When people first decide to buy an apartment building it is common for them to make a few easily preventable mistakes. The most common error that I see new investors make is not having what I like to refer to as the “investor tool chest”.

For example, if you wanted to build a house you would need a few things to get started. You would need first to have a blue print for the home drawn up by an architect. Second, you would need to have the proper tools to actually complete the building, You would need the nails, hammers, saws and drills to work on the raw materials. Thankfully, investing in apartment buildings doesn’t require any physical tools or skills. However, investing in apartment building does require the same kind of mental planning and in this case your “tool chest” is actually a “tool chest” of knowledge.

To Be a Successful Apartment Investor, You Must Have a Plan!

The best way to acquire these essential educational tools is to read many books and magazines on the subject. The first and most important tool that an investor can have is the ability to determine the investment value of apartment building. There is no way that an investor can be sure that he or she will be buying a cash cow or a money pit without the necessary ability to analyze the value of a building. There is an endless array of information available about debt coverage ratios, cap rates and real estate evaluation. In my opinion the first time commercial real estate investor should operate with one simple mental “tool” or presumption and that is to determine what the building is worth to him or her and to ignore almost everything else. What this means is that investor should virtually ignore what prices other similar properties have recently sold for in the area. Instead, the investor should figure out the price that will allow him or her to buy the property and make the profit and cash flow that will make it a good investment.

In order the figure out what price you should pay for an apartment building, assuming for example that you want to realize a certain return, or Cap Rate on your investment annually, simply use the following formula:

Net Operating Income
__________________ = Price You Can Pay to Realize a Desired Cap Rate
Capitalization Rate

Photo Credit: jthetzel

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Tags: apartment building course, apartment building education, apartment building investment, apartment building news, buy apartment building, buy apartments

Its been a while since we did one of our Meet the Investor interviews . . . I hope we’ll get to post these more regularly! With that in mind, we’ve got a great interview for you with real estate investor Rich Weese!

Meet Real Estate Investor Rich Weese

How long have you been investing in real estate?

I’m sure there aren’t too many members of BP older than me! I have been involved in a lot and seen all facets of real estate; recessions, inflationary spirals, and the ups and down of real estate in many different areas of the country.

I started in real estate by accident in 1972. I was in my 3rd year of college and was urged to drop out and try selling real estate for a friend. He was a Broker and was consistently trying to sell my wife and I something. We had no money and I was working for Alpha Beta Markets in their kitchen cleaning ovens and cheese conveyor belts from 3 until midnight, and attending school during the day.

Tell us about your first deal

My friend was very persistent and kept finding properties to show my wife and I. My friend tried to sell us a house, but we were living in an apt for $110 per month. Any house was out of our range. Eventually, he found a duplex that was $24,900 and each side had 2 bedrooms and 1 bath. He told us of an FHA program called 221-D-2 that only required approx 3% total in down and closing costs. Our payment was going to be $215 per month and he said the front unit was rented for $140. We could live in the other unit, with a garage and only pay the difference of $75 per month. This sounded really good, except we didn’t have the 3%. The Broker made me a deal. If I’d agree to go to work for him for 1 year, he’d give me the selling commission of about $750. That would pretty much pay for our down payment, so I agreed and enrolled in Lumbleau real estate school in Santa Ana, CA. I had my salesman’s’ license in 28 days from start to finish. We bought and moved into the duplex, our first deal at 330-334 Walnut, in La Habra, CA.

How did you get started investing?

Not only did I get into real estate by accident, but I became an investor by accident on my first deal, this duplex. I started selling houses, and hated it. Working mostly with the wife of the couple, showing her homes, I quickly realized this wasn’t what I wanted.

About this same time, my wife and I had cleaned up the yard at our duplex, removed some ivy and installed a wood fence along the front side. One day a fellow stopped by and asked if I’d sell it!! I think we’d owned it 3 months. I said I didn’t think so and explained I’d just bought it. He asked how much did I pay? I told him the price and he asked if I’d sell for a 5K profit at $29,900? The 5K was a HUGE amount for someone earning $1.35 an hour. I told him yes, not realizing I was about to really get an education. He was truly an investor. He offered the following;

1. A house with about $1000 of equity that HE had bought on same 221-D2 loan program.
2. A note for $1000 with interest payments of $83.33 mo and balloon in 2 years.
3. An older upside down bathtub style Porsche automobile (60ish?).
4. $1500 cash.

I’d have wheels, cash in my pocket, an actual house, and $83 per month to help with house payment subsidy!! We did the deal and became accidentally involved in R.E exchanging and had learned from a real investor. This became my first investment as well as my first deal, first exchange and first sale.

What attracted you to becoming a real estate investor?

I found the offer made by this individual on the duplex exciting and something I wanted to pursue and I got involved looking for other properties.

This fellow became my first guru. I had really found my niche! I loved the trading or doing deals. It was a lot more fun than just showing homes. I started buying other investments. My wife and I made a deal. We’d live on HER income, about $500 per month and invest everything I made back into real estate. I tried to convince others to do the same, but they saw me as a young kid with no experience. I went out and did it for myself. My broker started asking ME the questions and yet was taking portions of my commission!! I decided to get my Brokers license and open an office. I met someone at Real Estate school that I convinced to work for me and also hired a brother in law. The 3 of us opened an office in a dumpy area of Placentia, Ca. and called it “Mike Weese Investments”. It was a perfect time in a perfect area!! We started making lots of money, mostly on deals we found, bought ourselves and earned commissions. I bought a brand new red Cadillac and people started to notice I was progressing. I’d lived in the same area of Ca my whole life, came from lower class income and people saw the difference. This was 1974.

What would your dream deal be? Have you had a “dream deal” yet?

In 1974 I went hunting for the new office location. I was thinking very big at the time. This was my first truly scary investment. I found a brand new vacant 30,000 sq foot office complex and decided I’d try to buy it. It was $1,475,000 and seller was the developer and he wanted 10% down. He had a convertible loan with Metropolitan Life Ins. It would convert from construction to permanent when 80% full. He had it listed for a 3% commission and agreed to pay me $40K. Now I only needed approximately $100K. I had purchased 17 older units in Whittier, CA and asked him if I could create a note for $60K. He said okay but wanted it as a 2nd for $40K and a 3rd for $20K. It gave him flexibility if he needed to sell one or borrow against one. Now, I was down to $47,500 needed. I convinced my parents and my wife’s parents to each put in $20K. I still needed $7500. The first person I had hired to join me in my real estate, my friend agreed to do it. I presented the offer and it was accepted. Our payment was $14,909 PER MONTH. I’d negotiated a deal where the builder would manage the building, lease it out and pay me an 8% cash on cash return for one year. At the end of one year, it was my problem if it wasn’t rented.

We named the building “Weese Financial Plaza” and put our new office in. Now I really looked successful and people started to come to me, both salesmen and investors. These were people I’d talked to before, that now WERE interested in what I had to say. I started holding seminars in our building and it just took off. People were writing checks and my salespeople started bird dogging properties in many western states. I began doing real estate syndication (fancy name for limited partnerships). We were doing a lot in CO, so I obtained a broker’s license and opened an office there and hired a bunch of bird dogs. We bought 156 units in Denver as well as some smaller ones, as well as 202 and 161 in Colorado Springs. We also bought many in AZ, TX, CA and OK. Within a short period of time, I was tired but well off financially.

Oh, btw, in less than a year, the “Weese Finanacial Plaza” building was 95% full, and throwing off a nice cash flow. I gave my dad the job of onsite mgr, and he loved it. A large escrow company, Preferred Escrow, moved into my building and asked if I’d sell a share of it. Eleven months after purchasing, I sold it for $2.2 Mil!! I took a large note, which I split with partners, kept 30% of the building ownership and earned a $70K commission. This was my first “Dream Deal”.

What was your toughest deal?

My toughest deal was done in 1975, and I’d never be able to duplicate it again. It was a 26 legged exchange including properties from 4 different states and many owners and partnerships. It took me over 3 months, night and day to get it completed, but was a tremendous achievement. Once again, there was a car involved! One of the investors lacked enough cash to fund his total acquisition part. He owned a 1965 Jaguar XKE convertible and offered it to offset his cash shortage. I took the car as part of my commission. The car, promissory notes and cash received for commission totaled in the very high 6 figures.

I was nominated for Real Estate Exchangor of the year for State of CA for it, but didn’t win.

How many deals have you done in your career?

Personally, my wife and I have personally owned over 1000 single family residences. I have been owner or partner in thousands of apartments and several office buildings. I wouldn’t know the total number of deals I’ve been involved in. At the height of my career I had 206 investors before retiring and some were in as many as 6 partnerships. I almost bought the Von Richthofen Castle in Denver to live in and hold seminars 30 years ago, but my offer came in 2nd. It was really something.

Do you have your real estate license?

I was a licensed Broker in both California and Colorado in the early 70’s for 7 years. I decided I was happier without overseeing sales people and let my licenses lapse. There are definite benefits to being licensed from a commission standpoint. There are also other benefits from NOT being licensed, in my opinion.

What is your focus (area of expertise)?

I don’t think I have any one area of expertise. I’ve pretty much done it all. Brokerage, no money starting out, property management, foreclosures, handyman company, built 44 custom homes in St. George, UT, picked 3 booming areas at correct time(so. CA, UT, Casa Grande AZ) and feel I’m in my 4th and 5th currently, south TX and MS. I was an original guru before TV, and have spoken for seminar companies as well as Chamber of Commerces, Rotary Clubs etc. in CA, Mirage Hotel and Lake Las Vegas, NV, Salt Lake City, UT, Phoenix & Tucson, AZ and Rio Grande Valley, TX. I also self published a book of my early real estate experiences called “From Janitor to MultiMillionaire”. I’ve never offered it for sale, but have freely given it to those that asked. I’ve continued to buy and develop real estate for nearly 40 years and have a longer perspective than many short term investors or newbies.

What do you look for in an investment?

I look for good investments that will benefit over the long run. I’m mostly buy and hold for long term. I do buy foreclosures and keep some and sell some to turn over the money. I’m not one that is adamant on cash flow. I think that is an area that has negatives to many true investors. No tax benefits per se, usually older dumpy properties with little hope for appreciation and don’t afford much depreciation. I suggest most new investors try to buy break even properties, and just like Monopoly, buy as many as you can. Keep them, refinance and buy more. Keep your main job for the income end and build foundation of properties first. Cash flow will come as rents increase, but don’t sacrifice growth option at desire of cash flow to begin.

There are too many gurus out there preaching cash flow and “replace your job with real estate income”. I’m the opposite of those. Cash flow just happens, in time, but not worth sacrificing acquisition of additional properties by having to put more down to obtain cash flow.

There are 4 main benefits to owning real estate:
1. Appreciation
2. Depreciation leading to tax benefits
3. Principal pay down
4. Cash flow

Charts will continually show that #1 and #2 are the keys to creating “TRUE WEALTH” in real estate, and far out distance the last 2 in the short or long term.

What are some of the biggest mistakes you’ve made or seen made?

For me, my biggest mistake was retiring at age 29. I had made millions and became lazy on continuing to invest and feed the mechanism of real estate. I should have been more aggressive in exchanging and acquiring more real estate instead of living on the past. From age 29 to 58, I was basically retired and raised my 6 kids.

At age 58, I corrected the error and started investing again. In the last 15 months, I have purchased 59 homes, sold 13 of them and continue to purchase more each month.

What advice would you give to a beginning investor?

My advice to a beginning investor would vary, depending on age of investor, income, risk tolerance, goals from investing (cash flow, tax benefits, retirement, etc), wife’s’ attitude, would all enter into my advice. I’m conservative by nature, although I took many “risks” when younger. I’d urge caution to new investors and I would question all figures furnished to investor by a seller! Determine their motives, if any for their advice to you. Study those that have been really successful. Don’t become a seminar junkie! And most important, always have an exit strategy for your investments and plan for a rainy day. It will rain!!

What advice would you give investors, given the current economic situation and lending environment?

• First: Double check and triple check all the income and expenses on a subject property given to you for consideration. Most are overstated and inaccurate.
• Second: Don’t wear binders or have tunnel vision. There are many options available in the real estate game.
• Third: Remember there is more money made in down markets in both real estate and stock market. While most are pulling their head back in their shell, the smart ones are out and looking around!
• Fourth: No one will ever take as good care of your money as you will.

There will always be challenges and changes to the real estate and financing market. Be flexible and ready to change when necessary. Creative financing will set apart the successful from the non-successful. Learn new strategies and put them into action. Don’t assume “It Can’t Be Done”! Quite the opposite. Assume “It Can Be Done” and then find the way to do it.

Is there anything else you’d like to share with the rest of us?

I’d hope to be able to share the passion I have for real estate and convince others of the amazing things it will do for you. Nowhere else can you find an opportunity where someone (bank) will loan you money to buy something and someone else (tenant) will make the payments for you. Eventually, you’ll own something free and clear and it will be worth X amount of dollars. I don’t know what X will be, but it will be more than what you paid and a 1000% return on actual money invested due to the power of leverage.

BiggerPockets conducts our Meet the Investor Interviews by email. We cannot verify information contained within and print these interviews to stimulate thought and healthy discussion.

Tags: flipping, landlord, meet the investor, real estate investor, rich weese

One of the great aspects of being an apartment building owner is the ability the owner has to increase value in a variety of different ways. All of these methods for increasing value will not apply to every apartment building, however, I would venture to propose that there is not one apartment building in any state in this country that could not use at least one of these methods to create more value very easily. If you compare this ability to other investments like stocks or bonds you can truly begin to realize why so many fortunes have been built by investing in multi-family properties.

Forced Appreciation — Forced appreciation is any repair made on commercial real estate that “forces” the value of the property to appreciate.

Cosmetic Repairs:

Making cosmetic repairs makes the property more appealing to potential tenants while also keeping current tenants happier. Repairs that can have a dramatic impact on appearance include painting exterior walls, painting interior walls, repairing the landscape around buildings and replacing aged, dirty and worn out appliances.

Raising Rent:

This may seem like an obvious way to increase the value of an apartment building but it is truly surprising how many rental buildings are charging rent that is 10% to 20% below market rates. Many smaller apartment building owners manage the property themselves and thus find it easier to keep rents below market to retain tenants. This theory is flawed in practice because it doesn’t take into consideration that, nowadays especially, many people will move from an apartment for reasons having nothing to do with the rent. For example, many people relocate for better job opportunities in another city.

Replacing Utility Equipment:

If an apartment building owner is paying the electric bill for common area lighting he or she can save a lot of money every month by simply replacing all of the lighting fixtures with energy efficient bulbs.

Tags: apartment building investment, apartment building value, buy apartment building

We’ve got a wonderful interview for everyone today! Christian Malesic is a relatively new member to BiggerPockets, but in that short time, has given quite a bit of himself to help others out! His knowledge, enthusiasm, and energy is captivating, and I thought we ought to find out more about the man. Christian focuses primarily on a buy and hold investing strategy in the Central Pennsylvania area.

Meet Real Estate Investor Christian Malesic

How long have you been investing in real estate?
Round 1 went from 1994 to 2002. Round 2 started in 2006 and is gaining momentum everyday.

While studying Electrical Engineering at Lehigh University in Bethlehem, PA, I was an Air Force cadet with dreams of becoming a career officer and a leader among men. I excelled as a cadet and was a better than average engineering student, especially in digital systems and computer hardware & software, which made me a highly desirable Air Force asset. Partly due to this, but mainly due to our like-minded approach to life and leadership, the Commandant of Cadets took me under his wing. I learned much under his tutelage; the most appropriate to this discussion being (I paraphrase here):

Purchase a home at every duty station. Live in it. Rent it out when Uncle moves you along. Your tenants will pay off the mortgage.

I fully planned on implementing this wealth strategy at my first assignment to Minot AFB, ND in 1992. There was little to nothing for sale, no new construction, and rent was extremely low. I rented a nice 1 bedroom house with a decent yard and a two car garage for around $350 per month. I studied up and began planning for the next assignment.

I purchase my first single family dwelling in 1994, a three bedroom with two bath house on a _ acre in a suburban neighborhood in Palm Bay, FL.

I kept this property for almost 10 years as my life changed. I decided that almost 6 years in the service of my country was more than my ‘duty’ and promoted myself to ‘civilian’ to start my own construction company back home in Harrisburg, PA.

What attracted you to becoming a real estate investor?
My father – plain and simple - was my inspiration and both parents are still my biggest fans. Dad spent countless hours attending REI seminars, reading, and mostly talking about investing. He had grand plans that he would lay out for me in the wee hours of the night when the rest of the world was asleep. He never pulled the trigger. Still, he is a great success; especially if your measuring stick is the education he gave to his sons.

Are you a full time or part time investor?
By the book I am a part time investor. As of this writing we hold 28 rental units in 14 properties.

How did you get started investing?
Round 2 (see previous for Round 1). My brother and I own our electrical contracting firm together and work very closely everyday. We had researched and debated for years that a REI company would be the perfect compliment to our electrical business.

What’s more, since we are our own bosses, we could do whatever management the REI company needed whenever we felt moved. Thus, the REI company would not necessarily be serviced only in the evenings or on weekends, but rather whenever we could work it into the daily grind. Now that it is a reality, I do it just as planned. Even though the two companies are separate and distinct, my work flow during the day passes through both, in and out, almost without differentiation.

Tell Us About Your First Deal . . .
Round 2. We had spent years preparing… actually our whole lives at the foot of dear old dad. I had learned some previous lessons. We decided to get serious. We lined up financing, planned our strategy for rehab or remodel, started accounts with construction supply vendors, and started looking. Then it happened…

Benjamin Franklin: “the harder I work, the luckier I get.”

We bought a city property. The deal: half of a brick, three story duplex for $25,000. An old man had lived there for years and his Power of Attorney was now moving him to assisted living. It was not abused, but had not been maintained for decades either. It needed work. The owner (POA) allowed us to start removing the man’s discarded things before the settlement. We knew this was risky as the deal could fall through and we would ‘lose’ all of the labor we did. But it panned out.

A neighbor from two doors down approached us three days before our settlement (we did not own the property yet) asking if we owned the property. Hesitantly, we answered that we were buy and hold investors and planned on fixing it up and renting it out. He wanted to know if we would consider selling as-is, stop work ASAP, and let his friend see the place in about and hour. He mentioned a price of around $50k (remember we had paid, or were about to pay in three days $25k plus closing costs). Long story short, we literally went from the closing table to his house three days later to sign a contract (of course, we could not sign a contract before we even owned the property). We cleared $18,500 on that first deal and did only a few hours of clean-out labor.

We got lucky… or worked hard (depending on if you were observing from the outside or were us working the long hours away from our families in the evening and weekends for weeks on end to get ourselves prepared for this new venture.)

What is your focus?
Buy and Hold residential. We rent clean, updated, nice apartments to upper lower class or lower middle class people. We often hear perspective tenants say that ours are the nicest apartments they have seen in all the time they have been looking. We like that. We are building a reputation and have begun to brand ourselves.

Do you prefer the residential side or commercial side of investing? Why?
Residential. Our experience with commercial is limited. We purchased an office building for our electrical firm with HUGE growth potential on one acre along a busy street in a great growth area. Other than that we have done nothing other than walk from less-than-desirable commercial opportunities, though we continue to review them.

What do you look for in an investment?
As Buy and Hold investors, we think long term. Cash Flow is King, but… We are sometimes willing to sacrifice cash flow for an “add to inventory property” (one that cash flows neutral or small positive) if it is in the right shape in the right geographical area.

How many deals have you done in your career?
As of 21 Mar 08 - Completed deals in the business name only: 17 buys and 3 sells. Adding my Round 1 property and our personal homes, it jumps slightly to 21 buys and 5 sells. I am still a newbie, which is why I am profoundly honored to be chosen for this Meet the Investor interview.

Do you have your real estate license?
I do not. My wife does. She became an agent at the beginning of 2007 and serves mostly one client – me. This was / is our strategy. I have written on this in a BiggerPockets thread entitled, “Don’t Rely on Agents, Become One” in the General Real Estate Investing forum on 12 Mar 08. Check it out.

What advice would you give to a beginning investor?
JUST DO IT! It literally took decades for the Malesic clan to get off our collective butts and get out there. Don’t do as we did, do as I say. I learned more in the first year of actually being a REI than I learned from all the books, tapes, forums, meetings, and talks with dad. Start small. Do not buy 12 or 7 or even 2. Get one and work it through. Learn. Make your mistakes. Come here for advice. Recover. Then, my friend, then you are ready to own the world.

What was your toughest deal?
In glass-is-half-empty-thinking: every deal is tough. I know that sounds like an end-around, but I do not mean it as such. Every deal is about controlling all of the time-tables. Every deal is about reminding everyone to DO THEIR JOB. Every deal is about padding suspense dates so when they are missed it does not mess up the deal. We have gotten good at it.

There is something that I keep in mind every deal at the eleventh hour when we are making it all happen. As soon as the deal is done, the deal is done. “We may never see these folks again once we close,” I say to our team. I try not to ever let it get to me. I keep a smile with my chin held high, stay professional, roll up my sleeves, and get to work. So, I guess you could think glass-is-half-full in that every done deal is a good deal.

What would your dream deal be?
A deal that goes smooth. I sign the contract at the beginning and the paperwork at the end (closing). Everyone else does their job and gets paid. Done Deal. Win for us. Win for the Buyer / Seller. Win for all of the folks helping us to do the transaction. Win - Win - Win. That is business, American style (all winners, no losers).

Do you have any thoughts about the current state of the real estate marketplace or economy?
It sure seems as though the perfect buying storm is headed our way. Sellers and flippers beware! I am taking advantage of the current economic climate to hunker down, ensure the fundamentals of my business are sound, and prepare to buy the heck out of my target market in the very near future.

Is there anything else you’d like to share with the rest of us?
It is difficult to go it alone and expect that you have the talent, personality, education, and perseverance to do EVERY PART of this business. It may not be possible for some, but where it is – get a partner.

My brother is our Construction Manger. He estimates and manages rehabs, repairs, and remodeling. He does the small maintenance himself and manages the contractors for the larger jobs.

My sister-in-law is our Property Manager. She handles tenant relations; that is: showings, lease paperwork, complaints, evictions, etc.

My wife is our Bookkeeper and Office Manager. She does the filing, research, and general paperwork as well as enters in the bills, receipts, and rents. She works with deposits, withdraws, and general banking.

I am the President / CEO. I do everything else. I buy and sell, which includes all negotiations, paperwork, and closings. I work with the accountant, insurance broker, and lawyer. I network.

We are all different and so should be our jobs. Keep this in mind as you are formulating your company or growing it.

Finally, in a bit of self promotion, I wanted to ask what do you think about BiggerPockets.com?
Even though I am a relatively new investor, I do consider myself ‘advanced’. I have: a college education, tons of experience with construction, lots of management background, am a fast study, and just can’t get enough (sorry to brag).

It was not until I found BiggerPockets that I found myself among others like myself. It is an environment that is honing my skills everyday. I am glad to play a small part.

Tags: buy and hold, landlord, real estate, real estate guru, real estate investing, real estate investor, real-estate-deals

It has been a while since we’ve shared one of our investor profiles with everyone . . . I’m excited to say that this one is worth the wait!

Connie Brzowski, soon to be a contributor here on the BiggerPockets blog, has shared some incredible insight with all of us in her interview. A relatively new investor / landlord / rehabber out of East Texas - Connie has proven that anyone can become successful in real estate investing if they put their mind and energy into it. She has developed her own plan and systems through trial and error, which will help her continue to make money where others may fail.

Everyone . . . get some great tips and . . . .

Meet Real Estate Investor Connie Brzowski

How long have you been investing in real estate?
Almost 4 years. We organized and started our company about a year before that, but we closed on our first property in November of 2004.

What attracted you to becoming a real estate investor?
My dad loved old houses and from the time I was just a little sprout, he took me along to look at prospects. That sort of thing sticks with you. Dad worked construction to pay the bills, but he remodeled houses for extra cash. Now I think they call it “leapfrogging” — buy a house cheap, remodel, sell for profit and move on to the next dump. We moved every 2-3 years and dad spent every spare minute looking for the next place. I never could swing a hammer, but I got pretty good at spotting what needed fixing

My husband works full-time in the petro-chemical industry and we began to realize there was no such thing as job security. He works a rotating shift with a 7-day long change each month which gives him blocks of time to devote to projects. We had 20+ years of repair, remodeling and rehab experience both working with my dad and his various projects and our own homes. For about 10 years, my husband made extra working part time doing home repairs and remodeling. When we decided to start investing, real estate with an emphasis on rehabbing was a natural choice. And it fits perfectly with both our short and long term financial goals.

I take care of the business end—looking for houses, running the numbers, making offers, handling tenants and keeping the books. He deals with contractors, does some of the rehab work and scares the tenants silly when necessary. Actually, he’s a fantastic landlord—a natural. He’s particularly good at the initial lease read-through—you ought to hear him go over the late-fee clause!

Are you a full time or part time investor?
Part time although I’m pretty sure that’s a trick question . . .

How did you get started investing?
We spent 3 years getting out of debt and learning about real estate. I visited forums, asked questions, read articles and spent way more than I’d like to admit on books. During that time, I also became an expert in our local market and established relationships with a real estate agent, mortgage broker, lawyer, accountant and the folks at our local bank.

I learned to work a financial calculator and compulsively ran the numbers on every house that came on the market until I knew the price we’d need to pay to make a profit. For fun, I’d write up imaginary offers with all types of creative financing. Every week, I’d make a list of homes for rent from the paper and drive by to get a feel for the market rate for each neighborhood.

One day, a house finally came on the market in a good neighborhood that made sense. Because of all the homework, there was no hesitation—we wrote the offer without looking back.

Tell Us About Your First Deal . . .
Our first rehab was a 3/2/2 brick, 1500+ sq. ft. single family home in an excellent school district listed for $100K. The place was a dump—complete tear out, all the way to the sheetrock. We offered $83K and the owner accepted without countering. (We learned at closing that two offers came in the same day and ours was $500 higher.) The plan was to rehab the house ourselves to save money, then rent for $1100/month.

We bought with 80/20 financing and paid for repairs using credit cards—Lowes and Home Depot both were offering 12 months, no interest, no payments. We intended to have the house reappraised and refinance to pay off the cards. It didn’t quite work out that way.

Our primary residence was destroyed in a storm the day after the house was finished. Friends showed up with a horse trailer and moved us into this little jewel on Memorial Day weekend of 2005. We lived there 18 months and refinanced with owner occupant financing which lowered the monthly note by $100+. Now, the house rents for $1150/month and has positive cashflow of $400/month. Recently, it appraised for $130K and we opened a $30K HELOC that we use to make cash offers on smaller houses.

What are some of the biggest mistakes you’ve made or seen others make?
We’ve been very fortunate, but we’ve also been cautious and moved slow. Our biggest misconception was thinking we could save money by doing all the work ourselves… forgot about those nasty holding costs—mortgage payments, higher insurance rates for empty houses, payments on the credit cards and months of lost rent. The day we realized we could’ve hired out the work and turned the place around in a fraction of the time (and saved a bundle in the process) was a big day. It changed everything.

We see new investors who’ve learned about real estate in general but haven’t taken enough time to thoroughly understand their local market. Also, we get out-of-state investors who’re seduced by our prices without taking into account the higher operating expenses. We live in an area with sky-high property taxes and hurricane-influenced insurance rates. If you don’t account for that, you can get upside down fast.

What is your investing focus (area of expertise)?
The only thing I’m an expert in is our local market. Otherwise, I’m just trying to learn like everyone else. We shop for single family homes, fix them up and rent them out. Our goal is to have 20 SFH’s with half the mortgages paid off by the time the mister retires.

What do you look for in an investment?
We look for dumpy houses with good bones in stable neighborhoods. Big fixes don’t bother us as long as the numbers make sense—we’ve got a great contractor. To reach our current goal, we want $250 or more positive cashflow from each unit with as little of our own money in the deal as possible.

How many deals have you done so far?
Three. We spent almost a year looking for each one. In the future, I’d really like to speed things up! At present, we have four rental units—3 houses and a garage apartment.

Do you have your real estate license?
No—

What advice would you give to a beginning investor?
Be honest, keep your word and guard your good name even if it costs you. In the end, it’s worth more than the few extra bucks in the bank you might gain short-term.

Be willing to work for nothing to learn the business. Help others and others will return the favor. Be generous, be kind, control your temper, act like a professional. Don’t pretend to be someone you’re not, but don’t sell yourself short either.

Sometimes people forget how important integrity is—but those you do business with need to know you’re trustworthy. Once trust is established, opportunities march right up the front walk and dance the maranga… you don’t have to go begging.

On another note, have your systems in place ahead of time. Set up your office, your books, put your lease together, line up financing. Develop relationships with professionals you trust. Take them to lunch, give them your card, ask about their kids, don’t waste their time.

What was your toughest deal?
We bought the second house before rehab on the first was complete. At the last minute, the financing fell apart because someone from another state decided the house was in a commercial zone. We switched to a local mortgage broker and the deal went smoothly from there.

What would your dream deal be?
A package deal of 10-20 homes from a retiring investor who’s begging to owner finance.

Is there anything else you’d like to share with the rest of us?
Some people talk about real estate investment like its divination—read a few books, say the magic words (I’m a winner! I can do this!) and leap into the Great Unknown.

Real estate is a business. Nobody in their right mind would open a pizza parlor or dry cleaners with as little market research and preparation as some give real estate.

Having said that, I firmly believe almost anyone can build wealth and financial security if they’re willing to do their homework.

Note: Connie can be reached through her blog found at: http://www.conniebrz.com

Tags: Connie Brzowski, landlord, rea, real estate investing, real estate investor, rehab, texas real estate

Some people are all about business, and others are all about people and business. Jim is one of the latter.

Not only has he been an active investor in his own right, but he has also established himself as a mentor and a leader. He has created 2 different real estate networking groups and continues to help others invest and learn. Additionally, he’s the kind of guy who likes to get his hands dirty. If you don’t want to do that in this business, then you’re really missing out on some of the most fun aspects of it all.

Meet Real Estate Investor Jim Watkins

How long have you been investing in real estate?
About eight years. I started in 1999.

What attracted you to becoming a real estate investor?
My cousin showed me a foreclosure list and I got all excited seeing how much equity some of the properties had.

Are you a full time or part time investor?
Yes…And then some. In the past year I have rehabbed two houses myself, teach real estate investment classes and have a mentoring program.

How did you get started investing?
I didn’t know a single thing about real estate back then, armed with a foreclosure list, I went knocking on doors of houses in pre-foreclosure. Looking back on it, I think it helped not knowing anything because I didn’t know that it wasn’t easy and I hadn’t adopted anyone’s negativity or bad habits. So I guess you could say I learned the old fashioned way, I jumped in with both feet and learned to swim.

Tell Us About Your First Deal . . .
The Rat House. I took over the mortgage for a house that was in pre-foreclosure and secured it with a Warranty Deed. The square footage was only 1,100 with a 2-car garage but, the house was so full of garbage that it took five 30-cubic yard roll-off dumpsters to empty it. I call it the Rat House because it had once been infested with rats and the owners never cleaned it up. I pulled six mummified rats out of it. It was just disgusting. I tried to flip it initially but no investors would touch it.

I ended up doing the rehab myself and I ended up making about $12,000.

That deal has proven to be a blessing to my career. I learned so much about rehabbing from that house that I couldn’t have learned anywhere else. The funny thing is, because that house was so disgusting, nothing I have looked at since has surprised me. Did I forget to mention that the owners were still living in it when I bought it? The overall experience of that first deal was far more valuable than the money I made with it.

What is your area of expertise?
Pre-foreclosures and abandoned houses. More specifically, helping the homeowners in pre-foreclosure. Even though I teach about this subject, it is a market that is so easy to pursue and virtually ignored by investors.

What do you look for in an investment?
To quote Gordon Gekko from the movie, Wall Street; “A sure thing.”

Sadly, there is no such thing. Obviously I look for big equity spreads but more importantly I look at things that most investors don’t. I look at which direction the house faces. Houses that face East or West are hotter because of so much direct sunlight. I look at how much natural shade a house gets from trees. I look at the lot to see how the drainage is. I drive by the house at night to see how noisy the neighborhood is. I pay close attention to the condition of the neighbor’s houses and I try to talk to them as well. It’s not fun trying to sell a house when the neighbors have trash all over the place and never maintain their landscape.

It’s the little things inside and out of a house that can make a huge difference. Sometimes it’s the forgotten small things that can make or break a deal.

How many deals have you done in your career?
It’s hard to say. If I include deals that my students have done but I have had a helping hand in? I would say around 150. Deals that I have done for myself? I would say about 50. Keep in mind that I tend to do the labor myself when I rehab.

Do you have your real estate license?
No. I have enjoyed many advantages thus far by not having a license. At the same time though, licensed investors have benefits that I don’t have. Since the state of Texas has been on a rampage with real estate investing restrictions, I decided I will get licensed soon.

What advice would you give to a beginning investor?
Be prepared to work. The media and all those home repair and flipping shows have really given the public a false impression of the industry. It’s a job. It takes work and I don’t care what anyone else says about that. The payoff’s can be substantial but it takes dedication and a good amount of common sense.

What was your toughest deal?
I hate to say it but that would be my current rehab deal.

There have been several mistakes made by the title company that still linger. For example, they collected back taxes from the previous owner for 2006 but, they didn’t pay the City or ISD portion. They paid it all to the County and now they are waiting for a refund. The problem is the penalties and interest have been increasing and the house is currently on the market. They also got the legal description wrong when they submitted it to the County so now I have to get that corrected.

On top of that mess, the house itself was the hardest rehab I have encountered and it was supposed to have been the easiest. North Texas had an extremely wet spring and summer and the humidity has been very high. All the exterior work was very difficult to do because the weather made working conditions next to impossible.

Now that it is for sale, I have had to deal with a neighbor four houses down that listed a similar house for $20,000 under market value and just lowered their price another $10,000. That’s hard to contend with.

And just last week I find that the air conditioning condenser was vandalized and the copper was stolen from it. It’s hard to sell a house when the upstairs loft is 110 degrees. It frustrates me when negative factors come up that I have no control over.

What would your dream deal be?
a dream deal? That would be one where the first closing goes smoothly with no glitches. Where nothing unexpected comes up during the rehab and the house sells for the full asking price within days of going on the market.
Unfortunately the end result with a dream deal is… Waking up.

Some deals go fairly smooth and some are difficult. To me, being able to do the work I do and advance as I have… Now that has been a dream come true.

Why did you set up a local networking group? Has it been effective for you?
Actually I have two groups. DFW Mentor is a mentoring program for investors wanting guidance and/or help. I started it so I would have a personal group of investors that I could go to with real estate needs and they, in turn have access to everyone else in the group. I don’t accept just anyone into the program though. I interview prospective students prior to them enrolling so I can get a feel for what they want to achieve and most importantly, I want to be as sure as I can that their character is good and that they don’t have a criminal history. There is so much fraud out there today. It’s important for me to surround myself with honest, trustworthy people and being able to offer the same to students is vital. I started DFW Mentor in 2004 and today the program has over 160 students.

The other group is IGOTEX or Investors Group of Texas. This is a brand new real estate investors networking club that will have its first meeting on October 9th in Frisco, Texas. In a way it is a larger version of DFW Mentor. The club will feature national and local experts as monthly speakers.

Is there anything else you’d like to share with the rest of us?
“It’s not what you know. It’s who you know.” I have found that to hold true.

If I can offer this advice… Do whatever you can to surround yourself with honest, trustworthy people in this business. I hate to hear about new investors that get mixed up with dishonest people who are involved with fraud. Fraud has really hurt the image of our business and it is usually just a few bad apples that ruin it for the rest of us.

I can honestly attribute my success and advancement in this business to having met good, quality people early on. It’s not always easy to find good people like that. So I would suggest to anyone new to the business to actively network and ask others about someone you might do business with. As George Roddy (mentor) once told me, “Bad news travels fast.” The dishonest people don’t tend to stick around very long. So protect yourself by asking around about someone. Good people are out there. Hopefully everyone reading this is or will be among them.

Any last thoughts? Have you found BiggerPockets to be helpful to you and your business?
Honestly, it’s not just a great real estate website. It’s also a great resource. The size of the site often times intimidates me but that is only because it offers a wide variety of investment topics. There are many other real estate investment websites out there but what caught my attention early on was the fact that Josh Dorkin (owner of BiggerPockets) frequently posted on the forums to let people know when someone posted valuable information. He also personally scans the boards to eliminate spam and sweep away self promoters. I have had his banner on my website for over a year and I continue to let people know about the site. As I said above, it’s important to surround yourself with good people. Josh and BiggerPockets IS good people.

Note: Jim’s Club, IGOTEX, can be found at: http://www.IGOTEX.com

Tags: DFWMentor, foreclosure, George Roddy, IGOTEX, Jim Watkins, pre-foreclosures, preforeclosure, real estate, real estate investing, Rehabbing

Every once in a while, a person comes around that is just a no-nonsense, straight shooter. Michael Rossi is one of those guys. For as long as I’ve known him, he has offered real estate investing advice freely to all those who ask for it. While some may disagree with his style, they can’t argue with his logic or his investment strategy.

Mike has developed a strategy for investing in income properties that has allowed him to build a large portfolio by most people’s standards. He is a full-time investor who has mastered the art of buying properties at a steep discount, with substantial cash-flow, and has shared the wealth of knowledge he has accumulated on both our forums, and in his book, 1 Minute to Rental Property Riches.

Meet Real Estate Investor Michael Rossi

How long have you been investing in real estate?
I started my rental property business almost four years ago. Prior to that, I was self-employed and was making good money, but didn’t have much set aside for retirement. To correct that situation, I decided to transition to a rental property business, which would not only provide income for my family to live on, but also provide wealth for retirement.

What attracted you to becoming a real estate investor?
The big attraction for me was the ability to generate more passive income and of course the opportunity to build my net worth. Income is great, but wealth is the factor that allows you to continue living a nice lifestyle without working continuously. That is very important to me.

Are you a full time or part time investor?
I am a full time investor in that my rental property business pays the bills and allows me to keep eating! However, “full time” isn’t really quite accurate. In the past 3 1/2 years, I have built a rental portfolio of several dozen rentals. I do all the management and maintenance myself, but this only takes about 12-16 hours per week. During a typical week, I will work 3-4 hours per day, 3-4 days per week. So, while my rental business gives me a full time income, I don’t actually work a full time, 40 hour week.

How did you get started investing?
I got started investing in real estate almost by accident. I had purchased 2 acres for my business and was only using one of them. One day, I had the idea that I might want to buy a double-wide and put it on the spare lot. I did some looking and found a double wide that was in new condition for only $20,000. I put the double-wide on the spare acre and did all the work myself: pouring the footer, laying the blocks, electrical work, plumbing, etc. I found a renter and decided that this entire renting thing was EASY MONEY! Of course, that was just silly, but that’s what I thought at the time.

After I completed this first project, I decided that it would be a LOT less work to simply buy a distressed house and rehab it (no laying blocks). That’s exactly what I did about a month later and I haven’t looked back since!

What is your focus (area of expertise)?
My entire focus is the rental property business, although I have flipped a few houses on a couple of occasions when I had too many deals come together at once.

What do you look for in an investment?
I will only buy rentals that provide at least $100 per month per unit positive cash flow AND 30% equity at closing.

How many deals have you done in your career?
I have acquired several dozen rentals in the past 3 1/2 years. My original goal was to purchase 10 rentals per year, but I have actually surpassed that.

Do you have your real estate license?
No.

What no-nonsense advice would you give to a beginning investor?
Being successful with real estate investing (or any other business) requires a lot of work. You need to study hard and learn the business before you buy ANYTHING. You also need to be sure that you only buy properties that WILL make money. I never buy a property “HOPING” that things will work out. I must be SURE that each property WILL make money before I buy!

What was your toughest deal?
I can’t honestly say that I’ve had a “toughest” deal. Nearly all deals involve frustrations and challenges. Deals frequently don’t close on time and little annoyances are always arising. That’s just part of the business.

Now, if you want to talk about my toughest tenants, I could write an entire book on that subject. I have dealt with a lot of TERRIBLE tenants. In fact, I specialize in buying problem properties, often from disgruntled landlords. On many occasions, we have taken over apartment buildings that were absolutely infested with drug dealers. I’ve been threatened and I’ve had many rentals trashed by the tenants. This can seem very traumatic in the beginning, but it’s really just part of the business.

What was the most difficult thing you’ve faced as a landlord, and how did you deal with it?
I took over one 4-unit apartment building that was occupied by 3 drug dealers. I immediately started eviction proceedings, but it took about 5 weeks to get them out. During that 5 weeks, the police were at the property nearly every day. There was a fight with baseball bats; about 15 crack addicts lived in one of the apartments; there were many, many arrests; and there was constant drama. I received calls from the neighbors and the police nearly every day and made a lot of late night trips to the property. The drug problems on this street had been going on for nearly 5 years and the neighbors were terrorized.

To make a long story short, we ended up taking over 4 buildings on that street and kicking all the drug dealers out. As a result, that entire street has completely turned around and the neighbors love me!

Income or Appreciation?
I operate my rental business for income and instant equity. I MUST have positive cash flow and I MUST have instant equity at closing. While appreciation is nice, I consider that the icing on the cake. Why hope for appreciation when you can have instant equity NOW?

Is there anything else you’d like to share with the rest of us?
Investing in real estate can be the best decision you ever make. It was certainly one of the best decisions I ever made. There is nothing better than the freedom that my rental property business provides: the freedom from a 9-5 job; the freedom to set my own schedule; and the freedom to grow my business and generate whatever income I EARN! It doesn’t get any better than that!

What do you think about BiggerPockets.com?
Participating on BiggerPockets.com is certainly one of the best decisions a new investor can make. Having the opportunity to actually interact with successful investors and follow in their footsteps is extremely valuable! I encourage the new investors to spend some serious time in the forums. They should read every post in their area of interest and ask a lot of questions. There is no excuse for making a bunch of costly mistakes when there is such a valuable resource at their fingertips.

Additional Information:
Michael Rossi (MikeOH on the forum) is a full time investor and author of “1 Minute to Rental Property Riches“, which is the one and only book that gives the true story of operating rental properties. Most books on the subject of rental properties contain mostly generalities; motivational nonsense; and promises of instant riches without work. 1 Minute to Rental Property Riches provides the truth about operating rental properties: from the formulas you need to determine the maximum purchase price and cash flow, to procedures for dealing with the “tenant from hell”. No motivational nonsense, just the facts that you need to succeed! 1 Minute to Rental Property Riches is available from the investing store on BiggerPockets.com.