I was having lunch last week with a friend he'd just told me about taking his seven-year-old son golfing the day before and with a proud grin he talked of the boy getting his first "birdie." Then we went back to discussing one of my books. It was after all a business lunch. When he stopped talking, looked me straight in the face and said "you know I lost $200,000.00!" O'my God!
If you've read my books or even my "bio" you know I'm a real estate "Guru" and major advocate of almost everyone buying real estate. This young man was new to real estate when we met just over four years ago, I had given him a prepublication copy of "One House At A Time / Finding And Buying Single Family Rentals" at that time, could I have been involved in his loss?
I choked down my mouth full of chimichanga and forced out a loud "WHAT?" He went on, remember that first CD you gave me ("One House...")? Again, I'm thinking O'my God! I lost my appetite and the blood drained from my face, before my friend noticed my distress. Then he asks "I've never told you that story?" "No" I said feebly.
He went on to explain that a decade earlier when he was courting long distance he realized he loved the girl and moved to Las Vegas to marry her. After the wedding he moved into "Her House," She had owned the house as a single woman and it felt like her home, not theirs (he'd sold his to move.) Planing a family they/he wanted a bigger home of "their" own. So they sold "Her House" for $160,000.00 and bought a new bigger home of "their" own for $300,000.00. On the advice of their real estate agent they added his saving to the sale proceeds and put 20% down on the new house. It seems all was well until he read my book.
In the book I had suggested ways to acquire rentals, including converting your current home when moving up to a larger home. It's easer and less expensive to finance your new Owner Occupied house than Non-owner Occupied houses even with little or no equity. I also suggested when you're moving-up, if your current home is not suitable for a rental, because of location, it can't support it self, or you're too attached to watch others living in it, that you can sell it using as little of the proceeds as possible to move-up and use the rest to invest in suitable rentals. None of which my young friend or his new bride knew at the time. We'll never know what their real estate agent knew. It's a reasonable assumption that he knew that with over $60,000.00 to spend on a $300,000.00 house there was an easy $18,000.00 in commissions on the table, and that offers with 20% down close faster and more often than offers with only 5% down.
Suddenly my lunch smelled great again!
My friend went on, when he got to the chapter "Knowledge Is Power" where I teach how to research properties and sellers, he had gone on line and found that the house had recently sold for $360,000.00. "I lost $200,000.00" he repeated!
As the color came back in my face and I returned to my lunch, my friend went on. He explained that the house would have rented for a lot more than the payment, so they could have kept it. He'd had more than enough to get into their current home, and maybe buy another small rental. If he'd only known.
He didn't ask and I didn't explain that he'd forgotten about the positive cash-flow and the tax benefits. He'd checked the sale price four years ago and most homes in our area have doubled in value since then! His real loss was in excess of $600,000.00!
I know a lot of my readers will look at these numbers and think they can't do it! That's just an excuse for mediocrity! Yes, these are extraordinary young people, and the huge numbers would not have occurred in most of the country. But, the program would have worked just as well in Paw Paw, Michigan. You might not have made/loss $600,000.00 in Paw Paw, but what if you'd made only $100,000.00 extra? No matter what you do or how much you make, think of how much better off you'd be with an extra $100,000.00 today, let alone $600,000.00.
Six months ago I wrote an article titled "How Not To Lose $1,000,000.00 In Real Estate" in which I wrote:
"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!"
Nothing has changed, except 2006 is half gone and 2016 will be here long before most people will take responsibility for their own future!
