What would you do if NO ONE gave you ANYTHING? or how I started with $1000

[fdjake]

From time to time I see the "What would you do if someone gave you $100,000 or $1,000,000?"  posts here.  I think they are a good way to get insight into how other investors move money around.  I also think it would be valuable if we explained what we would do with $5,000 or $10,000 of HARD EARNED MONEY.  This is money that a person may have worked for years to save. What would you do with it?

I'll start...........

What I did was FIND PROPERTY.  I was a contractor at the time (1980's)  and spent money every month advertising for my business.  It consistantly brought in good leads.  I decided to run a small ad looking to buy houses that needed work.  The first deal I ever did was a straight option.  I learned about these from a seasoned investor.  My risk was very low, ($1000) which was good,  because I didn't want to borrow money to buy a house I wasn't POSITIVE I could sell. 
I received a call from an elderly lady whose house needed various repairs and updates.  She thought a realtor wouldn't be interested because of that.  We agreed that she would give me 30 days to bring in a buyer and for that I would give her $1000 that day if she signed an option agreement.  If I didn't have a buyer in 30 days she was on her own to do what she wanted.  The home was a 3 bed ranch. At the time these houses were selling for $50,000, she wanted $25,000.  I paid her $1000 for the option and brought in a buyer who was looking for a rental property.  He agreed to buy it for $38,000.  I simply assigned my $25,000 option to him at my attorneys office and made $13,000 on my $1000 investment and it was all done in 10 days!

I found another one 6 months later and made $10,000 the same way.  I was not living on this money so it all got put in the bank.  2 deals and now I had enough to actually BUY my first home outright with OTHER PEOPLES MONEY!
I found a 3 bed Cape.  Purchased for $22,000, I put $3000 into it and sold it for $55,000.   Never looked back after that.

Funny how banks LOVE folks who regularly make 5 figure deposits!  I sat down with a small local banker and laid out my previous investments.  I think what really impressed him was the fact that I HAD NOT spent a penny of that money.  I just kept rolling it over.   He started me out with a $35,000 line of credit. Within 12 months that was doubled, then doubled again.
Still with that bank (and others) for over 20 years.  My line of credit is a lot higher these days.  I own a nice portfolio of commercial real estate, and still buy and sell houses.   I got out of the residential rental business in 2003-05.  Just got tired of the never ending BS.   

Even in this market I can buy and sell houses.  Sold one this week, 11 days on the market and 2 back up offers.  Came on the market $30,000 UNDER comps, still made $70,000 on a $110,000 investment.  In this type of market PRICE is the ONLY thing that gets people's attention.  If you price it well BELOW comps in a neighborhood it will go.  I want to be THE LOWEST priced home in that market when it goes on MLS.   IN order to do this you need to buy at HUGE discounts and be smart about where you spend your money getting the home ready to sell.  There is SO MUCH inventory out there that I walk away if I can't steal it.

It can be done. 

FIND THE DEAL AND THE MONEY WILL FOLLOW!!

[allagash]

fdjake....

Always the contrarian!

Excellent post....thanks for sharing.

What would I do?

a) lead

b) follow

c) get out of the way

-Mike

[propertymanager]

WHAT?  C'mon FDJake, I'm still waiting for someone to give me $1,000,000.  You've got to get with the program.  Think it and you'll be rich!  Dream it and it will happen!  Write your goals on the mirror and the cosmic karma will know that you're in business and reward your accordingly.  No work required.  I've seen all the infomercials and work is the one thing that is NEVER mentioned.

So, please don't make any more silly posts mentioning that 4 letter work  -  WORK!

Mike

[fdjake]

Yea, I'm doing something wrong. 

I'm still waiting for the goverment to give me money because I grew up under priviledged! 

On a serious note....

I don't want to mislead anyone here.  I had more than $1000 when I started.  I just didn't RISK more than that thousand.
If you think you can start a real estate business with NO MONEY please keep my contact information.  I'm interested in starting a Formula 1 team with no money!  Or buying a Ferrari with no money!

It ain't happening.

There's a great book out there every new guy should read it's called....

"The Richest Man in Babylon"

It's a very quick read but it drives home the importance of developing a really good savings habit BEFORE you start any venture.
The theory is that by saving at least 10% of your income for a minimum of 1 year, you build the discipline needed for success.  As a by-product of this, you become intimately aware of how hard it was to save that money.  You make SACRIFICES!!  I know that's a dirty word in our country these days, but it is VITAL to success.  You can't have it NOW!  Sorry, don't know who told ya you could,  but I know I didn't get it NOW.  I worked for it, and damn hard.   In the book the main character follows the rich man's advice and saves 10% of his money for one year.  He then blows it by not taking the time to fully understand the investment he gets into.  He gets wiped out.  He spends another full year rebuilding his savings.  By now he is much more careful and invests in something he has fully researched.  It is then that he makes his first good investment.  He goes on to attribute that first failure as the linchpin in his success.  He knows if he hadn't had that small loss he may have had a bigger one later that would have proved much more costly.

The book is filled with priceless advice.  It's all about the basics folks.  Like Mike said, there is no get rich quick plan out there.

NFL quarter backs get drafted because scouts watch their basic mechanics.  HOW THEY DO THE LITTLE THINGS.  These guys know that those little things are the foundation blocks to a successful career.  It is no different in this business.

Learn the basics, don't take short cuts.  Those little lessons will pay HUGE dividends down the road.  Learn to sacrifice.  There is an incredible feeling of reward when your hard work pays off.  There is NOTHING in this world that will boost your confidence higher than following a carefully laid out plan to it's ultimate successful completion.

I have friends of mine who used to tell me all the time I was nuts driving an old sh!t box truck and not taking vacations inorder to save money.  They had all the reasons why investing in real estate wouldn't pay off.  Too risky, too much aggrevation, taxes, mortgages, ect ect.
The fact that NONE of them had ever invested in ANYTHING but the home they lived in never stopped them from offering advice.  Now we're all in our 40's.  I have an income that comes in every month.  It doesn't depend on some company winning a big contract,  I never recieved a lay off notice from one of my commercial buildings,  I never got fired from one of those buildings.  The last house I sold made me more money in 32 days than my friends make in a YEAR.  My 8 year old son's college education is COMPLETELY paid for.  (Prepaid it at our State University,  $50,000 full boat,  half a house paid for all of it)  My friends are paying for their BMW's.  Hey why wait right?  "The kids can just take out loans."
My wife and I own a home on a Lake that is the envy of every person who has ever been there.  We live a life out of a fairy tale.  Get home, jump in the boat 90 feet from my back door and go fishing, tubing or water skiing. Nothing in this world better than sitting outside having a cold beer, in front of a fire, while the sun goes down over the lake.  It sure doesn't FEEL like I sacrificed much, but man..... I'm glad I did.

[tatertot]

[[[....there is no get rich quick plan out there.....]]]

Oh, I don't know. I've heard that smuggling cocaine is pretty lucrative. Except for the small problem that the cartels don't appreciate amatuers stomping around in their private territory and they aren't very nice people.

Two really brilliant posts fdjake.

It's very generous of you to share so much knowledge.

I think that would have cost $6,000 to hear that from one of the gurus, and you heard it here first, folks, for free.

[John_in_NC]

fdjake, a.k.a. petefromMA
Thanks for your posts, and thanks for just speaking your mind freely on this website, the fact that you don't have a book or service to sell adds to your credibility in an enormous way.  Please keep it up.

John in Raleigh

[REI_Chris]

fdjake,
Your posts are nothing short of excellence! Your life story is one only a newbie such as myself could strive for in the long run with hard work. It is stories like yours that keep us smaller fish swimming up stream. Thank you for sharing this with us! 

[propertymanager]

I think that would have cost $6,000 to hear that from one of the gurus, and you heard it here first, folks, for free.

That is wrong.  You will NEVER hear this from the gurus  -  NEVER.  Almost all of the gurus in every field (REI, MLM, stock market, etc) promote their get rich instantly without work "system".   Worse yet, is that millions of people are gullible enough to spend thousands of dollars to learn that the gurus really don't know the big "secret" that they are always promising.

The "secret" to success - learn the business, work hard, and be persistent.

Mike

[allagash]

fdjake...

a while back....maybe 2 to 3 months ago....you said that in this climate, (buyer's market), you had stopped using straight options to control a property and find a buyer at a price higher than what the seller and you had agreed on.

do you think straight option is at all workable at this time....if so, or if not...what's the thinking here?

Thanks,
-Mike

[fdjake]

I haven't used an option in over a year.   The market continues to drop and inventory is still rising.  This is not a good environment for options.
I'm not saying you couldn't use one for a specific deal, it's just that you are extremely limited in your time to get the deal done. 

Right now I just concentrate on finding really good deals and making sure I can bring them to market with some money left on the table.  If your the best deal in town your property will sell.

I have to admit that things seem to be worse than even my gloomy predictions were a year ago.  I think this market is going lower and faster than I had predicted.   I am also hearing some very discouraging news from business owners that I know.  Things do not look good.   Some people think this means great opportunities ahead, but I have to tell you....
I'm more than a little worried here.  We're in NO MAN'S LAND.

Just look at what's going on in the credit markets.  No ONE.....NO ONE......knows what any of these securities are worth.  This is where the majority of the money that finances our business comes from.  THAT is very scary!!  Add to this the FACT that we are going into a recession next year and it does not look good.

In this type of market you can do two things....Get in and out quickly (buy and sell)....
Or buy and hold.   I don't buy and hold residential real estate anymore.  I did it for years and just hate renting houses to people.  I still buy and sell homes.  I just enjoy it.  One of the great things about it is once you build a good group of sub-contractors, suppliers and a good realtor it really is a very simple business to run.  I buy the home for no more than 50 cents on the dollar.  I know exactly what I'm looking for.  I don't buy "PROJECTS" Projects are homes that need to be completely rebuilt.  No thanks, too many "Lipstick specials" out there.  Lipstick specials are homes that need cosmetics.  Yea, they might need a new kitchen and flooring but nothing major.  Add some nice touches to these homes and you can make $40,000 to $70,000 per home.  You don't need a whole lot of these to build a VERY big bank account over let's say a 10 year period.

The longer you do it the easier it gets.  Things that made you nervous intially,  just make you laugh now.  I used to worry about inspections at each home.  It wasn't a big deal,  but as I'm sure we all know, an inspection can kill a deal.  Not anymore......Now I tell my realtor that ALL inspections are welcome BUT must be completed PRIOR to any offer being submitted.
Think about it.....You accept an offer and then WAIT for the inspection.  Meanwhile the home is off the market.  Then the inspection comes back and the buyers want this and that.   Not with my homes....
Do your inspection...THEN make your offer.  That way I know BEFORE if I'm dealing with an idiot who wants $4000 off to fix the broken pull strings on the cellar lights.  The house stays on the market, it becomes THE BUYERS priority to get that inspection done, NOT MINE.  What's the difference?  Their paying for an inspection either way.  The difference is I DON'T LOSE A POTENTIAL REAL BUYER WANTING FOR A DOPE!

[allagash]

Excellent suggestions....thanks!

BTW....gaining a much greater appreciation of your J. Paul Getty quote.

-Mike

[allagash]

I have to admit that things seem to be worse than even my gloomy predictions were a year ago.  I think this market is going lower and faster than I had predicted.   I am also hearing some very discouraging news from business owners that I know.  Things do not look good.   Some people think this means great opportunities ahead, but I have to tell you....
I'm more than a little worried here.  We're in NO MAN'S LAND.

I keep a pair of sunglasses and a mug full of pencils handy.

-Mike

[propertymanager]

I have to admit that things seem to be worse than even my gloomy predictions were a year ago.  I think this market is going lower and faster than I had predicted.   I am also hearing some very discouraging news from business owners that I know.  Things do not look good.   Some people think this means great opportunities ahead, but I have to tell you....
I'm more than a little worried here.  We're in NO MAN'S LAND.

I've got to admit that I'm a little puzzled by this statement.  I have been surprised at the ability of the Fed to keep putting off the inevitable economic crash.  What do you think will be the final trigger?  A stock market crash in China?  The American consumer running out of space on their credit card?  The dollar falling so fast that it catches fire?  How long do you think the Fed can keep throwing money at this thing to keep it afloat?  I'd like to hear your opinion.

Mike

[Rich_in_CT]

I have to admit that things seem to be worse than even my gloomy predictions were a year ago.  I think this market is going lower and faster than I had predicted.   I am also hearing some very discouraging news from business owners that I know.  Things do not look good.   Some people think this means great opportunities ahead, but I have to tell you....
I'm more than a little worried here.  We're in NO MAN'S LAND.

I've got to admit that I'm a little puzzled by this statement.  I have been surprised at the ability of the Fed to keep putting off the inevitable economic crash.  What do you think will be the final trigger?  A stock market crash in China?  The American consumer running out of space on their credit card?  The dollar falling so fast that it catches fire?  How long do you think the Fed can keep throwing money at this thing to keep it afloat?  I'd like to hear your opinion.

Mike

I think rather than a final trigger it will be a painful spiral.  One after another with each pushing the other faster.

[Bluemoon06]

You know in real estate all the books and tapes you hear about is how you can start with no money and no credit and still amass a fortune in real estate.  I will show you the way.  But I know a lot of people with credit and cash that still don’t know how to get started.  That is the group that I found myself in.  I didn’t want to bird dog, or wholesale and I didn’t have to have no money deals wraps, assumptions, or owner finance because I had cash.  I just wanted to know how to do this business.  I started out with a good corporate job making six figures.  I had a pension and a 401k and a lot of executive perks.  I already had a big house and nice cars.  But I didn’t want to do like my buddies that got into real estate buy calling the real estate broker that they bought their McMansions from and asking her to sell them 5 houses to rent out.  All of them bought houses that were too expensive in neighborhoods that didn’t cash flow and ended up with tenants in them that wouldn’t pay.  It was like the poor little rich kid syndrome.  Because they had money they ended up with crappy rentals.  I went to my local real estate investor’s club and found people that were corporate also that know how to do this real estate stuff.  As I said before I didn’t want to fool around with trial and error, nor did I want to be the guinea pig.  I just found a guy that was doing it well and asked him what he did.  I did exactly what he did.

That is when I found out that in Houston a 3 bedroom, 2 bath house with 2 car garage that is over 1500 sqft.  That rents for under $1000 won’t stay on the market more than 2 weeks in virtually any neighborhood.  So my market was established and what I needed to do was to find supply houses that fit that market.  If I could do that with $100 to $200 to spare I could do that over and over and over again.