 to 100 percent of their value. They must have excellent credit
and good verifiable income.
■ Many investors who are self-employed can get 70 to 80 percent
loan to value if their credit is good.
If you negotiate a good deal on a property, you might be able to borrow
the entire amount. If the house is worth $100,000 and you can buy it
for $75,000, you may be able to get a 75 percent loan to value and borrow
the entire amount. However, many lenders want to see you put
your own money into the deal.
You can also suggest that the owner take out a second mortgage. Say,
for example, that the only loan you can get is a 60 percent loan to Using a Second Mortgage to Get In with $0 Down
Value or worth = $100,000
Seller wants sale price = $75,000
Bank will lend only 60 percent = $60,000 first mortgage
Seller takes a second mortgage = $15,000 for five years
$60,000 + $15,000 = $75,000 total
Buy On Owner’s Terms
Many savvy real estate investors and some knowledgeable homeowners
know there is another source of funds for all of their real estate needs.
Instead of going to a bank or mortgage company to borrow the money to
buy a property, they go to the seller or owner of the property. That’s right,
the seller can act as your banker.
If you find a motivated seller who wants $100,000 for the property, you
could borrow the $100,000 from a bank or just get it from the seller. If the
property is free and clear (i.e., no liens on it), the seller can give you a new
mortgage for $100,000, just as the bank would. Instead of paying the bank
mortgage payments every month, you pay the seller. It’s called buying real
estate on owner’s terms.
value because your credit isn’t good. The seller wants $75,000 on the
house worth $100,000. The bank will lend you only 60 percent of that
amount, or $60,000. You could negotiate for the seller to take the
$60,000 and sign a second mortgage behind the bank’s first mortgage
for $15,000—not in cash, but in a note signed by you. This is another
way to borrow the funds without using your own money to buy a

Banking Relationships

A great source for buying property is through banks. If you have some
good deals, a good business plan, and some good credit, getting funds
from a bank may enable you to buy property without putting any of your
own money into the deal.
Here’s how I bought over 100 properties without using my own money:
I went to a bank and got a $100,000 line of credit secured by my own
house. The bank also agreed to do 15-year loans on any property I
owned at a 75 percent loan to value. That is, if a house had a value of
$100,000, the bank would lend $75,000 (75 percent).
For example, I would find a deal that was worth $100,000 from a motivated
seller who would sign an offer to sell it to me for $70,000. I would
use the bank’s money (the line of credit) to pay the seller cash of
$70,000. One month later, when the house looked better and I had
rented or lease-optioned it, I would ask the bank for a permanent 15-
year loan. The house would appraise for at least $100,000. The bank
would lend me $75,000 (75 percent), which I used to pay off the loan,
or put back into my line of credit. Then my line of credit was back at
$100,000 to pay cash for another house. Not one cent of my own
money was used. Caution: Never borrow money you are not positive that
you can pay back. Also, be careful about borrowing against your own
home; if the loan is not paid back on time, you could lose your home.
If you do not have great credit or the ability to do this, find someone
who does have that ability. Whatever you lack in business, find someone
who can help you. You probably know or can find people who want to make money in real estate and have great credit, but who don’t have
the time, energy, or knowledge to make it happen. You can develop the
knowledge and use your energy to find the deals. Let others borrow
the money. You can partner with them 50-50, 60-40, 70-30, or whatever
works for both of you.
Always make sure you have a good deal lined up before you borrow any
money. Have a built-in cushion, too, as well as an exit strategy. If someone
else is borrowing the money for your deals, make triple sure it’s a
good deal.
Also begin establishing good relationships with a bank. When I started
out, I went to the bank almost every month to ask for a loan. Every
month the answer was no. Then, the fifteenth time, the answer was
maybe, and soon after it was yes. The bank gave me a $50,000 loan on
a duplex worth $80,000.
At that time, I had more money on deposit in the bank than I was able to
borrow. But the way banks work, after you borrow once, you can borrow
again—and then again. You may find that when you borrow only
$100,000, the bank doesn’t really care about you. But when you borrow over $1 million, the bank cares! Loan officers start calling—how are
you feeling, how’s business, let’s go to dinner, and so on.

Ways to Source Funds

Most people who invest in real
estate make money in only one or two ways: They buy properties and borrow
money from the bank to do so, or they deal in mortgages. But many
more sources for funding and profiting from your real estate investments
exist. You can use these sources of funds to buy property. Do not use
your own money. Create money from other sources to get into real estate.
Mortgage Origination
If you’re actively buying or selling property, you’re initiating, referring,
or acquiring mortgages. It’s customary to be paid for these services by affiliating with a mortgage company, a mortgage broker, or network
marketing companies that do mortgages.
Affiliate with some good mortgage brokers or become one yourself. Go
to a variety of mortgage companies—at least one main company plus
two or three secondary ones—and research the best deals available at a
given point in time.
Investors (and others) who attract customers needing a mortgage are
called mortgage originators. Originators are paid anywhere from 30 to
70 percent of the up-front fees on a mortgage—just for marketing and
bringing in customers. For example, if a mortgage broker is working on
a $200,000 mortgage that has two points ($4,000), the originator
would receive half, or one point ($2,000), for filling out the application
and helping to start the loan process. I suggest you should get about
half, or at least 20 to 25 percent, of the points for referring mortgages
to a mortgage company. A lot of times, you can actually become an
employee of the mortgage company, so you don’t have to be licensed.
(Since every state is different, check with a local mortgage company
about these requirements. Also note that in some states, paying fees
to mortgage originators is illegal.) Please send me an e-mail if you want
to learn about affiliating with a mortgage company, My email is:

Who Are You, as an Investor?

The first part of finding your niche involves you, the investor. Are you a housewife, college student, full-time factory worker, nurse, businessman, or electrician? There is a place in real estate investing for almost anyone who is serious about investing and is willing to work at it. Part of finding your niche is understanding what your opportunity
is, and what needs you can fill. A few examples:

A college student may convince her parents to buy a condo that she can live in along with several of her friends, who would pay rent. The student gets free rent and will also gain an appreciation for the process of attracting quality tenants
who can pay their rent and help maintain the apartment and pay the mortgage
(build the equity).

The full-time factory worker might buy a house on contract and then lease to a co-worker who has yet to establish a credit rating.

A nurse might consider buying an old building and dividing up the space to rent to doctors for record storage, who therefore would save expensive hospital and clinic space for medical uses.

An electrician might use his experience to rehab an industrial building that has suffered from deferred maintenance. He may end up leasing that building to other contractors with whom he has worked over the years, as well as using the space for his own shop and office.

A college teacher could look at an old house and decide that, with a little renovation,
it would make an excellent small apartment building to rent to students.
If you are looking for something to invest in, it is best to look at areas that are familiar
to you based on your background.

Who Are These Mysterious Investors?

Since the advent of the REIT, the public has become more aware of the possibilities of real estate development. The notion persists to this day, however, that the real estate investor is, by necessity, a very well-heeled individual. This can be true in many cases, but it is by no means the rule anymore. Many people, primarily professionals, have pooled their pension plans and formed small self-directed REITs of their own. These groups have not really formed a publicly traded REIT, but rather, have formed partnerships and companies to own and operate these assets. They build, buy, sell, and exchange these investments regularly to maximize their portfolios, much the same way any investor does with a stock portfolio.
In every building project there are different functions for both owner and occupant. One person or entity may fill all the available functions in a transaction; however, in some cases, many different participants get involved in the various functions. The owner/investor may be the initial developer or someone who buys it after completion.
Some buildings change hands many times during Buzzwords their useful life. The initial occupant can be the developer, the owner, or the tenant. In the case of
Premises are legally defined pieces of real property multi-tenant buildings, the tenants may be, and usuthat
can be the subject of a lease ally are, unrelated to the owner. The tenant could be
or a sale. the developer, but not the eventual owner. There are many roles in any scenario for everyone. All involve
real estate investment. For the tenant, the lease is also an asset as well as a liability. The right to occupy a specific premises can, under certain conditions, be assigned and, therefore, sold.