Personal Development and Real Estate Investing

You do not need to look very far to see that there is a connection between personal development and real estate investing. I have not done any research to discover where and how this may have begun, but I still find it very interesting. The information that is out there is telling people how to expand themselves personally and financially.

For some reason Real Estate investing is not a mainstream idea. When people talk about investing, they are referring to their 401K or IRA accounts. Some people even own mutual funds or tech stocks. They read Barron’s and hope to find the next break-out stock that will make them rich. Most people are just plain afraid to invest. We all fear losing money. We all fear losing all of our stuff.

Real Estate investing or any other type of investing is not taught in school. In school you learn a trade so that you can go out into the real world and get a job that will pay you enough to cover all of your bills. I am beginning to believe that investing needs to be taught in schools. The world is a rapidly changing place and we need to start to look at money in new ways.

This is where all of the gurus come in. People get to a point where they are not happy with their life, for whatever reason. Some people will reach out to try to find an answer to solve their problems. The gurus are there waiting telling people that if they want a better life, it is theirs for the taking. What is the number one thing that people think they need to make them happy? More money will make people happy. More money is the answer to your problems. Real Estate is an excellent way to make money and be your own boss. It all is very logical.

Money is referred to as the root of all evil, but it is also marketed as the savior.

Dallas Contract Revisions

I just wanted to add in a quick update on the progress of the property in Dallas that we are under contract for. When we had the inspection done, it turned up more than we expected. The seller had already told us that the exterior siding and stucco needed to be replaced and that he would be giving us a credit for it at closing. It turns out that the roof also needed to be replaced. There were a number of other minor things that could be fixed also. So, we wrote up an amendment to the contract asking for these minor repairs and for the credit at closing to also include replacing the roof. I had a nervous couple of days. and then the seller agreed to everything that we had asked for. I expected a little bit more of a debate, but I am pleased with the way things turned out. The seller is now getting more estimates for repairs, so we do not yet know how much the credit will be for.

I have also been busy trying to find a good mortgage. At first I went to a broker, but I have not been please with the lack of information and the amount of points and fees. There have to be better deals out there and I am trying to find them. Loans are expensive enough already without all of the additional fees that are added on. What is the purpose of points anyway?

This week I will also be securing insurance for the property. The company that we currently use for our home and automobiles also covers Texas. Someone recently recommended an umbrella policy as a extra method of protection from litigation, so I will be inquiring about the detaisl for that.

Lots of work, so little time.

Forming an LLC

We have recently formed a Limited Liability Company (LLC) in which to hold our real estate assets. We named it Hewitt REI, LLC. The REI stands for Real Estate Investments, but that is too long, so we went with the popular abbreviation.

Most people agree that the LLC is the best way to hold real estate to offer protection from litigation. For small businesses it is more beneficial that an S or C Corp because it avoid double taxation. For an LLC, any income that the properties produce is considered as personal income and is taxed as such. For full corporations, the corporation is first taxed for any income, and then the money that is taken out of the corporation is then taxed again as personal income.

I also need to state that just because we have an LLC to hold our properties in does not mean that we are completely free from lawsuits. If someone gets hurt on our property, or decides to try to sue us for any other rental related reason, they will be suing the LLC and not us as individuals. That means that if they win, they cannot claim my personal residence of other assets as payment in the suit. However, if they can prove that we somehow personally did something, or were somehow grossly negligent, then they can try to sue us personally. The success and outcome of that attempt would be determined by the details of the case and how good your lawyer is. I just want to point out that having an LLC is added personal protection from litigation, but in no way is that protection 100%.

Filing for the LLC was rather simple. We filed in New Jersey, and did it all on-line. It took us about 20 minutes. I insist on reading all of the fine print, so most people are probably able to complete the process in less time. It cost only $250.00. Then the state sent us these nice looking forms complete with a gold seal. They certify that we can do business under our chosen name, and that our company is in good standing. We also filed separately for a federal tax id number. There was no charge for that. So, now we are all set to transfer the property to the LLC at or shortly after the closing. It is something that our lawyer will handle, but I am told that it is a simple form for the transfer.

Real Estate Business Systems

Real Estate Investing takes a lot of work, but it is the best source of passive income.

That sentence does not make any sense, does it? How can something be passive and take a lot of work to do? The answer is that it starts out as a lot of work, but with the proper systems in place it becomes passive (at least for the person who sets up the system).

I do not yet have our business system set up, and the details of its final form have yet to be worked out, (and will change a dozen times before reaching the end), but I know what my goals for it are. It needs to be able to run with very little input from me or my husband. The hard work comes in setting up those systems.

Once the property has been bought and all of the needed repairs and management put into place, I want very little to do with each property every day. I am not saying that I expect never to do anything for it ever again. The management company will send reports about the property, and I will need to make decisions in the future about any repairs that need to be made. But this should not take more than a few hours a month, if even that.

I do not want to have employees or even an office outside of my home that I need to go to everyday. I want to have client relationships with people and businesses. They will do whatever portion of the real estate process that they specialize in and just charge a fee. I do not ever want to deal with payroll or health insurance that is not my families.

I am not a lazy person. I was raised with good work ethics, but I want my time to be free for other investments. If I am too busy managing the details of properties than how am I supposed to have to time purchase and run hundreds more.

There is another side to this picture also. I hear so many people say that they bought real estate with “private investor money”. Those private investors are making passive income. They have money to invest and it is being invested in real estate. Other people are finding the deals for them and using their money to buy it. I am sure that some of those deals are not only set up based on a quick ROI%, but based on long-term equity in the property.

I am constantly amazed at how many ways there are to make money in real estate.

Why Invest in Real Estate

Why do we invest in real estate? Why does anyone? More importantly, why doesn’t everyone?

First of all, statistically it would just not work out if everyone invested in real estate, but there is certainly still plenty of room for newcomers in the world of investing. Every time I mention to someone, friend or stranger, that I am starting to invest in real estate, people have their doubts about me, but never about the fact that real estate is a good investment. Mostly people see it as something out of my league. As something that is reserved for people that are already wealthy.

I believe that fear motivated people not to try new things. I know that when I do not want to do something, I can come up with a dozen excuses within less than one minute. That is the same thing that people are doing to me when I discuss real estate investing. The fear they feel about trying to make these investments them selves comes out as doubt over my success. I am not trying to say that no one supports my decisions, but they all doubt that it will work for me in the long run.

In 5, 10 or 15 years I might just be wealthy from my investments it real estate. I also might not be. However those 5, 10 and 15 years are still going to pass me by. I would rather spend them trying to change my life, then not trying at all.

I am not slated to retire from the general work force for another 30 years. 30 years is an awfully long time. And in 30 years they may have risen the retirement age another 5 to 10 years. I am not a patient person, waiting 5 to 10 years to retire is going to be difficult for me. I would hate to see what I miserable person I would be in 30 years of jobs that I only marginally like.

So, why aren’t you investing?

Motivation to Invest

In this crazy and busy world it is sometimes difficult to stay focused on our mail goals in life. It is very easy to get sidetracked by family and anything else that happens in life. Some real estate and self-help gurus recommend writing down your goals, and the steps that you can take to get there. Then you can go back and read these goals and methods to help you stay focused. I think this is a wonderful idea. I had helped a great may people. I was about to add that I have not yet done this myself, but that is not true. This blog is helping me to write out my goals and keep me motivated.

I recently spoke with a friend of my husband who is a personal fitness trainer. He was discussing with us the methods that he uses to keep people motivated and give them a more positive attitude towards those things that they really might not want to do, like go to the gym, or not eat that tasty dessert. A lot of what he had to say I could relate to my situation. You need to focus on the positive aspects of the future and not what may have gone wrong in the past, or even what may be unpleasant or tedious to do in the present. It is all about the greater good of the future. In my case, my future as a full time real estate investor.

My goal is simply to become a full time real estate investor. I still have to take care of certain family and personal obligations, but when the mood strikes, or I just run out of time, I need to reevaluate myself and restructure my time to make sure that I can still reach my goals. I never thought about myself as someone who was goal oriented, but it turns out that I always have been. I just have not always been the type to write my goals down in a nice list.

Real Estate Investors Association Meeting

This week we attended our first Real Estate Investors Association Meeting. There were about 30-40 people in attendance and the topic for the night was “Flipping not Flopping”. We are not actually interested in flipping properties at this point in our lives; we were more interested in meeting other investors and networking.

We did meet some very interesting people. Most of them were shocked not only to hear that our first investment is to be out of state, but that we have no intentions of ever going to Texas to see the property. A few of them acted like they had never even heard of people investing in this manner before. Based on what I have read, I thought it was quite common. Maybe the idea has not hit the east coast yet.

There was one man who sparked our interest. He presented himself as a hard-money lender. We discussed the difficulty with finding the small hard-money lenders, and he hinted that he might be able to help us. When I have done searched for hard money in the past I have only found large companies that only lend money in the millions. One day I will be working with hard-money lenders like these, but that day is not today.

The man who taught the seminar had some interesting methods and point of views about investing. He has only been in real estate for 2 years, but has made enough money to now hire people to help him with his system. Some of these young and eager men were also there. Not only did they work for this man, but he was also helping them with their own deals. Sort of like an apprenticeship.

Although it was interesting to hear what other people are doing with flipping, I could not help but wonder about the legal and ethical issues around it. I understand that it is a last report for some people who are in default on their mortgage and that they will lose the house anyway. But I think that I would feel too much like a vulture. There is an increasing problem with foreclosures across the country. There has to be a better way to help these people. But then again, there is not way to stop people from making bad decisions, financial or otherwise.

The legality of it all is also a question in my mind. There seemed to be several legal fine lines that this man played with on a regular basis. I am positive that there are several instances where questionable legal strategies were used. In a way I think what they are doing is an excellent way to make money. I have no problem with using legal loopholes, and I hope my career takes advantage of some. You need to have a certain personality and temperament to make flipping really successful, and I am not one of those people. (But you never know, there could be a million different ways to flip properties.)

To Become Wealthy: Contract Details Part VII

Closing: I would expect this to be the final part of the contract, but it is only on page 7 out of 13. Lawyers do not make anything that is short and simple. That way you are guaranteed to need them for anything involving any contracts. Please do not misinterpret my statements as anti-lawyer. I am glad to use them and welcome their expertise and assistance. I am really anti-contracts. Anyway, our closing date was initially set for Feb 2nd, but we have extended it out three weeks simply because both sides need more time to prepare everything, especially since the Xmas and New Years holidays were thrown in the mix.

There is a long list of what both the Seller and the Buyer need to have at closing. Some of these things are restated from earlier in the contact so I will not go thru them again.

When we closed on our personal residence last year, the closing almost seemed like a formality. All of the work had already been done and reviewed before the closing. We basically sat at a large table in front of a big stack of papers and signed our names until our fingers cramped up. Then we had to sing some more. The lawyer gave the seller’s lawyer a check and we got the keys to the house. Except for the finger cramping, it was a painless procedure. I expect that this time the only difference will be that we will receive a FedEx package containing a large stack of papers that will require our signatures that we will then have to mail back before the closing date. We will probably never have the keys to this place, but the property manager will.

To Become Wealthy: Inspection Report

The property was inspected the other day by a professional. Of course we were not able to attend, but our realtor went along to see the details for herself. The report was very thorough and detailed. The inspector even included a lot of digital photos of anything that was below standard and needed work. Overall ,we were pleased with the job that was done.

Sometime the levels that people will sink to in cleanliness amazes me. There were photos of one apartment that I could barely force myself to look at. These people had let their dogs have the run of the place, and from the looks of it, they never took their pets out for a walk, or bothered to clean up after them. It was disgusting to even try to imagine what it mush have smelled like. I believe those tenets are in the middle of getting evicted. I am going to look into the cost of having that apartment professionally cleaned. I fear that smells like that never really come out. Although this turns my stomach, this alone does not deter us from purchasing the apartment complex.

We already knew that the exterior needs to be completely redone, and a credit to do it is included as part of the contract. The only other major thing that will make or break this apartment complex for us is the roof. It looks like it needs to be completely redone. In the photos we could see that it was a sunny, cloudless day, but there were puddles of water on the roof. There was also evidence of water damage in several apartments that I am sure correspond to the puddles. So, we want to also add the total amount to redo the roof to be included in the contract.

Basically, there has been a history of deferred maintenance in this complex that is apparent in the inspection report. We have no plans for rehabbing the entire property, but we would like to put a stop to its decline. I believe that although this is an investment for us, we need to take into consideration that people are living in our investment and that they are ultimately the ones who are responsible for our monthly cash flow, so we need to give them some consideration. This property is not located in the best neighborhood, but that does not mean that we cannot do some simple things to try to keep them happy with where they have chosen to live. I want to be wealthy, but I do not think that in order to maximize my profits that I need to sacrifice my tenants.

To Become Wealthy: Contract Details Part VI

I am going to become wealthy. I have a plan and I am going to show the world how I make money as I make money. My main objective is to make passive income thru the acquisition of real estate all over the country. All of my failures and all of my triumphs are going to be out in the open for everyone to see.

Leases: This item is sort of obvious also. It simple states that all leases must be in full effect t while under contract and that the seller can not enter into new contracts without our consent. It is a little bit of protection from mean and vindictive types of sellers. The seller also must disclose any conditions that may lead a tenent to be able to terminate their lease, or any concessions, bonuses or free rents. Any advance payments also need to be disclosed.

Estoppel Certificates: I went over this briefly before, because we received several of these certificates from the seller. I have figured it out, and basically these certificates are from the tenents to certify the basics of the lease, amount owed, amount of security deposit, any offsets and the expiration date of the lease.

The next section of the contract names the different brokers involved in the sale, and the amounts that they wish to receive at the time of closing. Our realtor wants 3%. Ultimately it is up to the seller to negotiate this fee because they end up paying it out of the purchase price. I think our realtor deserves the 3%. She has been working very hard for us.

To Become Wealthy: Dallas Property Update

The inspection was done today for the 15-unit apartment building that we are current under contract to buy. Our realtor was there for the entire thing and seemed pleased. She did mention a few things that needed work to be done to them, but she saw that as a plus, as additional bargaining power. In any real estate transaction anything that we can get to come off of the price is good news to me.

We have also been receiving a lot of paperwork from the seller. I received a copy of one of the leases today, and some estoppel certificates. Before last week I had never heard of the word estoppel and I will admit that I am still not entire sure of what it means. The certificates appear to be some sort of agreement with the renters to continue with the same leases under the new buyer as they did with the seller.

I have also learned that they are in the process of evicting 3 tenants. I have mixed feelings about this. Of course I do not want tenants in the building that are not paying rent, and I am glad that the evictions are not costing me anything. But it does make me wonder what types of tenants the other people are, and what sort will be attracted to live in this area. I have also learned that one of the tenants is Section 8. That I am happy about.

To Become Wealthy: Contract Details Part V

HAPPY NEW YEAR!!!!!! I want to wish everyone out there a healthy and prosperous new year. Let this be the best year of investing for us all!


Property Information: Under this contract the seller has 10 days to provide us with a:

rent roll
copies of the leases, including any amendments
inventory of all personal property included in the sale
copies of notes and deeds of trust that will not be paid by closing
copies of any current maintenance contracts or managements agreements
copies of utility statements
copies of any warranties or guaranties
copies of any insurance policies related to the property
copies of any leases related to the property
copy of the “as-built” plans and specs and plat of the property (?????)
copies of invoices for repairs in the previous 24 months
copy of property income and expense statement for the state period
copies of all previous environments assessments
real and personal property tax statements for the past 2 years

This is a lot of information. I am going to need to double check to make sure that we received all of these items. There are several that I already have, and a few might not be relevant, but I really need to double check it all.

This also gives me an idea of the types of records that I will need to keep on the property so that I will have an east time being compliant when I chose to sell the property.