Buy and Hold

Oftentimes financial planners come to me wanting to offer me advice setting aside money for retirement. They tell me and my agents about setting up 401K, IRA and other tax deferred vehicles. Their advice all sounds good except that when compared to real estate investment in the current market the single digit returns they promise me pale in comparison to the double even triple digits I get investing in real estate.

The fact of the matter is that the deals of buying real estate and banking on appreciation are gone forever. I remember when I started investing in real estate back in 2006. I bought a townhouse for $515000, rented it to a Section 8 tenant and was getting only $1800 per month on it. My mortgage at the time was $3500 and that did not include taxes and insurance. It did not include the HOA and garbage fees, either. How dumb! But that s how dumb most investors were back in the 2005-2007 era. As na ve as I was, I thought the property will continue to increase in value by as much as $15,000 each month. I remember doing presentations to my sphere of influence, preaching the merit of investing in real estate. Real estate gurus were plenty in those days. Now that I look back, I wonder why these people were preaching all that rubbish if they had ever experienced a downturn. Now that I have been through one myself, I will NEVER EVER advocate buying real estate on the basis of appreciation. NEVER.

Real estate must be bought on the basis of cash flow. Positive cash flow. Immediately. Not tomorrow. Not next year. Today. The moment you buy it. At the very least, it must be bought following the rule of 1%. For example, if you buy a single family residence for $100,000, the rent you get from it must be at least $1000 per month. If it is not, then walk away from the deal. There are far too many deals out there now and you do not need to waste a single minute on a property that does not meet this simple rule.

Like I said, the days of speculation and equity are over. I had to deed back to the bank the townhouse that I paid whopping $515000 for. The money I paid to make up the difference between the mortgage and the rent all went down the drain, so did the taxes, the HOA and the repair expense. At the same time I bought the townhouse, I took out a loan on another property in Fremont. I paid $730,000 for it and spent over $50,000 to rehab it. Unable to sell it, I decided to rent it out to a good Afgan family who took great care of it. Great care or not, I was getting a miserly $2500 per month. At the beginning of the loan I was paying $5000 per month to Fremont Investment. I paid that amount from April 2006 to November 2006 during which time the property was being renovated. The $5000 did not include any taxes or insurance. I was able to refinance the mortgage and get the payments down to $3500. But that was still not good given that I was getting only $2500 from the tenants. After holding on to the property for three years I finally let go of it.

Now you understand why I am vehemently opposed to speculative real estate. They say once bitten twice shy. Yeah, that s me. I will never invest in real estate if I do not cash flow from day 1.

Sometimes pain is good. Why do I say this? I believe that if I had not gone through this torturing experience I would be in no position to write this message, to be a teacher of sorts. Now that I have been through the pain, I can strongly advocate that you steer away from it. This road is not good for anyone.

Why would it be? It doesn t need to be. The market has corrected itself and the deals are plentiful. The harvest is here and you can become a partaker of it.

You can get these deals from motivated private individuals as well as institutions. Banks are offloading distressed assets en masse. They are selling them for pennies on the dollar. You just need to look for them. You can find them on loopnet.com and other commercial property websites. You can find them on the MLS. Your realtor friend can be your best ally.

I have no money, you say.

No worries, I reply.

Money should never be an issue. As I said before if you find a killer deal you will find money. People with money are always looking to make even more money. There are websites where you can find cash buyers. These are people who buy real estate on a regular basis. Bring the killer deal to one of these cash buyers and the chances are that they will buy the deal from you. You can partner up with them or simply assign or flip the deal to them. It s that simple.

Buy 3, Sell 2, Keep 1.

They say that the true road to wealth is what you keep. Therefore I side with the gurus whose gospel advocates buying 3 properties at a time, selling 2 and keeping 1. Let say you buy a small SFR in Oakland for $120,000. You spend $18,000 to rehab it and you resell it for $201,000 making a profit of $45,000 or so. Two such transactions will net you $90,000. You can then buy a triplex in Oakland which you pay $206,000 for and spend $50,000 to rehab. Your cost basis is now $260,000 or so. Each of these refurbished units generates $1300 per month. That s a total of $3900. Based on the rule of 1%, that property is now worth at least $390,000 using the income approach. You can sell it to a buy and hold investor. But why not become one yourself? Even if your credit is not good and you cannot proof your income, I can guarantee you that I can get East West Bank or another forward-looking lender to refinance this property at half its value with a very reasonable interest rate. Half of $390,000 is $195,000. This means you will be only $195,000 into this deal and your mortgage payments, including taxes and insurance, will be less than $2000 per month and your cash flow will be a whopping $1900 per month. Now can you imagine how wealthy you will become if out of every 3 properties you bought you converted 1 into a cash flow rental? Can you see yourself going into more rentals? Have you ever seen those apartment complexes and ever wondered who owned them? How did these people start? I bet some of them started just like this, the way I have just told you.

Some of my associates are doing just that. Farooq Khan is a great example. He bought a fourplex in Berkeley in 2010 for only . After some minor fixing, he now generates $8000 in gross rent from the property. In 2011, he bought a sixplex in Newark for only $... The very first day he put the refurnished unit on the market he received a call from a manager who just relocated from Southern California. The manager loved the home the moment he saw it. He is paying Farooq $1500 per month.

Farooq s goal is to acquire a few more of these properties while the market is down and the values are super low. With a few more acquisitions, Farooq will be set for life. He will generate upwards of $12000 positive cash flow per month.

Now which is better? Investments where someone else is in control such as your IRA, 401K, stocks or cash flowing properties which you get to see, touch, smell and control the rent and cash flow? I think you know the answer.

I am not calling for you to dump these investment vehicles. Quite the contrary. What I encourage, especially for self-employed people, is to put as much money into your IRA and when in, use it to buy real estate. The beauty of this strategy is that all the capital gains go back to your IRA tax deferred for the traditional IRA, or tax-free for the ROTH.

With the real estate market being this attractive, how can any resist the temptation? How can you not see the beauty in buying a duplex for only $80,000 in Dallas and getting $1400 for it per month? How can you not jump up for joy when you hear someone tell you that an 8-plex is being offered for less than $200,000 where each unit can be rented for a good $700 per month?

See, everyone sits there and expects the President to give a killer speech about job creation. Everyone expects big companies to create jobs. President Kennedy once said that we should not ask what our country can do for us. Instead we should ask what we can do for our country.

I tell you what will cure this ailing economy? Investors like you and me. Yes, you are an investor, the answer to this sick economy. You are an investor whether or not you believe me. If you do not believe me, pick up the phone today and call me or simply email me and I will make you a believer. Yes, you hold the keys to revival of this economy. Together, we are the solution.

If you don t have money but you have passion, you have what it takes. I will hook you up with people who have the money and are looking for people just like you. If you have money in whatever form: cash, CDs, IRA, 401K, stocks, you are the answer. I can show you how to grow your money exponentially in this present market. That s how confident I am about this.

Either way, try me today.