The Real Estate Sage at The Real Estate Investment Institute - REII

I first published this in 2005, despite everything it's very relevant today. Don't let the changing nature of the current market distract you,! Be careful of hucksters with new words IE: short sales, REO's and real estate auctions confuse you. The only things that have changed are the prices (there better), the opportunities (there is more opportunity today than there has been in our life time), the increasing masses of uninformed and deliberate misinformation. It's a buyer's market and a great time to buy! Seller's it's a great time to be a buyer, sorry.

How Not To Lose A Million Dollars In Real Estate

I saw an article "How to lose a million dollars in real estate" what a great title! Then I saw the author Verna Jones-Cox (real estate short sale expert) no wonder it had a great title. I met Verna about two years ago and I would have expected no less. So with my apologizes to Verna, your title was
to eye catching not to play on.

My first book "One House At A Time / Finding and Buying Single Family Rentals" is directed at real estate beginners and burnt out students of TV real estate gurus, the very people that can't afford to lose money. These are also the very people that are most likely to lose money, especially when miss lead as so many are.

"One House At A Time" is subtitle "Finding And Buying Single Family Rentals" the key words are "Single Family" most people should stick to what they know! Single family homes whether rentals or flips are just like the houses most of us have lived in all of our lives. Maintenance, improvements and day to day upkeep are the same as you've been doing ever since your mother first noticed you were big enough to push a broom. Buying and selling them is just like your own home.

New real estate investors have enough to learn, single family rentals are simple to maintain (just like your home), but you have to deal with tenants, rental laws, and contracts. Flips require different decisions retail or wholesale, paint or paper, landscape or simply clean, etc . . . Sticking to what you're familiar with will ease the learning curve and most new investors will make money, if only because it hard to make a big mistake!

Rule # 1. To make money expand upon what you know!

On the other hand even if a person has lived in an apartment for 30 or 40 years, walked on land, shopped in stores and worked in an office every day of their life there is very little relevant experience to owning and managing them! I attended a meeting of would-be real estate investors, a group I knew well. Their Guru (with little experience but more money that his audience) spent more than two hours urging the audience to liquidate their single family homes to buy into commercial projects! It wasn't until the very end that we learned he was pimping a $5,000.00 week end book camp on commercial investing! Most of these peoplehad not yet mastered single family rentals! Some didn't yet have a home of their own. The only thing this program was offering was a chance to lose $5,000.00.

Rule # 2. Avoid pimps!

Most of you reading this don't yet have a million dollars! Your losses will accrue from inaction, delay, and procrastination. In today's real estate market most of you will not lose a million dollars. You will lose several million dollars!

Rule # 3. Buy houses! Now!

"NO!" That's the advice most often given if you foolishly ask anyone if you should do anything. There is never a risk telling you "NO." If you ask a friend should I and he says "yes" and you fail he lost a friend! If a friend says no and you succeeded anyway "you got lucky" everyone wins. If you lose, there's great bounding in commiseration, and great satisfaction in "I told you so!" You'll get the same "NO!" from your attorney or CPA, but they will send you a bill for bad advice. Strangers will say "NO!" because they don't want you to succeed. Family will say "NO!" because they don't want you to get hurt.

Rule # 4. Avoid third party advice.

Some people will advise you to "do it." They're the ones who get paid! We all know what you call someone who "does it" for money.

Getting paid is good, I'm a mortgage broker I get paid when you "do it" just like your real estate agent. I'm also a Guru. Be careful, good advice is worth paying for, but whores are whores!

Rule # 5. Avoid Whores!

Bill

William J Archambault Jr

©WJA/REII 2005/2008

 So you want to be a real estate developer!

Are you out of your mind?

Seriously why? Why do you want to develop real estate?

 There are lots of good reasons to get involved in real estate development, some even make sense.

There is no more important question, before you commit several months to several years of your time and large amounts of your or your clients money than: why?

What are your goals? Many look at Donald Trumph and realize they are as bright or brighter and want to make a billion or two, or maybe a trophy spouse or two. Real estate development is like baseball, just step up to the plate and swing at the opportunities! Unlike baseball your hits have to come at the beginning! Only the superstars, the Trumphs can afford mistakes!

Lets consider the most common reasons for getting involved in development, regardless of weather it's for yourself or a client:.

Vanity, ego, conceit, self gratification (Yes, self abuse, financial masturbation.) Or maybe you just want your name on a building, subdivision (You get to name the streets, too.), factory, a shopping center, or two. Actually, if you can afford it, vanity is not that bad a reason to get started in real estate development, a name everyone sees everyday is great advertising.

Vanity projects should not be confused with personal use projects.

Personal use projects are the reason most people get involved in development. A custom office building, shop, factory, retail store or even a home are the most common developments undertaken by beginners. These projects are not only the most common first projects they are the most common final project!

Need! Recognizing a need and filling it is the best and most profitable reason for developing real estate.

Many developers start with a piece of property they or their client already owns. Whether your trying to produce a cash flow or just make a property more saleable careful development can often turn a sows ear into a silk purse. This type of development can often be as simple as subdividing a lot. (Not that there is anything simple about subdividing!) This type of project leads to more mistakes than other projects because it reverses the order of development. Instead of recognizing a need and finding suitable real estate to fill the need. This type of projects starts with the real estate and looks for a need to fill, this leads to more compromising than would normally occur.

Taxes! Not the incentive it use to be, but still a major reason to develop real estate. When we had huge marginal tax brackets and accelerated deprecation new construction, especially new rental housing was almost mandatory for high income investors. Taxes are still a good reason to develop real estate, but today the projects cash flow must support it and make a profit to make sense. Today taxes, most often tax abatement can provided great incentives for owner occupied development.

"Build to suit." We've all seen the signs. "Will Build To Suit" most often on partially built shopping centers. Building to suit is a great way to get into real estate development, with little risk and someone else's credit. Lenders will often be more interested in your tenant's credit than your own, and will demand an assignment of rents as part of the security. How would you or your client like to own a Post Office, DMV Office, State and Federal governments agencies request bids for their real estate needs all the time. You may not be able to build on main street in your own town, but who cares? With a long term (Frequently 40 year) triple net lease, it can be anywhere! leases with little or no management provide all the benefits.

Speculation! Speculative development comes in two forms, for sale and for rent, and hundreds of sub-forms. Spec-homes for sale are the most common form of single family development. Apartment development is speculating for rent. The biggest difference between for sale and for rent development is the taxes on profits. Profits on the sale of new properties will normally be at ordinary income rates, it is after all inventory. New rentals on the other hand when put to use and held long enough normally will qualify for capital gains and/or 1031 tax deafened exchanges.

Shopping centers with a major anchor. combine the build to suit, for the anchor, with speculative rentals surrounding it.

Being practical! I got into development because there was no money available to satisfy my clients needs with existing projects. I never take no for an answer, I believe those that say it can't be done are right, they can't do it! I never let others, self imposed limitations restrict me! Development can be a practical way to solve your or your clients problems.

Why do you want to develop real estate?

What ever the reason you need to define it, establish your goal, and start learning, then get to work.

Bill

William J Archambault Jr

The Real Estate Investment Institute

©WJA & REII

NOTE: This is a series that I intend to publish. Unless your comments state other wise I will assume permission to included them with your name with the publication.

Real Estate Devolvement 102 will be about land control for development. 

One final thought, my real estate development projects have provided more personal satisfaction than any other real estate I've done.

Why?