Strategy #1 - Invest Your Money In Another Investor's Deal

We have all heard it said, "it takes money to make money".

Well, that is not exactly true. The truth is it takes ideas and an ability to execute those ideas to make money! Every great fortune that exists today was first an idea. Oprah had an idea before she had a G-V, Steve Jobs had an idea long before he had the cash to own Walt Disney. Yes, even Donald Trump had to meet with someone who would ultimately become a 30-year mentor and advisor to make his first deal happen. A deal that netted him $85 million with little to none of his money invested.

Someone has an idea, who then told someone, who told someone else, and together this team of people were able to pull together the resources to turn that idea a reality: Harpo Prductions, Apple computer, Trump Tower serve as but a few examples.

Along the way, however, someone showed up with some money, cause money is the life-blood of any enterprise.
Which, of course, brings us to Fundamental Real Estate Wealth Creation Strategy #1:

Invest the money you have, into someone else's idea, or team. They get the capital they need, you get a return on your money that is better (and often safer) than what you can get in the stock market, or G-D forbid, your bank.

You don't have to be a Rockefeller to tap into the real estate ideas of others and have both parties - get rich.
There are a variety of ways to invest in other's deals. You can set yourself up as a "hard money" lender, and be in the business of making short term loans, or you can be a private investor and simply go into a specific deal, or series of deal with one "active" deal-making investor you have a relationship with, or you can become an equity investor in one or more deals, where someone else is taking the lead in making the deal happen.

Regardless of what posture you take, you have to adhere to three basic rules, or you will get hurt.

1 - You need to know what the other person is doing with our money. I don't necessarily mean "day-to-day", as much as I mean, you need to have a basic idea as to how you are going to get your money back with interest. If the "story" is too complicated, or "too good to be true", chances are the end result will not be pleasant. Real estate is not "easy", but it should not be "complicated" either. The basic strategy should be straight forward and one that you understand. The reason you choose to invest with someone else is because they have demonstrated to you that they can do what you either can't, or are unwilling to do. Can't because you may not have made the time to build the team, or simply at this stage in life you have chosen to "not work that hard", or you quite honestly may make too much money from your job, but like the idea of being a "real estate player" and want to diversify your income stream and start making your money work as hard as you do.

2 - The person you are investing in needs to demonstrate that they know what they are doing! So in addition to you having a basic idea as to what they are planning to do with your money - they too need to demonstrate that they not only know what they are doing, but can actually pull it off - In short, there has got to be some type of track record. It's o.k. for "newbie" investors to use "friends and family" money for their first deal, you just don't want to be one of them. Better to get a lower return when they come around next time with actual hands-on experience;

3 - The person or team you are investing in must be trust-worthy. Unfortunately, this is where things can break down real quick. There are a lot of people who know technically how to make a deal work, but even their own mothers wont give them a dime, based on prior experiences.

So, with this thimble-full of knowledge, how do you actually make any money?

A) You have to invest in your own knowledge base before giving anyone a nickel. How in the world are you ever going to be in a position to evaluate if a deal is a good one or not, if you don't know what you are looking at. There are a number of ways to learn, but the most effective tends to be to network with others who know what you don't and politely pick their brains.

B) You need to build a team of professionals around you. Sorry, no one said getting rich as going to be easy. Stock Brokerage houses and Financial advisory firms are constantly looking at ways to make it easy for investors to "push a button" to buy and sell stocks. Problem is a "push button" mentality, without basic knowledge is a sure-fire formula for accelerating the speed and increasing the amount of money you are bound to loose. Again, the best way to build a team is to get out there and meet others and ask. At a minimum you are going to need a good real estate attorney/title company and others who can help you evaluate deals. This could be a more experienced investor who acts as a mentor, or an experienced appraiser, or experienced Realtor(r). The type of help you will need is dictated by the types of deals you are looking at, so build a big Rolodex ;)

C) Play the trends. If you honestly think the real estate market in your area is getting soft FAST, then look at foreclosure, pre-forclosure and short sale strategies (more in this in coming days). If you think the market is actually getting better because of strong job growth, then look at "buy/hold" strategies. These could also be "nothing down" techniques or "buy cheap, rehab, put in Section 8 tenants, and hold", or you may actually consider participating as a "VULTURE" investor working with active investors who are going after busted condo and pre-construction deals. Bottom line: know enough about what is happening in your local market to be in the deal flow. There is always deal flow, the only question is, "is the deal flow in favor of buyers or sellers" Right now the deal flow favors buyers.

This is not meant to be an "encyclopedia" on this topic. Just giving enough information to encourage you to get out there and ask questions of those who know. Post on the message boards, go to REIA meetings, make plans to go to a regional or national conference and NETWORK. Invest in your knowledge before you invest in the deal, because the cash-flow you save might be your own.

"The Best of Times - The Worst of Times", No Wonder I'm So Confused...!

What in the heck is going on around here??

Some real estate investors are running around screaming "the sky is falling! Time to jump back into stocks."
While others are beaming from ear to ear telling us we are entering the "golden era" of real estate investing. But for the most part, everyone seems to be dazed and confused.

Fear not my darling, it is neither the best of times or the worst of times, it simply is what everyone should have come to expect at this phase of a period of incredibly low interest rates followed by incessant interest rate hikes by the Federal Reserve.

And now is the time that many people are going to decide that "real estate is not for them" - GREAT!
Get the hell out now, and don't let the door knob hit you in the crease and cause permanent damage.

I'm sorry, we're not suppose to write things like this on the Internet. Please let me rephrase, "we are sad to see you go, good luck with your stock market, or oil futures, or your job, or what ever else you plan to do to be in a position to enjoy life and ultimately retire or send your kids to college". As for me and my folks, "We ain't going nowhere - cause its about to get really good as we switch from one game to a new one!"

So, let's talk about the real deal here. Bottom line is that from 2001 - 2004 the overall US economy really sucked wind. So to "pump up the jam", excuse me, to get the economy going, the Federal Reserve dropped the Federal Funds rate, which dropped short term interest rates (impacts businesses, and Adjustable Rate Mortgages). At the same time, the Chinese Government bought huge amounts of US Debt (in the form of Treasury notes and bills) which also caused a significant decrease in long-term interest rates (Impacts 30-year mortgages).

The result was, of course, a huge uptick in pricing and demand for single family houses and condos. "Why?" Come on, you know why. 90%-100% of the purchase of every house or condo purchased by a "traditional buyer" today is financed. The lower the interest rate, the more you can borrow. And despite the fancy lingo and computer models, the bottom line for both $1.0 million houses and mobile homes is what Lonnie Scruggs has told us for years: The average buyer simply wants to know: "How much down, how much per month", and pays no real attention to the "sticker-price".

So after two consecutive years of interest rate increases, we are, where we are suppose to be, and strategies for selling to first time home buyers, or the move up market, or condos, or for that matter buying then reselling real estate within a short period of time have to be re-exmined to see if they still make sense. In many cases they do not!

But don't leave just yet. There are 10-Fundamental ways to make money in real estate (actually 11, if you do business in Maryland), and they are not all tied to selling houses or condos.

Right now 3 of the 10 fundamental strategies are "sputtering". O.k., but what about the other 7...? "Hello", Dude/Dudettes These 7 other strategies perform "Best" when the market gets to looking like it looks right now.

So, if you want to take your ball and go home - go. Otherwise, now might be the time to put one ball and glove down, and pick up a different ball and a stick and stay on the field, cause a new game is about to start and its gonna be fun (and profitable) for the rest of us who stay.

p.s. - starting tomorrow I give you the decoder ring to figure out what the heck I'm talking about.

p.s.s. - If you should decide to walk away from real estate now because all you know is 30% of all there is to know, and that 30% is not doing as you had expected - what in the world are you going to invest your time and money in? Stocks, Bonds, Oil Futures, Teak Oil from Scandinavia?? Good luck. I hope that by the time you really figure that other thing out, that it too does not adjust and "throw you", and when you come back to real estate you have not lost too much ground.