How I went from $0 to a mil. in RE(very long) - Posted by SteveS(CPA)
Posted by SteveS(CPA) on June 16, 2001 at 17:08:55:
Someone recently sent me an email asking me how I made money in real estate. I am sharing this story with all of you. I hope by reading this story you will see the struggles that I had starting out and more importantly what I learned in this business. I wish all of you the best of luck.
When you make it to the promise land (which I know you will) I hope you will try to help others make it there too. The number one reason I try to help as many people as I can is because, I feel blessed by what God has allowed me to do. I do not do this as an ego trip, but because I feel so fortunate and greatful to those who have helped me. So, I will do everything in my power to reach out and help others who want to succeed.
Well, it all started when I was 3; I was a gangly young man (no just kidding!).
I got hooked onto REI back in the late 80’s with Dave Deldotto (I’m sure that’s not how you spell his name). I bought his course and was extremely motivated. After reading his course and listening to his tapes. I rushed right out to my local real estate agents office (by bus, since I was only 18 and my parents were using their car that day) and told the real estate agent, I want to buy ALL of your real estate in your MLS. I pulled out 30 blank contracts that I copy from Dave’s course and started filling them out one by one. The real estate agent, which I think must have been in his late 60’s just looked at me, shook my hand and said he’ll deliver them.
On the bus ride to work (Burger King), I felt so proud of myself. I had made a total of $3,600,000 worth of offers in one day. And I was dreaming of all the stuff I was going to buy with my new found wealth.
Well, two days past and I got no call from the realtor. So, I called him and asked, “have you heard anything from my offers.” And he said, young man, all of your offers were turned down and he hung up on me. (This was a time when I was young and naive and believed everything realtors said or did) Now that I look back I don’t even think he submitted the offers. Especially, since I forgot to include ANY CONSIDERATION MONEY with the offers!
But after that I did what 70% of those who strike out their first time at bat do. I quit. I went to college and got a degree in accounting and my CPA lic., got married and struggled paycheck to bloody paycheck.
Fast forward 6 years later. I have a friend who lives in New York, who I went to school with and who I see again at our high school reunion. We of course talk about what we’ve been doing and how life has been. He talks about how his made it big in real estate investing. And of course, instead of trying to find out how he made it in real estate investing, I try to offer him my services as an accountant.
But it once again peaked my interest in real estate. The big guru at the time then was Carl Sheets. So, of course, I bought his course, read it cover to cover and was motivated to go out again and make it big in real estate.
So, I ran out to my local real estate office and pluck down $5,000 (all of our savings) on a 2-bedroom duplex. Went out got a mortgage for $120,000 and 45 days later because a landlord. And 60 days later became a serious “don’t wanter.” Instead of having a gold mine. I had been lured into buying fool’s gold. The amount of things I had done wrong is too numerous to mention, but to list a few of them are:
- I bought the property at list price
- I used my own money and credit
- I didn’t have an idea on how I was going to make a profit
- I didn’t research my market to know what the rental market was
- I used a rental management company (which I never do now)
- I didn’t screen my tenants well
- I didn’t inspect the property or use a property inspector
- I didn’t have any money left for unforeseen expenses and damages
- I bought the property in my name
10 I didn’t have an exit plan if the property and me didn’t work out
Oh and I’m sure I made a number of other mistakes but those are the ones that put the arrow between my eyes. The old adage, “A fool and his money are soon departed,” had my name on it.
Well, of course I made a lot of friends, the realtor loved me, the rental management company loved me, even my banker loved me, everyone loved me. Unfortunately, love doesn’t cover a negative cash flow of $116 dollars per month. So, I had much love and no money.
Well, two years later I sold it and pretty much broke even. It was a good lesson that I’ll never forget and I hope everyone who reads this will always remember and not repeat the top ten mistakes I made.
IN REAL ESTATE INVESTING DON’T BE CONCERNED ABOUT MAKING FRIENDS, BE CONCERNED ABOUT MAKING MONEY. Be nice. Be polite. Even be caring. But remember you?re in this as a business, not a social service. It’s funny, but it seems the more money I make the more friends I have.
I used to be very concerned about what the realtor thought about my offer, or so concerned about the lady at the title company, who said I couldn’t do this or that. I was concerned about what my attorney thought of my offers.
Today, I could care less, about what these people think. I just want them to do their job. And I make sure they do it. As long as I’m not asking them to do something illegal (and I don?t), then they better do it.
DON’T BE AFRAID TO BE AGGRESSIVE. When first starting out you will have a number of people saying you can’t do this or that, if you know you can do it, do it.
I have made offers in which I didn’t trust the agents so much, I said that I want to be there when they make the offer. And I demanded that we go immediately to make the offer, so they couldn’t make a phone call to the seller to poison the deal before I made the it (because I’ve had that happen to me too).
MORE LEARNING FROM THE TRENCHES. WHEN FIRST STARTING OUT, COVER ALL OF YOUR BASES. BE PARANOID and trust no one in the deal.
I mostly buy businesses now and I’m amazed even sellers with a million dollar net worth will lie and say they have little or no money. Why would a person lie about NOT having any money? Because experienced investors know, if you say you have money, you better believe the other side is going to want it and expect you to come up with it when the time comes.
When I approach a real estate deal or business deal, I tell the agent straight out, “listen, I’m an investor. I’m not a bank.” When they say, how much money do I have to invest (which they all do)? I say, it all depends on the deal.
Most real estate agents will take that as an answer. But the more experience ones will want to know more about you before they start taking up their time and energy. For those agents I tell them that I’m working with partners on this deal and for me to provide you with any information about me would be a waste of time. Because, I?m not using any of my money. But I will get you information on the principals as soon as possible. This will work with 99% of the agents.
I once had an agent who wouldn?t work with me until I gave him the information on the principals in the deal, including myself. I said, “OK.” I walked out and I?ve haven?t seen him since. There are just going to be some people you can?t work with.
For about 6 months, I struggled with this creative real estate investing. I spent money on ads (even TV), talked to realtors, bankers, sellers, and did everything. I made NO MONEY. NONE. NOT A PENNY. My wife was upset with me because I spent so much time and money doing this, realtors were not returning my phone calls because they thought I was some nobody who couldn?t buy a free ticket, and my in-laws were telling my (now ex-wife) see we told you so. I was being pressured to quit; I was embarrassed and had bad news from everywhere.
My first deal came on July 16, 1996. I found this nice little three- bedroom house right around the block from me. It was listed with an agent for $220,000. I bought it “subject to” for $180,000. Since it was a “subject to” deal. I gave the agent $6,000 at closing and a note for the balance over the next 12 months. I found a buyer who came in with a little more than 5% (12,600.00) down and bought the property from me for $230,000. I bought the property from the seller for monthly payments of 1290.00 per month. And had payments from my buyer for 1690.00 per month. All of the profit for the first 12 months went to the realtor company. But I made $4897.39 after everything was said and done at closing. I went out and spent $1500.00 partying and having fun that weekend. The rest went to bills.
I then went another 32 days without finding anything. But then at once I found two deals one was a 3-bedroom cap cod FSBO for $98,000 and another home listed for a whopping $580,000! I made another $4,000 off of the 98k home. But on the 580k home I made grand total of $286.00 (that?s two hundred eighty-six dollars). I had the illusion that bigger numbers means bigger profits and that?s not the way it works. But I learned very valuable information from that deal and went on to buy another home that was listed for $330,000 and made $20,818.12 from the deal. Ten days later I came across an another FSBO who had his home listed for $76,000. I picked it up for $76,000. Which proves you don?t always have to discount the seller to get a good deal. Sold it for $88,000 and I?m making a nice monthly income from that property of $200 per month.
I then went for close to 60 days with no deals. Even though I was looking as hard as I could and getting a lot of rejections. I finally found an investor who was looking to get out of his mobile homes. He had six. And wanted to unload all of them. Even though I never bought mobile homes before and never bought that much at the same time. I made him an offer. I got into them with no money and ended up losing $188 per month from not being able to keep stable tenants. So, I unloaded them a year later. I ended up making close to $18,000 (or 17,958.01) from the sale. (I think the buyer had the same problem I had with them. The old adage ? A fool and his money are soon departed - still hard at work)
I didn?t do anything else for the rest of the year. Then lightning struck. I MADE A PLAN. The plan called for me to make 22 offers in one weekend to a realtor who I had in place. My attorney had a $5,000 deposit in escrow to cover my deals. Nine of them were accepted! By this time I had built up a nice list of buyers and only had to advertise for 3 of the homes that were accepted. The homes price range was from $56,000 - $200,000. I?ll list how much money was made on each of them.
$56,000 ? sold for $60,000 made $2200 at closing and $80 per month
$70,000 ? sold for $74,000 made $800 at closing and $100 per month
$84,000 ? sold for $108,000 made $4,440 at closing and $230 per month
$99,000 ? sold for 109,000 made $2800 at closing and $180 per month
$150,000 ? sold for $180,000 made $1080 at closing and $165 per month
$155,000 ? sold for $205,000 made $8,800 at closing and $330 per month
$189,000 ? sold for $189,000 made $0.0 at closing and $300 per month
$194,000 ? sold for $200,000 made $3,000 at closing and $120 per month
$200,000 ? sold for $225,000 made $1200 at closing and $55 per month
Total Purchased $1,197,000
Total Sold $1,350,000
Total made at closing $24,320
Total income $1560 per month
Not bad for a few week?s work. But for those of you, who have been reading along, THIS WAS THE SAME DEAL I TRIED BACK IN THE 80?S when I was young and inexperienced. What made the difference? This time I had a plan! I had a team in place. And everyone knew the plan and how it was going to be executed.
This was when I became what I consider a true real estate investor. And the planning in the beginning is what took me from a sometime real estate investor to a successful person and someone to be reckoned with.
Since then my focus has changed to mostly buying businesses, which if you think you have to is creative buying real estate with no money down try buying a business with no money down. But I still buy properties every now and then.
But the moral of this long story is; it?s an uphill battle to be successful in this business. No one is an overnight success in this business (unless you win the lotto). For every seller that said yes, I?ve probably had 30 say no. Maybe more. And I screen my sellers very carefully. I?ve learned a lot from this board. But I?ve learned more from actually making offers. People skills are a must. Learning how to negotiate is a must. Getting out there and actually doing it is the very very very best teacher of how to do both by far. You?ll never know what you don?t know until you?re out there making offers. Then you?ll see what you lack and can make the appropriate changes. But if you never make an offer or don?t make very many then you?ll never know.
And during all of that time, I?ve gone to law school, divorce (a frightening high percentage of marriages do not make it through law school) bought and sold millions of dollars of real estate and businesses. And haven?t had a “real” job (whatever that is) in 3 years.
But when business owners tell you that to be successful you will have to deal with long hours, it?s true. I rarely get to bed before 1 am and I always get up around 6 am. When they tell you that you will have very little time, it?s true. My schedule is packed with people I need to meet and talk to. When they tell you the journey is the best part. It?s true. I have met some very wonderful people and have had some very funny stories.
So, that?s my story about how I made it. I think one reason why this board is mostly beginners on here wanting to know how to do it is because its easy to forget about us back here when you finally make it and are busy making more (me included). But please when you do make it stop by and let us know how you did it. It will help a lot of people.
Sorry this was so long. Good luck to everyone and may God bless you all forever.
If you want even more detail on my first no money down deal goto http://www.creonline.com/wwwboard/messages/32821.html