In late 2009 I first became interested in real estate as a path to financial freedom and wealth. Like many others I know, this interest was sparked after reading the highly recognized Robert Kiyosaki book, Rich Dad Poor Dad.

With virtually no existing resources I initially pursued this interest through reading informative books, mostly on the investment strategies. Shortly after, I participated in a Rich Dad Coaching program which furthered my knowledge but  was still very basic and only understood in theory rather than real life experience.

While living in Phoenix, Arizona in early 2010 I began actively seeking investor networking groups and meetings. It was at one of these meetings that I met my current mentor. Today my knowledge and experience in the field has increased in abundance,  this can almost be entirely attributed to the guidance from my mentor.

So what made my mentor such a critical factor in this growth and why should you seek someone just like him? Simple, he had already walked the path which I was beginning and could tell me where the potholes and shortcuts existed. I’ve come to realize the quickest route to success is the one that is the shortest and most efficient.  So why try and reinvent the wheel when someone has already done it?

Five Reasons You Need a Mentor

1. They can help you identify your long and short term goals

2. Their experience in the field provides you knowledge without the mistakes

3. Support from someone who knows what it’s like in the beginning

4. Applicable knowledge based on proven techniques

5. Continually motivation and inspiration

 

How to Find a Mentor

Now this can be tricky. Many successful individuals are also very busy and sometimes difficult to even get ahold of. Don’t let this discourage you.  Mentors can be found in unsuspecting places, occasionally only becoming evident to you once you have made the mental decision to proactively go after your goals. Here are a few suggestions for seeking a mentor:

– Surround yourself with like minded individuals or those who you believe to have gained success in either their personal or business life

– Get to know your potential mentor before you ask them for their guidance, express to them your plan and ease into the possibility of them offering their support

– Take advantage of online resources. Today there are many great blogs about personal development, business strategy, and how to lead a successful life. These resources are readily available and can have very rich content.

– Increase your awareness of people already existing in your life, likely you will find there is someone who you already know that can offer you more useful advise then you ever imagined.

Have you ever been driving towards a destination when suddenly, you look around and you realize, you aren’t where you thought you were going? Perhaps you were deep into some music or you just let your mind wander.  Maybe you took a wrong turn or just went too far.  Either way, you’re off track. It’s time to get going in the right direction.

When moving towards a goal it is important to constantly check your progress and refer back to your personal map.  Are you making the right turns?  Is this the right path for you?  Do you even have a map?? I wrote my first article on this blog in October 2010 and wrote consistently until August 2011.  Recently a friend asked me if I was still writing on here, I logged on to find that it had been over a year since my last post!  Time goes by so fast, faster than you can ever plan, if you don’t use it to work towards something important you just end up looking back wondering where it all went.

My original purpose of this blog was to write and share my thoughts on real estate including market trends, investment strategies, pros & cons, and personal experience.  As part of my plan to refocus and realign my goals I’ll strive to post weekly on not only these topics but also leadership and personal development.

In spite of neglecting my own blog I continue to read a few others regularly which have helped keep a positive goal seeking mindset.  They come highly recommended; links can be found below for your reference!

http://michaelhyatt.com/

http://tombasson.wordpress.com/

http://realestateinyourtwenties.com/blog/

In 2008 homeowners were starting to face the music that they owned a property that was worth much less then they had purchased and indebted it for.  For most underwater homeowners this fact meant that they would be paying for a mortgage that was based on a valuation that they would likely not see again for years, decades, or never.  Today the battle lives on and homeowners continue to lose their homes to foreclosure.    The realization that the owner would never be able to redeem any equity on their property gave birth to the strategic defaulter. Different than an involuntary mortgage default, a strategic default is when the homeowner  has the ability to continue to pay the mortgage but decides that it is more ‘strategic’ to just
walk away.  The homeowner that strategically walks away usually does so after they were unable to modify their existing loan.  Although they have the financial ability to continue paying today they might be dipping into savingsor money that would otherwise be set aside for emergencies.

Since its first appearance there have been some negative reactions to the idea of a strategic default. The argument being that it was somehow immoral because if you borrow money and agree to pay it back then you should keep your word.  I can both agree and disagree with this idea.  If you are planning to perform a strategic default but might use the money saved to purchase other luxuries, this is an immoral decision.  On the other hand if you are planning a strategic default to save yourself from completely drying out all savings and want to move on before it’s too late, DO IT!

With strategic defaults becoming increasingly prevalent since 2008 companies such as Fannie Mae have started to implement more serious
implications for these defaulters.    The implications are an increased wait time in the homeowner’s eligibility to receive another Fannie Mae loan.  Previously a homeowner who had worked with the bank to walk away through a short sale or foreclosure could be eligible for another Fannie Mae loan after 2 years with 20% down payment.  The new stance of Fannie Mae and supposedly Freddie Mac also is this: a homeowner who is unwilling to work with the bank to work out there current loan will not be eligible for another loan for 7 years regardless of the down payment.

For more information on the topic and further details on
Fannie Mae’s regulations visit: http://firsttuesdayjournal.com/fannie-mae-our-government-and-strategic-defaults/

In my last article I touched on the fact that the average individual fails to optimize their investment opportunities by limiting their investments to
only stocks, bonds, mutual funds, and institutional savings accounts.  One additional investment option to be considered is real estate.  There are ways to invest in real estate both directly and indirectly.  A direct investment into real estate would be to actually purchase a property and perform or outsource all the necessary responsibilities that go along with owning property.  An indirect investment into real estate would be to purchase real estate paper/notes (private loans secured by actual property) or become a private lender.  A benefit of investing indirectly is that you don’t have to deal with the stress of actually owning the property.  A detriment is that your return on investment comes usually in monthly payments
vs. a lump sum.  Both the indirect and direct investments into real estate require the investor to have some knowledge of the associated markets.  Failing to educate yourself when considering any investment is reckless so be sure to do your research before spending your cash. There are two ways to get into real estate notes, you can purchase existing notes or create new notes by providing some sort of private financing.

The note market is growing as cash and institutional financing are becoming increasingly scarce.  This scarcity promotes owners and investors to provide private financing to buyers.  A note is created when a seller provides private financing for a buyer, unlike bank financing there is no cash actually given to the buyer.  The terms of the financing are dictated in writing in the form of a Promissory Note.  The note holder or payee then receives a monthly payment from the payor.  The payment, interest rate, and term are all designated in the terms of the Promissory Note.  The market for buying & selling notes is driven by a payee who wishes to have cash now rather than wait for the completion (balloon) of the note.  Usually the purchaser of real estate notes has the benefit of buying them at a discount, encouraging motivation for a purchase.  The amount of discount depends on the position, type and location of collateral, and the structure of the note.

Creating a note by providing seller financing is simple but when making the choice to buy/sell real estate notes I encourage you to spend a significant amount of time shopping and educating yourself on the market.

Here are some Pros & Cons for investing in real estate notes vs. buying actual property:

 Pros

• No management
• No maintenance
• No dealing with tenants
• Mailbox money
• Avoid taxes on lump sums with monthly payments

Cons

• Payback is long term
• Possibility of foreclosure in the case of a
  default
• Small monthly payments vs. larger lump sums

If you have thought about your future you probably have realized that you will need to make some sort of investment decisions.  Many of us do this through employee retirement plans and retirement accounts.  There are basic things that should be considered when looking into any type of investment.

Key Considerations

• How much money will I need
• What is my return on investment & in what form will I receive it
• What is the duration of the investment
• What risks are involved
• Is there an exit strategy

Every person investing is coming from a different starting point.  This can vary by the amount of capital available, the experience and knowledge of the investor, and of course the availability of investment options.  When investing it is crucial to pay attention to the facts and not to your feelings.  An investment made from an emotional stand point is usually faulty, as an individual will tend to look past red flags and focus on the façade of an otherwise questionable deal. 

Currently many people believe that investing their money in bank savings accounts, certificates of deposits, or government securities are safe investments.  Being given a guaranteed a rate of return is irrelevant if the return offered does not outpace the rate of inflation.  Unfortunately the current rates offered on these types of investments are so low that they are not surpassing inflation or are so minimally surpassing it that the investor is barely gaining anything.  This to me makes these types of investments risky and simply idiotic.  The other most common investments are your stocks, bonds, and mutual funds.  These investments have proven profitable for quite a few people in many different scenarios but in my opinion the average investor will not see significant returns in stocks, bonds, or mutual funds nor will they have any guarantees in a sudden market downturn.  The stock market can fluctuate for wide variety of reasons and an individual stock holder has virtually no influence on changing the circumstances of their investment.  No control = risky investment. 

So why do so many people invest in these avenues??? Simply because they are the most common types and if everyone else is doing it then it must not be risky, right? WRONG.  Another reason is that the majority of people have not been educated on different investment options such as precious metals, LLC’s, joint ventures, secured and unsecured notes, commercial paper, tax liens, real estate etc.  These types of investments are very foreign to the average investor and therefore perceived as risky.  Conversely they likely don’t know anything about the stock market or bond market but just thinking they do is sufficient to further the belief that they have invested wisely.

In my next article I will go over alternative investment options such as becoming a private lender or investing in pre-existing real estate notes.  I will explain how these investments can provide fixed returns that are secured by real property and offer more security and transparency than the earlier listed investments.

My response:

I attended a real estate investment networking event this week and I always think it is interesting to observe the variety of people who attend such events.  After attending a number of similar gatherings I have definitely learned that you cannot judge a book by its cover.  The guy in the suit isn’t always a savvy investor and the other guy in jeans and a t-shirt isn’t necessarily a newbie joe-shmoe.  After leaving the event and processing my observations I questioned how different people aspire to have different persona’s of success.

There will always be the flashy millionaire who would rather blatantly expose his success through the clothes and accessories on his exterior, than leave a little to be desired through further engagement.  To each their own is my feeling.  If you have worked hard and reaped the rewards so what if you want to be a little flashy, you deserve it.  A person of simpler tastes might see this as a trait of arrogance and disagree with this show of conspicuous consumption.

Everybody is different so my question is: Once you become successful what type of millionaire are you going to be? Will you bear the success of your hard work openly with flashy material goods OR will you keep your riches slightly less obvious and enjoy your money privately ie. vacations or collectibles?

Although I am looking forward to being able to indulge in many luxuries, I think I would rather keep my riches more concealed.  I have always liked meeting individuals who appeared to be of less financial endowment and realizing after talking with them that they are overwhelmingly successful.

In mid August we rented a 3/2 home in Phoenix to a very nice couple.  Although the couple was forced to sell their house as a short sale, they were very upfront about their recent shortcoming and it was obvious these troubles were out of their control and they were otherwise fiscally responsible.  It didn’t take long for us to realize that we had chosen the perfect candidates and the recent plumbing catastrophe has further cemented that notion.

About two weeks ago the female tenant sent me a text message telling that there was water coming out of the floor drain in the laundry room located in the kitchen.  Initially I wasn’t too concerned but made sure to contact her to get more details so that if necessary I could arrange for a fix to be made.  The problem with the plumbing had caused the kitchen sink drain to clog up and back into the laundry room floor drain.  At this point you are just thankful that you renewed the home warranty policy…. Little did I know the home policy wouldn’t come close to fixing this repair.

After painstakingly going back and forth between the home warranty company, the plumber, and the tenants, we knew this was not just a quick fix.  The plumber suggested we contact the insurance company to minimize our personal cost of the repairs.  The insurance company sent out an adjuster to investigate the problem about a week ago and fortunately there was outside water damage which was necessary to be covered under our policy.

Unfortunately this means some serious repairs including cutting out drywall in the laundry closet as well as on the opposite side of the wall, removing the carpet in the living room, removing the countertop to access the cabinets, and finally cutting apart the cabinets to remove water damaged areas.

Meanwhile the tenants have been our eyes and ears through the repairs.  They have voluntarily taken pictures before and during all the work as well as sent texts giving me updates.  When asked if they needed to be put up somewhere else they simply said “we just imagine the house is getting remodeled, we are very easy going.”  Being an out of state owner and the property manager I know this would be significantly more stressful had the tenants not been so extremely understanding and I couldn’t feel better about the situation given the circumstances!!

I almost feel that we should send them a small gift, what do you think?

What causes a person to fall short of their dreams…. Is it fear, a lack of motivation, unpredictable circumstances? It is a combination of these factors as well as a few others including negative conditioning from family or friends, financial issues, poor decision making, procrastination and so on.  What most of us don’t realize is that almost all of these issues begin or end with fear.  This is likely a fear that we are unaware of because our mind has disguised it as something more complex.

The realization that fear is holding you back from accomplishing the things you want in life is the first obstacle to overcome and it is just the beginning.  For me fear commonly reveals itself in the form of procrastination or altogether avoidance.  This is something I have acknowledged but still face on a daily basis, how do I conquer this you might ask? Daily affirmations have helped me significantly.  By writing out my goals for the day, adding, and crossing off list items throughout the day I am able to judge my accomplishments and pitfalls.

I find it unfortunate that many individuals choose to be mediocre.  This is a choice and one made from fear, accepting mediocrity is your first step to failure.  There is a quote that I like by James Caan that says “Observe the masses and do the opposite.”I like this quote so much is because to be successful and beat mediocrity you must do what others are not doing.  Before you can do the opposite of the masses you must first recognize that if you do what has already been done you will end up where others have already been.

One very important thing I have learned is that it is difficult to be extraordinary if you are surrounded by people who have settled for being ordinary.  On the path to success you will realize who in your life will help and support you and who will hurt or derail you.  For me this has been a difficult process because I have realized that it isn’t always clear who is good or bad.  A person can be a good friend but still hinder you from achieving success because they lack the drive and ambition that you do.  The challenge is letting those you still care about know that you have to distance yourself in order to pursue your dreams.  Hopefully they will understand and if they don’t then they probably shouldn’t be such an important part of your life.

Lastly, I firmly believe that life has an unusual way of unveiling opportunities to those who seek them.  Stop wasting time and making excuses, face your fears of failure and go after what you really want.

Just like many young people I have faced the constant un-surety of my adult career path.  It seems pretty normal that when choosing a career choice, one can be a little wishy-washy.  When I graduated high school I was relatively sure that I wanted to become a photographer and once in Jr. College I had every intention of pursuing this career.  As I went through the motions of school I started to lose my momentum in pursuing photography, although I still loved it deeply I was worried that it wasn’t a perfect career choice.

Perfect career choice… is there such a thing? I’m not so sure.  It was during my second semester at the local JC that I came across one of Robert Kiyosakis books, Rich Dad Poor Dad.  After reading this book and a few similar ones I felt confident that I wanted to become a real estate investor and be in business for myself.  This was a new idea and a 360 from my present mindset.  I knew this goal would require a lot of internal and external changes. My feelings of excitement and motivation to pursue this new goal was proof to me that I had found something that I really liked.

Since 2008 I have been working towards my goal of becoming a real estate investor.  While working to achieve this I had to change many things about myself and my life.  It feels good to change, and change for the better.  I am so happy with my personal growth so far and I am finally seeing my work pay off.  I continue to be excited about real estate investing and entrepreneurship but I am longing for that creative outlet that photography gave me.

So here is my latest challenge: To come up with a way to turn my love for creativity and art into a profitable business.  Ideally apply these qualities to real estate investing….

Taken with the Nikon D60s, Queen Creek, AZ

In October of last year I attended an exchange conference in Las Vegas that was a combination of education and marketing.  The conference was put on by a group called the National Council of Exchangors.  My mentor had attended one of their conferences in early 2010 and was so stoked about it that when the October event was scheduled he highly encouraged I attend.

The conference offered a two-day education session which covered some of the basics of exchanges.  For those not familiar with real estate exchanges it is basically the trading of properties or other valuables between two or more parties.  Although this isn’t currently a common investment strategy it is definitely a profitable and innovative strategy to help people achieve desirable results in real estate.  Following the two days education were three days of marketing. 

The marketing session was for NCE members only and to be a NCE member you are required to be licensed.  I am not yet licensed but my mentor is so he was able to attend.  At the marketing session agents and brokers bring packages of property which included all types of real estate; residential, commercial, retail, mobile home parks, and land.  Each individual is allowed to bring a certain number of packages to speak about to the group.  When presenting the packages the individual states what they have, what they want, the owners level of motivation, must takes (things that must be taken with the package), and can-adds.  You are allotted five minutes to present this information to the group and in the five minutes anyone who is interested in the package being presented will state their interest.  This is usually done by calling out your designated identification number. 

Jim, my mentor, had brought a Phoenix condo which he was to present at the marketing session.  This condo was a 1bd/2ba with a Net Operating Income of approximately $2,600.  Our goal was to use this condo to move into a multi-family opportunity and take on additional debt to cover the difference in values.  This condo was acquired for $18k and after repairs the total investment was $22k.  When presenting this property at the marketing session we put it at the value of $50k and received almost a dozen offers from interested parties.

While at the marketing session there were also properties of interest to us for which Jim put in mini offers.  There were two properties in particular that were appealing and that was a 12-plex in Galveston, Texas and a 10 unit building in Reno, Nevada.  After quite a bit of communication between ourselves and the broker  representing the 10 units in Reno as well as an additional meeting at another conference, we were starting to work out a deal.  To make the deal more appealing for the owner of the 10 units we were able to offer a second Phoenix condo also valued at $50k, making our total offer two Phoenix condo’s at the value of $100k.  The owner of the 10 units in Reno had placed a value of $499k on the property of which was offering a NOI of $32,733.  Now the typical response to this scenario is, why would a person with an asset valued of $499k with a NOI of $33k want to trade properties for two small Phoenix condo’s with a total NOI of $5,500???

Here’s why:

Benefits offered to Seller of Reno 10-units

• Reduced tenant and property mgmt 10units down to 2units
• Rental income of $5,500 per year
• Passive income from a note taken by the buyer
• Less work for equal money

Benefits to Us

• More cash flow
• Move into a larger property
• Greater opportunity to grow GSI (Gross Scheduled Income)

We should be closing on this deal within the next month and are looking forward to acquiring the Reno property.  The way we were able to make all parties happy was by working with the term of the note and adjusting down the values of our properties.  For us cash flow was the most important however the owner of the Reno property wasn’t willing to take a cut in income just for reduced time and management.  The way this problem was solved was by reducing the total value of the condos from $100k down to $80k (still up significantly from total purchase price) and having the interest on the note increase on an annual basis. By starting with a low interest rate on the note we are able to get our desired cash flow initially and as it increases the note holder will be able to get his desired passive income as well. And that my friend is what I call a WIN-WIN.