The Millionaire Real Estate Investor

Financial wealth, by contrast, is about owning assets, such as businesses or real estate, that generate money for you.

The idea that 20 percent of your actions lead to 80 percent of your results may be one of the most powerful principles you can apply to your life.

they focus on the right things:

What we discovered is that these investors focus on three simple but incredibly dynamic forces at the heart of real estate investing. In fact, these three forces are at the core of all investing: Criteria, Terms, and Network.

Criteria describe what you buy. They’re the standards that define what kind of property you’re looking for.

Is the property a single-family or a multifamily? What is the construction? Does it have the right features and amenities that make it attractive for resale or rental? Most important, where is it located?

Criteria are ultimately about identifying predictable value, and that is why they are the first area of focus for the Millionaire Real Estate Investor.

If Criteria define an opportunity, Terms define how you turn it into a deal.

purchase, and they include everything from the offer price, down payment, and interest rate to conveyances, occupancy, and closing costs.

It’s also about knowing when to walk away. Remember, you make your money going in, not going out. You buy right and let the market go to work for you as opposed to buying less than right and hoping the market will save you. Buying right means getting the right Terms.

again and again, throughout our research, investors referred to all the people who helped them succeed. They had relationships with people who sent them opportunities, mentored them, helped them buy and maintain their properties, and in many cases provided services that enabled them to do more while spending less time and effort. As a businessperson, I call this leverage: the fact that you can accomplish more with qualified help than you can accomplish alone.

we’ll help you understand how to establish a “dream team” for your investment career. From real estate agents to contractors and property managers, you will need help. In fact, although it was the last of the three items we identified, Network will come first in your investing career, as you’ll rely on those people to help get your investment career launched safely, reliably, and profitably.

Remember, Criteria identify, Terms determine, and your Network supports all the investing you do.

my experience has taught me that the bigger I think, the more I can accomplish. I’ve learned that what I hold in my mind is what shows up in my life. Learning to think like a Millionaire Real Estate Investor will give you the greatest chance of becoming one.

Acquiring properties through credit potentially becomes more difficult, cash becomes a commodity, and managing your investments could require help from several quarters. This stage involves dealing with and often balancing cash flow with asset or equity buildup. It may involve selling, trading up, or exchanging. It certainly involves understanding the surprisingly simple realities of tax and owner entity issues. The good news is that by understanding these issues from the beginning you can plan for them.

I encourage you to look at your job differently. Your job is the venue where you can earn your initial investment capital, and a percentage of your wages must be dedicated to building up your investment stake.

Most people are taught to live within their means, but I was taught differently and encourage you to think differently as well. Instead of forgetting your dreams and living within your means, try pursuing the means to live your dreams.

“People try to overcomplicate real estate investing. You can’t pay $5,000 a month if you’re not making $5,000 a month.”

One of the great lessons I’ve learned about investing is this: Investing in what you don’t know or understand isn’t investing at all. Doing that is like taking a shot in the dark, and you’ll need luck to hit anything worthwhile, much less your intended target. To me, the real nature of investing is always to invest in what you know and fully understand.

encourage you to do the same thing; if you don’t have specialized knowledge, pick an area and start learning today.

Investing like a Millionaire Real Estate Investor isn’t about taking risks. It is about having sound criteria, the patience to find the right opportunity, and a willingness to take the correct action quickly.

In fly fishing they say, “You can’t catch a fish with your hook in the air.” That’s also true of timing the market.

Timing isn’t about being in the right place at the right time; it’s about being in the right place all the time.

Rest assured: All the good investments will be taken. The only question is by whom.

Here’s what I know about market forces and how they create investment opportunities. There are two fundamental forces at work—economic ones and personal ones—and they are always present, always at work, and always influencing the marketplace. Basic economic forces show up in the form of things such as job growth, interest rates, population shifts, and area revitalization.

What I most want you to understand is that opportunities are always there in every market and in every time.

Any form of investing is about putting your money to work and letting it work for you over time.

THINK POWERED BY A BIG WHY In Think and Grow Rich, Napoleon Hill wrote, “What a different story men would have to tell if only they would adopt a definite purpose, and stand by that purpose until it had time to become an all-consuming obsession.” Motivation matters.

I’ve made it my practice to study the lives of successful people to discover their motivation to achieve. I clip news articles, read biographies, and watch documentaries on their lives. What

asking questions like: “How much am I capable of?” and “What’s possible for me?”

stop thinking of success as something you want to achieve and start feeling that it’s something you need to and in fact have to achieve. Life is very different when you move from want-tos to have-tos, and a truly significant Big Why causes you to make that transition.

Hopefully, at the top there is something along the lines of “I want to be as financially wealthy as I can be” or “I want the largest life possible for me.”

Reaching one’s personal financial potential is a limitless pursuit; after all, there’s no cap on that potential.

What’s the best way to finance my Big Why?

I believe in thinking big, but I also know that’s not enough. Without Big Goals, Big Models, and Big Habits, big thinking may be wishful thinking, and by itself wishful thinking isn’t that useful.

Big Goals force you to restate your Big Why in specific and measurable terms, and Big Models represent the proven systems and activities that will get you to those Big Goals.

Figure 4

There is no such thing as a neutral habit. Habits are either good or bad. They either lift you up or drag you down.

“I never let anyone rain on my parade or wreck my day. I never listen to anything negative. I’m in charge of my attitude. I had a lot of energy, and I had a plan, so it took me only four years to become a millionaire.” Mary

Investors build their financial lives on Capital, while consumers build theirs on Consumption.

investors see money as an opportunity to invest, consumers see money primarily as an opportunity to spend.

Many of the Millionaire Real Estate Investors we interviewed reported making some short-term sacrifices for long-term gains while they were building a foundation for financial wealth. Not only did they invest a relatively large percentage of their earned income, they also overcame the impulse to squander any extra income generated from their investments. Instead, they reinvested the lion’s share of their Cash Flow in additional Capital to accelerate the financial wealth-building process

Consumers, in contrast, have it all backward, and that is why they live for Shadow Wealth. We call it Shadow Wealth because when you live a life of consumption, it can give the appearance of wealth without any of the substance.

They see having money as an opportunity to spend first, spend second, and spend last.

Ask yourself this question: In which half of the Money Matrix have you been living? Does your income go straight out the door in the form of Consumption? Or do you always designate a substantial portion of your earned income for direct investment into Capital?

can you guess what they use as a yardstick for financial success? Interestingly, it’s not annual income. They believe the best and most definitive measure of financial wealth is net worth: the sum total of an individual’s assets and liabilities.

Together we took a standard bank loan application and used it to create a list of all the financially significant things I owned (stocks, bonds, real estate, furniture, car, etc.), and then we subtracted all my various debts and liabilities. The final number was my net worth. Each week I’d update my net worth worksheet, and when Michael and I met again, we would ask one simple but profound question: “What’s the best way to make that number grow?”

As a general rule, investing made my net worth go up and consumption made it go down.

not all assets are equal—some appreciate, while others depreciate.

The Millionaire Real Estate Investors we interviewed made Thinking Net Worth a habit.

How fast would it grow if someone else paid down the mortgage? What if the rent they paid more than covered the property’s expenses and generated positive Cash Flow?

First, general inflation drives up the replacement cost of housing (construction materials and labor) and therefore the value of all real estate. Second, there is the influence of supply and demand. As the population increases,4 so does the demand for housing

Trammell Crow, one of the most successful real estate investors ever, once famously declared, “The way to wealth is debt.”

Real estate is leverageable.

For example, a person may have put down only $30,000 on a $150,000 house. If that leveraged property has appreciated 6.1 percent to $159,150, the $9,150 gain should be weighed against the $30,000 invested, not the $150,000 price. A gain of $9,150 on $30,000 translates to a 30.5 percent rate of return on the investment!

“The most important thing about home ownership is that it’s leveraged . . . When you look at your net investment and the return on that, homes can certainly compete with the stock market.”

Once you build up an equity position in an investment property, you can leverage that investment for cash in one of two ways: You can secure a secondary loan against the increased equity or refinance the original loan amount plus the increased equity.

The next major bonus of real estate is the Cash Flow it can generate: Real estate is rentable.

It continually amazes me that I can purchase a property and then turn around and rent it to a person who will pay down my debt in exchange for living there.

a Millionaire Real Estate Investor knows you can improve the value of any property with some tools and a little elbow grease.

You also can increase the value of the property in a more subtle way by changing its zoning or use. Converting vacant lots into parking lots and converting apartments into condos are a couple of common examples of adding value through creativity.

“I bought a house in an owner-financed deal for $120,000. I only had to put $10,000 down, and then I put $10,000 into the house to remodel it. I ended up selling for $189,000. So in 58 days, I made $40,000.”

The first D, deductible, reflects the fact that tax law allows various deductions for the normal expenses incurred in owning real estate, such as property upkeep, maintenance, improvements, and even the interest paid on a mortgage.

The most important of these deductions comes from the second D, depreciable. What’s interesting is that not only does tax law allow you to depreciate your investments, it requires it. Simply put, things are presumed to wear out and lose value over time. The government expects you to account for that “wear and tear,” whether it’s actually happening or not, by claiming an annual decline in the value of the building, its contents, and any improvements. Millionaire Real Estate Investors love this tax break because it allows them to reduce their taxable income through depreciation even when a property is increasing in value through appreciation.

The third D is deferrable. Tax law allows you to use IRAs and 1031 exchanges to buy and sell investment real estate while deferring the tax hit to a more advantageous time.

Millionaire Real Estate Investors believe that taxes deferred until tomorrow are always better than taxes paid today.

When it comes to taxes, there are two kinds of people: consumers and investors. One group avoids planning for taxes, and the other plans for avoiding taxes.

Many of our millionaire investors shared with us the fact that they also began their investment careers by moving into a home, fixing it up, and then renting it out when they moved to a second home.

Successful real estate investing begins with identifying value. How do investors identify value? That’s easy. They look at real estate. They look at a lot of real estate. They look very carefully at a lot of real estate.

When you are starting to learn the value of real estate in an area, you will need to look at a lot of real estate.

And as you carefully begin to get a sense of what people are asking and what people are willing to pay, you gain a sense of market value—what’s worth what.

“Deals aren’t found. Opportunities are found. Deals are made.”

the wishful enjoy the idea of big financial success, the willful enjoy the actions that lead to real financial success.

any time you find yourself with a credit card in hand, I want you to do two things: First, say to yourself, “I’m an investor, not a consumer.” Second, ask yourself, “Is this the best use for my money? Am I using my money like an investor or like a consumer?”

Perspective is an amazing thing.