My grandfather was born in Guayaquil Ecuador in 1906. He came to America in the 70’s and would tell me stories about his business in Ecuador exporting bananas to the United States. He loved America and all it stood for; he wouldn’t drive anything but American made cars. Chevy to be exact, lol. He stated that he got into the business when exports to America were just beginning to take off, and got into the business on the GROUND FLOOR. After getting into the banana exporting business the industry took off with the economic expansion of America after World War II. He was in the game a tad before the expansion — he was ready and poised to gather the harvest.

After the fall to the floor is always the rise to top. There’s always expansion after contraction. Makes sense right? Yes.

We all agree that we have seen the worst the real estate market has thrown at us. Home prices seem to be leveling off or rising in some local markets. Yes, I know, some are still dropping, but collectively speaking, real estate seems to be on the up.

This my friends, is the GROUND FLOOR to an exciting new real estate market. This is your chance that you have waited all your life for — the chance to purchase real estate on the ground floor. 2010 is the new GROUND FLOOR where millions will be made for those that enter into real estate investing and acquire real property.

Here is a list of all the richest people that got in on the GROUND FLOOR in their respective industries:

Bill Gates (PC Software)
Andrew Carnegie (Steel)
John D. Rockefeller (Oil)
William Henry Vanderbuilt (Railroad)
You (Real Estate)

Would you have liked to have been on the ground floor when these industries boomed? I am sure you would, as would have I. Good thing for us, we are on another Ground Floor and this time it is in Real Estate.

I want to see your name on that list of billionaires one of these days; under mine of course.

If you haven’t already done so I advise you to sign up for BiggerPockets.com. Use it wisely and ride it to the top.

Good luck in all you do America!

Photo: Wonderlane

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Invest on the Ground Floor

There are many savvy real estate investors out there that understand how commercial and residential income properties operate. They can spot value-add opportunities a mile away, and they have the team necessary to implement them. They are confident that at any given time, they can find a real estate investment worthy of pursuit. They faithfully perform due diligence, and they formulate investment analyses and plans that are more spot on than Nostradamus’s predictions ever were.

Fantastic!

The above-described investors will undoubtedly make money in real estate. The question remains: are they building their wealth as quickly as they can? After all, wouldn’t you rather make a million dollars in ten years instead of in twenty?

One of the best ways to optimize your money’s growth in real estate investing is to optimize your properties’ holding periods.

Let me explain.

What is the Optimum Holding Period for Real Estate?

I’ve encountered investors inquiring about the ideal holding period for their value-add investment. A typical inquiry goes something like this: “This investment I’m looking at has a two-year holding period and an average internal rate of return (IRR) of 30% over that time frame. If I hold it for one more year, however, I noticed that the average IRR drops to 25%. That is still a fantastic return. Should I hold the investment for an extra year, or should I get out after the two year holding period?”

To understand my answer is to understand the IRR metric and the time value of money. Let’s look at an example illustrating why it would be most advisable to hold onto the investment for only two years instead of three.

Two investors, Larry and Sean, would both like to invest $100,000 each over a six-year period with a primary goal of increasing their net worth. They are each considering investments with a 30% IRR over two years ad 25% over 3 years. Larry intuitively believes that the longer term 3-year year holding period is best and opts to invest in the 25% IRR twice over the six-year period. Sean, on the other hand, opts to invest in the 30% IRR investment three times in a row over the six-year period. Let’s compare their results:

Larry Longterm:
Initial Investment – $100,000
Investment Proceeds- $381,470
Net Gain – $281,470

Sean Shortterm:
Initial Investment – $100,000
Investment Proceeds- $482,681
Net Gain- $382,681

As you can deduce from above numbers, Sean Shortter gained $101,211 more than Larry Longterm. Sean’s net gain was 36% higher than Larry’s! How can that be? While some might expect that Sean would earn 20% more than Larry (since 30% IRR is 20 percent higher than 25% IRR), he did not. Larry Longterm overlooked the opportunity cost of reinvesting his money at a higher return and the value of compounding. Remember, the optimal holding period for an investment is the period that yields the highest average IRR.

Of course, all investors have different objectives and, thus, all employ different strategies. If your goal is to drastically increase your net worth, consider utilizing the above advice. Happy investing!

Photo Credit: ollesvensson

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Compounding Gains: Optimizing your Money’s Growth

At a small lunchtime gathering of real estate investors last week someone made an interesting comment. The conversation had turned to the topic of wholesaling and then rehabbing and flipping properties. The comment was very simple on the surface – if you didn’t actually hold on to properties were you an investor, or did you merely have a real estate business?

A Real Estate Business

If someone says they have a real estate business you think of mortgage brokers, real estate agents, title people and the like. Their business is obviously centered around real estate transactions in some way. A wholesaler who places properties under contract and then assigns the contract to the end buyer also has a business based on transactions. Someone who acquires properties to rehab and flip is also in a transactional business. The length of time involved is significantly longer but it still isn’t investing.

The point that was being made is that a real estate business, like any other business, has to be tended to constantly. As soon as the transaction, sale, loan, or project is completed you need to do it again. Much like a job, you are trading money for time and working for your money. If you don’t have another transaction lined up you are out of business.

The Business of Investing

Make no mistake, investing is a business as well. An investor’s business is looking for opportunities to put his or her money to work. As an investor instead of working for money, the money is working for you. An investor can have a team in place so that it can truly be a hands-off business.

Plenty of people get into real estate because they envision a lifestyle free from the chains of the working world. If you do not have a lot of cash it is almost impossible to start off as an investor. Instead you can start a real estate business that not only allows you to build the cash needed, it puts you close to the action where you can spot opportunities as they come along. Hopefully you’ll be in a position to take advantage of one of these opportunities at some point.

An Investor’s Life

 
Years ago I started a real estate business of rehabbing properties. Eventually I did a rehab deal that turned out so well that I became an investor. While still rehabbing properties, I know hold a number of rentals. I’ve also sold properties with seller financing and now hold mortgages, which is another form of passive investing.

Last year I went on a cruise for two and a half weeks. With a job or business that would have meant lost income. However, as an investor I still had rents being paid and interest on mortgages earned. That truly is having your money work for you. If you have a real estate business, isn’t it time you became an investor?

How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case. – Robert G. Allen

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Are You Really a Real Estate Investor?

Anyone ever heard of the Drake Equation?  If not, don’t feel bad.  It’s not a generally known term outside of the geeky space community (of which I am sadly a part).  In short, it’s a equation that was formulated by Dr. Frank Drake in 1960 to determine the practicality of SETI (the Search for Extraterrestrial Intelligence).  For you brainiac mathematicians out there (of which I am sadly NOT a part) here’s the equation…

N= R* x Fp x Ne x Fl x Fi x Fc x L

where:

N is the number of civilizations in our galaxy with which communication might be possible;

and R* is the average rate of star formation per year in our galaxy

fp is the fraction of those stars that have planets

ne is the average number of planets that can potentially support life per star that has planets

fℓ is the fraction of the above that actually go on to develop life at some point

fi is the fraction of the above that actually go on to develop intelligent life

fc is the fraction of civilizations that develop a technology that releases detectable signs of their existence into space

L is the length of time such civilizations release detectable signals into space.

This tells you (theoretically) how many technological races are in our galaxy with the ability to send and receive radio broadcasts.

Whew!  Enough of that!  Anyway, I got to thinking that the same type of equation could be applied to investing to help you determine if an area was viable for any number of factors….

The Real Estate Investor’s Drake Equation for Short Sales

Sure, you could use rental rates, cap rates, and Realtor opinions to make the same determination, but what if you got scientific about it?  Let’s make an equation to determine if setting up a short sale marketing campaign would be viable in an area…

N = H* x Po xPf x Pi x F

where N= number of viable investment properties in an area.

and H*= The number of homes in the area

Po= The fraction of those homes that are owner occupied

Pf= The fraction of those homes that are likely to be in pre-foreclosure

Pi= The fraction of those homes that would be willing to deal with someone and participate in a short sale

F= The percentage of those homes that are worth flipping or renting

This little equation could tell you how fruitful your efforts of creating a short sale marketing could be.  If Pi and F are very high but Pf is very low, then a campaign wouldn’t be viable.  You get the idea?  This could help you create viable marketing campaigns with high rates of success.

FYI, that first equation comes out with anywhere between 50 and 5,000 technological species in our galaxy alone.  If we have that many neighbors, think about property investing in a few thousand years.

Check out more information about the Drake Equation or get started in extraterrestrial property investing now!

Photo: NASA/courtesy of nasaimages.org

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

The Drake Equation Applied to Real Estate Investing

One of the biggest reasons small businesses fail is because the owners cannot separate themselves from the daily processes to focus on improving, growing and making their business a success.  They are stuck working 12 hours a day handling the daily processes and burn out.  Real estate is similar in many ways.  Here are 5 reasons most real estate investors fail. 

1. Lack of focus & business plan – Many investors try every strategy possible with 10% the focus they need to have success with one strategy.  Pick one strategy, document it in a business plan and master it before moving on to a 2^nd strategy.
2. Poor or lack of a mentor and support group – It is always good to get advice from a mentor and other experts.  They will point out unnecessary risks, provide solutions and even save deals or save you from a failure.
3. Wrong strategy – Many investors are followers and do what everyone else is doing or they choose a strategy that just does not work in their market.  Some of the most successful investors do exactly what everyone else is not doing.  Do your homework and choose the right strategy.
4. Lack of effort and time – This one is obvious. Many new real estate investors get excited and work hard for 2 days then do nothing for 2 months.  You have to write down goals and what it will take to achieve them, put together daily tasks and complete them on a consistent basis.
5. Lack of knowledge – I have seen my share of messy deals –  from do-it-yourselfers who do everything poorly, to inexperienced investors in way over their head.  You should master your strategy and have the knowledge, systems and team in place to be successful in real estate investing.  And always be thorough in your due diligence.

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

5 Reasons Why Real Estate Investors Fail

A couple of days ago, a fellow blog contributor named Shae Bynes posted a great blog post regarding a 7 day plan for aspiring real estate investors. You should definitely check it out when you get a chance.

With that said, I really liked one of the key aspects she mentioned in her post which talks about developing your WHY. This past week I received a call from an investor who said that he wanted to work with me. He said he was tired of struggling and wanted to do something about it. So I asked him a simple question…

Why do you want to invest in real estate?
His reply was that he eats, breathes, and sleeps real estate and he wants to make money.

So then I said, “Ok, that sounds nice . . . but WHY do you want to invest in Real Estate?

After pausing for a brief second he finally understood what and where I was going with this question and gave me a new answer . . . an answer that can put a stop to all his struggling . . .

The Answer to the “Big Why”

So once he understood what I was asking, he replied, “Ohhhh, you want the BIG WHY”

Well the reason I want to invest in real estate is because I want to:

• Achieve financial freedom
• Be my own boss
• Spend more time with my family and friends
• Make money to take care of medical needs

There we go, now we’re getting somewhere. The thing is that its nice to make money, but ultimately you aren’t after the paper . . . you’re more so after what the paper can help you achieve. That’s the way the system is set up.

Then I asked him another question…

What is holding you back from achieving your BIG WHY?

He told me that some time he struggles with procrastination and over analyzing. Now this was something I could relate to. When you first get started in real estate investing, it is a new world. There are so many ways to invest in real estate and it can be hard to focus. You could spend so much time over analyzing and trying to reassure yourself that what you know is correct, that you could end up wasting precious time that could have been spent on actual investing.

I personally wasted 2 years over-analyzing everything I learned and within that time-frame I didn’t make a dime! On top of that, every time I “thought” that I was ready to move forward and do a deal, I was hit with Procrastination. I got lazy and said that I’ll get to it tomorrow. Then tomorrow turned into next week, and next week turned into next month, and so on.  It’s can be tough if you allow procrastination to overcome you.

To be honest, its not a matter of laziness, its more a matter of fear. Well, at least for me it was. I was afraid of messing up and I used procrastinating and over analyzing as an excuse to say that “I’m not ready yet.”

Anyway, enough about me . . . In order to overcome these obstacles, you need to have a strong WHY. Your WHY is what you’re putting at stake by not moving forward and achieving your goals. If your why is weak, then make it stronger!

To your success,

J. Lamar Ferren

“New Breed” Real Estate Investor

ps. Leave a comment below and let me know WHY you invest in real estate!

Photo Credit: virtualphotographystudio

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

WHY do YOU Invest in Real Estate?

(This blog post is for the newbies, but for those who have crossed the line into actual real estate investor, I believe there’s something in here for us all!)

As someone who was an inexperienced real estate investor only two years ago, I can completely relate to the challenge of moving from an aspiring real estate investor to an actual real estate investor.  It’s a daunting process for many.

You may be feeling overwhelmed by any number of obstacles…

• No money and/or bad credit
• Information and sales pitch overload (typically leading to analysis paralysis)
• Fears of losing money, doing something wrong, ticking off a spouse, or accidentally doing something illegal

I’m currently reading a book by author and multi-millionaire entrepreneur Dan Kennedy, titled No B.S. Time Management for Entrepreneurs and there’s one specific thing he said that inspired this post:

“When you focus your self-discipline on a single purpose, like sunlight through a magnifying glass on a single object, look out! The whole world will scramble to get out of your way, hold the doors open for you, and salute as you walk by.”

A key to your success in moving from “aspiring to actual” real estate investor is within that quote – self-discipline on a single purpose. In other words, laser focus.

If you’re feeling stuck in a seemingly unending “aspiring” spiral, I want to urge you to take the next 7 days and immediately do the following things to help you practice self-discipline on the purpose of being a successful real estate investor:

• Today, Day 1: Determine your “why”. Why are you looking to do real estate? What’s the end goal? What is it that you’re seeking to achieve that makes you so excited and gives you the drive to keep at it and crush any obstacles you may face? You have to start with the end in mind. Don’t move forward unless you’ve done this.

• Day 2: You know that there are a ton of ways to get started in real estate…you’ve already spent days, weeks, or maybe years consuming information on these various ways. Pick one! The options are limitless…you can focus on absentee owners, short sales, free & clear properties, subject2 deals, lease options, wholesaling or doing rehab flips with distressed properties, probate and estate deals, I can go on and on (and on and on). All of these ways have worked successfully for hundreds, even thousands of investors so just pick one that feels right for you. [Word of caution: If you’re looking to start off with buying & holding for passive cashflow, please make sure you have reserves to deal with vacancies, termites, other maintenance issues that will come up.]

• Day 3: Evaluate the Real Estate Investing related e-mail lists that you’re on – pick your favorite 1 (no more than 2) that is directly focused on your area of real estate investing interest and unsubscribe from all the rest. You simply cannot afford to be listening to every new webinar, compelling story, and sales pitch.  Almost all of it sounds good…in fact, quite a bit of it is good and working well for people!  But you can’t do it all. Not right now. Laser focus…remember?Once you’ve moved to actual investor, feel free to add some of these back on if you’re looking to branch out into other areas to diversify your investing experience and increase your profits…the lists will still be there (and if not, thank goodness you unsubscribed!).

• Days 4-6: You’ve picked a real estate investing focus. Now put a plan in place. What are you going to do in the next 30-60-90 days to make progress?  What will you accomplish in that time and what resources do you need to get it done?

People may disagree with me, but I strongly believe that you should have at least a little operating capital if you’re going to do real estate investing. Depending on your strategy, it can take anything from a small investment to a pretty significant one. Even if you’re low on cash and need to focus on a very low budget strategy, that’s fine. Just know that even the littlest things cost money – paper, stamps, gas to drive around looking at houses, signs, a domain name for a website, etc.  This stuff is not free. Don’t let that be a discouragement.  You have a plan…so figure out what you need financially to support that plan and hustle and make the necessary sacrifices to ensure you have what you need.

• Day 7: Commit to do something every single day for at least 30 minutes that will help you move forward on your real estate investing goals.  If you’re taking massive action and have some rather aggressive goals, you’ll need to spend more than 30 minutes daily on this, but hey, you have to start somewhere. Just be careful to spend more of that focused time doing, rather than talking about it (or socializing with others who may or may not be doing).

Bottom line, this is an excellent time to be involved with real estate investing, so I urge you to get off the sidelines and play – just stay focused, be willing to keep learning, don’t let obstacles trip you up, and keep taking massive action!

Here’s to your success!

Image: Photographer: Gregory Szarkiewicz via FreeDigitalPhotos.net

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

A 7-Day Plan for Aspiring Real Estate Investors