How I Make Over $250,000 a Year in Real Estate Investing (And I’m Only 29)
I have been a full time Real Estate Investor for the past three years. The reason I got started was a mix of desperate need (I had a Masters degree, could not find a job and was BROKE), and the promise of huge profits, very quickly with little to no knowledge of the business and no start up money. I was more than qualified to meet those requirements.
I had never taken a single class on Real Estate, had no idea how to fix ANYTHING (let alone conduct a complicated rehab project) and most importantly, I had NO MONEY, I didn’t even have or know how to invest with 1000 dollars! The one advantage I had going into this business was a father who was an amazing mentor. Growing up, he was the quintessential entrepreneur. He was a C.P.A. by day and ran several successful businesses on the side. I looked up to him with absolute awe, and still do.
At my lowest financial point, my father came to me and said,
“Eric, here is a check.”
I, being a recent Masters graduate, thought this was a gift, and was extremely excited. The words that came out of his mouth next were probably the scariest, but most important he ever said to me. He said,
“I am cancelling your account on my cell phone plan. Here is enough money to get your own plan started, and the rest is up to you.”
Excuse me? This is not a check to go to the beach for a week and relax before I start my job hunt? This is not enough to get me by the next few months until I find my “dream position at a career with a starting salary of at least 100 K?”
This check is basically a,
“I have raised you long enough, and now your on your own check?”
That was exactly what the check was, and I was forced to sink or swim. That is the key to my story. I had no back-up plan. I had to find something and make it work, or I was going to be exactly what I always feared, ordinary. Thinking back on those days, they were nothing short of terrifying, but they made me who I am today, and I would not change them for anything.
A few days after my dad gave me the check, he knew I was scared and doing everything I could to find a job and fast. He had been investing in Real Estate on the side for several years, and told me he thought I may be good at it. Seeing as how I had no job prospects, I decided to listen to some of his CD’s and read a couple of his books. The one thing I remember from everything I heard and read was how easy the instructors made Real Estate investing out to be. Work 10 hours a week and make six figures a year! This was the promise they made, and I jumped in head first.
After listening to the CD’s countless times and reading everything I could get my hands on, I decided it was time to give it a try. The first obstacle I faced was the fact I had no money to buy a house. Forget the part where I had no idea how to construct a deal, negotiate with a seller or figure out what in the world to do with a house if I did buy it. Those were all questions I was too naive to contemplate in the beginning, but what I did understand very well was a simple fact, I had no money to buy anything, let alone a house.
However; all of the “Gurus” promised I needed no money or credit to buy houses, alas began my start in Real Estate investing with Lease Options, Options and Wholesaling. When you hear you can buy houses with no money, it is true. I have done this several times and made a lot of money doing it. Let’s look at a few of the ways this works, with some of the positives and negatives to each. Did I mention the “Gurus” forgot to say there are actually negatives in Real Estate investing?
Before I get started, let me say I am only going to give an extremely basic explanation of these ideas. I could easily write a book on each one alone, but here are the bare bones to investing with no money or credit.
The first is acquiring a property using a “Lease with an Option to Buy.” This is where you lease a property from a seller for a set amount of money each month, with the exclusive right to purchase the property within a certain time frame. There is no closing at the onset of this transaction, simply a contract stating the agreement.
Now that you have a contract with your seller, you find a “tenant buyer” to move into the property. You sign a Lease with an Option to Buy with them, and hence, you have a sandwich Lease Option. Your tenant buyer will give you a Non-Refundable deposit for their exclusive right to Option the property at a set price for a set amount of time and pay you a monthly lease while they are living in the property.
As a side note, I never sign anything or conduct any Real Estate transactions without my attorney reviewing the documents. We’ll talk more about the importance of attorneys in another post.
As I stated, there is much more that goes into putting a Lease Option transaction together, but that is basically how it works. There are several positives and negatives to this type of transaction. Let’s take a minute to look at a few. First, let’s look at the positives. You have acquired a property with no money, and made money from your tenant buyer with their Non-Refundable deposit, as well as their monthly payment (You should always make money on the monthly spread between your buyer and seller.
I have a rule of at least $200 positive cash flow a month per property. I have some as high as $600, but as a rule, I like to have at least $200 per house each month). In theory, your tenant buyer will at some point go to a bank and cash you out, and you will make a big chunk of money when he/she does that.
Here is the reality, and something you will not hear at a majority of Real Estate Investing seminars, where the individual speaking is attempting to sell you his/her program. Ninety percent of the time, your tenant buyers are B & C credit buyers. They are attracted to your “Rent to Own” program, because no bank would EVER loan them money. In this economy and market, these buyers are everywhere.