The Real Estate Investor mindset.

February 10, 2009


The Real Estate Investor Mindset
by James Miller

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Eliminate the entitlement mentality.

If you are the type who thinks that you deserve certain things just for existing, you should stick to a day job.

We don’t deserve anything.

Please understand that everything we have, has come to us  either as a gift or in exchange for some service.   We need to be grateful for what we have.

It is also good to keep in mind that, from here on out, everything you will receive in your life is owned or controlled by some one else at this very moment.

Understand that everything is your fault.

With very few exceptions, I am certain that everything bad that has ever happened to me can be linked back to something I did that I shouldn’t have, or something I didn’t do that I should have.

Even if you are in a car accident that is caused by someone else, I hear that insurance companies consider you 10% at fault just for being there.

You take control of your life when you realize that you are responsible for the outcome. I honestly feel sorry for people who continually feel taken advantage of, or that they have been victimized.  How little control they must feel they have over their lives.

In high school my car had broken down and the stereo and musical car horn (yeah, I was that cool) had been stolen out of it.

I was very upset.

I vowed to find out who did it. I reported it to the police. I watched everybody and anybody with the suspicion of a tv police detective, I even eventually accused innocent people of the crime.

In reality, I was at fault for not locking the car after it broke down. Even though I lived in a small town, it was an obvious and completely irresponsible thing to do.

I could also say that I was responsible for choosing such a faulty car, or not maintaining it. You see, there are lots of significant points that lead up to any given event, and if you can accept looking at it this way, “blame” and “fault” become a very slippery words.

Mindset of Service

There is a saying that goes “you can get anything you want by helping others to get what they want.”

This is vitally true for Real Estate Investors. Our job is to help people to buy and sell their homes. We use the knowledge we have to make this happen for people whom, most of the time, cannot get it done in any other way.

We are at their service.

If we keep in mind our service to others, great things can happen.  For one, you stand out.

I remember a guy who had called me about an apartment.  I didn’t have what he was looking for, but made some calls to other landlords on his behalf and gave him the names and numbers of a few more landlords that I knew.

He was so grateful he stopped by the house I was working on and told me “Thanks so much, you are the nicest guy I know.”  While I didn’t get him as a tenant, I could tell his compliment was genuine, and for me, was reward enough.

If you do this with enough people, word gets around that you are the person who will go out of your way to help someone, even if you have nothing to sell them directly.

Have a thick skin.

You will especially need this when starting out. Creative Real Estate Investing seems to have a bipolar distribution of proponents that love it and those that think people using these techniques are financial scoundrels,  scamming people out of their home equity.

It is only fair to assume that there will be those close to you who feel the same way.  As Jesus said “Only in his hometown, among his relatives, and in his own house is a prophet without honor.”

You will need to have particularly thick skin with the people closest to you. It is probably best to wait to tell them anything until you have what Ron Legrand calls the “shut up check”, from the bank or title company.

Ready- Fire-Aim.

In this business you can’t wait for all of the lights to be green before pressing on the gas, because the lights will never all be green at the same time.

The best you can do is to start out with low risk ideas, things like Bird-dogging, Assigning contracts, or working leads for another investor.  As you gain confidence and experience you can go onto bigger and better opportunities.

You need to be like an airplane in flight, start off in the right direction, build up speed to get off the ground, and once in flight, continually reevaluate where you are at and what you are doing to best align with your target destination.

Self Motivation

In this business, you are accountable only to yourself. Know your limitations and find people to partner up with to compliment what you lack.

I learned this lesson when I partnered up on a deal with my friend who is a banker, besides getting us a great deal on the interest rate for our loan, he keeps simple yet immaculate records of everything that is going on in that LLC.

I had no idea how bad I was at this until I did this deal with him.  I just knew I didn’t like it.

As a Real Estate Investor, you are also the only person who is going to get the things done that you need done. There is no boss to be accountable to in this business. Only yourself.

Patience and Persistence

Getting something going with real estate can take a long time. In order to find the killer deals you have to kiss a lot of not-so-pretty frogs. Some of these frogs will swear to you that they will turn into a Prince despite the warts.

Every seller I have ever talked to has some reason that his or her house is a great deal. Some actually get me believing it for a while, but very few actually are.

It can be a hassle screening through property after property, but eventually you find the one that is worth it.

Continual learning.

There are a lot of things to learn and some can only be understood by doing them.

One example I can think of is going to the closing for your first bank loan.  Nothing written can precisely, and fully, prepare you for exactly what you will think, see, and feel during the closing.  The party of players sitting around the large conference room type table, the nervousness in the air. the large amount of paperwork you resolve to sign, without fully knowing the meaning of.  The realization that everyone there is getting a piece of you via your bank note.  Nothing can educate you to that experience that  actually sitting in that chair can.

Accept that you will make mistakes.

This is really part of the learning process.  You can’t get around it. Accept mistakes when they happen, and take with it the associated learning experience.

You will have likely paid dearly for it.

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Real Estate Investing – The Greater Good

February 6, 2009


Real Estate Investing – The Greater Good
by James Miller

So much of the focus on Real Estate Investing seems to be on making money. That is the first and truest motivation for what we do.  I feel that there is nothing wrong with this. Being a capitalist, I think anything that gets the Money moving in our economy actually does us good.

But before I turn this into  Gordon Gekko’s Greed is good speech, I want to talk about the other side of what we do, when we buy or sell a place using creative real estate techniques.  I want to talk about how it helps people and the overall good it does.

Think of the benefits to our local economy and community when we do the following investing action:

When we buy a fixer upper, repair it, and resell it with seller financing:

1) We are saving this home from further ruin that time can create. At some point homes become so deteriorated that after enough time only the only choice is the wrecking ball. By saving these homes we are indeed recycling them and keeping a large amount of material out of the landfill.

2) We raise the property values in the local neighborhood. This may or may not happen to any significant degree, but it makes it easier to sell your house if it is sitting next to a freshly  restored Victorian, as opposed to being next to something that looks like a haunted house.

3) We increase local tax revenue. While we never like to see it coming, we benefit the community by creating more assessed value in a home that benefits the tax roles.  This is a dollar savings that  minutely lowers everybody elses taxes.

4) We minutely lower the cost of housing by providing another viable living space.

5) We give hope, usually to a family that is transitioning from renting to the American dream of home ownership.  We are providing renters a way to start building equity in their home even though they may not be able to qualify with a bank right now.

6) We give hope, to the seller we buy from who could not move their home otherwise. This is especially true in this tight market.  I have talked to Realtors who have sold nothing over the past six months.

With our ability to sell via lease options and other creative means, we are constantly and consistently able to sell homes.

7) We are good for the economy. I believe that if there were a massive push from our government to educate it’s population on the ways of creative Real Estate Investing we could pull out of this economic slump without the need for huge bailouts.

The banks would still have to take a hit, but a nation of savvy and creative Real Estate Investors and home buyers could eliminate the inefficiencies in the market.

If you think about all of the people out there right now who would gladly rent or sell their property with creative financing, just to get out of it, but they don’t know how, so they are letting it go into foreclosure.

Compare that against the amount of people that are ready, willing, and able to come up with a little money down and make the monthly payments in order to get into a home of their own… but they don’t know these options exist.

If you compare these two things then we know that there is room for us to make a difference in our economy without a huge infusion of bailout cash.

…..Then again, maybe I am just an idealistic dreamer.

Since posting this I have read Francine Hardaway’s open letter to two mortgage companies. In her blog, she talks about how much better things would be for her and her lenders if  they would accept a reduced interest rate as opposed to her only other option…Foreclosure.


How to avoid a Real Estate lawsuit

February 5, 2009


How to avoid a Real Estate lawsuit
by James Miller

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I have been investing in real estate for 13 years and have not yet been taken to court.  I have had to sue and evict tenants that didn’t pay, but I have never been to court as a defendant over a Real Estate deal.

I have gotten in a  “discussion” on a Real Estate Bulletin board where there seems to be some strong feelings as whether or not to use a purchase and sale agreement when taking over  a property “subject to”.

I have an attorney who  adheres to the KISS principal and that any time you can get by without using a piece of paper, you do so.  He feels this way as any document you create or sign can be construed two ways, for you, or against you. As I understand it, the court looks more critically upon the person who provided or drafted a document.

It occurred to me that the reason that people feel so strongly about their need for legal documents is that they want to feel protected. They are afraid that if they don’t have the right piece of paper someone will get them.

It is my contention that if you focus on helping people, treating people fair and honestly and if you don’t try to take advantage of them then you could get by with very little documentation.  If they are in agreement with what you are doing, there is no reason for them to sue.

Here are the things I try to do to keep that from ending up in court:

1) I don’t make promises I can’t keep.
I certainly don’t sign any agreement where I am agreeing to do something that I don’t think I can do.  I tell people where I sit with regard to the deal and make sure that

2) I make sure my intent is clear.
If I ever end up in court and there is an issue over a series of events, I want everyone to know what I was trying to do.  If possession is nine tenths of the law then intent has to be the other tenth.  It is awfully hard to misinterpret events if the intent was clear.  I will often times use a non-committal letter of intent to fill in the blanks on any understanding that I have with someone on  a  Real Estate deal.

3) I don’t piss people off.
I don’t get in arguments on a $100,000 Real Estate deal over a few hundred dollars.

I seek first to understand what they want to tell me, and then let them know my position.

I try to sandwich bad news with two positive things.

I let them know that we are in it together and I am doing what I can and that I am always going to be fair honest and open with them.

I feel that the main reason that people end up in court is that they get upset because they feel that hey have been taken advantage of, or wronged in some way where the other party will not make it right.

4) If I wrong someone, I make it right.
Often times I will go above and beyond to make it right.  I believe that there is a certain inertia or stickiness to the way a person feels about you.  If they like you it takes a lot for them to not like you, if they don’t like you it takes a greater effort to make them like you again.  By doing more than what is expected to make something right, you can overcome the inertia of dislike.

5) I keep my properties in LLC’s and Hire out much of the work I need done.
In order to be sued, you either need to do something, or have something.  By keeping the properties in separate LLC’s or land trusts I limit the amount of exposure that any one property has. By having others do the work, I limit my own personal exposure to lawsuits, by not creating damages or negligence through my actions.

While nothing can keep you completely safe from getting sued, I think these things have helped to keep me on the plaintiff side of the courtroom.


The Housing Market – run for cover or buy like mad?

January 15, 2009


The Housing Market – run for cover or buy like mad?
by James Miller

We are scared.  That’s surely no secret, but what can we do about it?

I have a technique I use when I feel myself becoming afraid or apprehensive about any situation.  It has served me well and I find it somewhat elegant in it’s simplicity.

Whenever I am faced with something that I either don’t know how to handle or is confusing me, I ask myself the following question:

“What is it about this situation that I don’t yet know?”

Then as a follow up I ask

“What can I do about it?”

It seems pretty simple, maybe too obvious for some to believe, but when I ask this question aloud, my mind always seems to answer.  When I get that answer it allows me to take action to to relieve that fear.

So in this market, we can ask ourselves “What is it, that we don’t know, that is making us afraid?”.

What immediately pops into my head is that we have no idea whether housing prices are going to go any lower.

Now what can we do about it?

Well… nothing really.

Nothing to change the situation that is, but you can position yourself to avoid the pain of falling home prices.  What this means to me is that I am not going to go out and sign on the dotted line for any new loans any time soon.   There are, however,  ways to buy property with little or no money down and no personal guarantees.  If you can do that then you have an automatic safety net built in.

In fact, wouldn’t it make sense to so that all the time anyway?

The other side of this is that the market very well may be at a relative bottom and if it is, wouldn’t this be a good time to start buying property?

On the opposite side of fear is greed.  In market terms fear is fast and greed is slow.  And fear always trumps greed. This means that it will likely take a while for this market to turn around, and when it does the climb will be slow.

Now is the time to be talking to sellers about buying their property using seller financing terms.  Taking over a property “Subject to” the existing mortgage is one of my favorites, followed closely by the seller holding a first, land contracts, and lease option purchases.  None of these should require you to personally guarantee the debt.

If you can couple these types of purchases with the possible future potential for the market to turn around, you can have no credit risk with a significant upside potential.

If you can get good at negotiating with sellers to be able put very little money into the properties you are buying – or be able to take money out of them as you buy- you will have very little financial risk as well.

With all of those pieces coming together,  the fear can be eliminated.

Compare seller financed deals with the current very common practice of buying foreclosures from banks.

Foreclosure purchases can often have strict down payment criteria and still require you to personally guarantee the debt. The two things you want to avoid if you are afraid of the housing market once again pulling the rug out from under you.

Yes, there can be some deals in forecloseures, but when you aren’t sure where the bottom of the market is, do you really know that are getting a good deal, or is it still just speculation with a different face?


Battling Fear

January 10, 2009

Although not directly related to Real Estate Investing, this article of Margie’s is one of my favorites.

Battling Fear  by Margie Hartwig

We al have fear. It is a normal part of life. But when has fear served you? When has fear enabled you to accomplish something?  Fear immobilizes us and causes us to cease any action. This is ok when confronted with a potentially dangerous situation, but most of the time our fear is of the irrational type…. The type that is exaggerated in our minds.  And our logical rational mind is seized up.

There is a secret to battling fear. Like most secrets its elegance lies in its simplicity.  I am going to share with you my experience that caused me to learn this simple technique.

When I was in the horse business, breaking a Stallion has its moments of challenge and difficulty that made me second-guess my abilities.  I found myself putting of this challenge.  I realized that I was procrastinating since I didn’t want to face the fear that accompanied the challenges of breaking a large male horse. I heard my inner dialog telling me that it was too dangerous and I should really have sent this particular animal to someone else. “I can’t do it. I will get hurt” I thought.  You see Fear comes with many companions. I have already talked of fear’s companion Procrastination. Self Doubt is another friend of his, and the final laggard of the group is Justification.

For me, self-doubt came after procrastination. self doubt was the one who helped me to remember all of the horror stories of older wiser and stronger people than myself getting hurt doing the same thing I was trying to do. Self-doubt helped me to remember all of the other failures I had. Self-doubt is a real friend of fear. He works by steering your thoughts and using you memories of bad experiences and misfortunes against you.

Justification is the final one who shows up to help us feel better about inaction due to accepting our fear. He was the one who helps us to tell ourselves that we were right to let fear take over and to not do the thing we maybe should have done.

Before justification set his ugly maw into the meat of my self respect that day, I decided to ask myself what I was afraid of. I reasoned to myself;  Surely there were other trainers less experienced and with less strength than myself who were breaking Stallions all the time.  Why am I letting this one horse get the best of me?

It was at that moment that I realized when I ask myself a question regarding my fear that I almost immediately answer it.  I realized that my fear was that of getting hurt. My fear was that of the animal running me over.  Now that I had asked the initial question, the second question came to mind without conscience thought: What can I do to prevent this from happening?

I realized that due to the strength of this animal, I would probably have more success taking the time to do more groundwork before I approached him with higher level training like putting reigns on him or even getting him used to the weight of a saddle. The other thing I realized is that I would need to make sure to wear clothing that would be more protective than normal, and to keep a helmet on. I will agree that the helmet may have looked a little silly to onlookers, but it offered me the protection I felt I needed.

After this experience I understood that information is what we need to use to combat our fears.

I had found the strength to battle fear in the use of a question. I give this question to you to use. Whenever you find yourself feeling uncomfortable or fearful. Just ask yourself:

What don’t I know that is making me afraid of the situation at hand?

Then second question is usually one of two forms that comes without thinking:

What can I do to change that? OR How can I find that out?

In our business there are many potential place for us to experience fear, but what we need to realize most is that the place in our business where fear is most prevalent is in the mind of a potential prospect or client.  It’s most common form: Skepticism.

Skepticism is a normal and natural knee jerk reaction to something that sounds appealing, but is also unknown or foreign to us.  While I say it is normal, we need to understand it’s true face, We need to remember that in out potential client or prospects minds, the unknown becomes fearful and pushed rational logical thoughts from their minds.

It is our job to identify when this is happening.  It is our job to help them with the question they need to ask themselves, which is “What don’t I know that is making me feel skeptical?” This gets to the root of the problem, which is ultimately some chunk of information they do not know.

Take care and take control of all your fears!

Margie

Margie can be reached at mhesolutions@mhtc.net