Real Estate Investing Basics

What Investors Can Learn From William Nickerson Turning $1,000 Into a Million (in His Spare Time)

Expertise: Mortgages & Creative Financing, Business Management, Landlording & Rental Properties, Commercial Real Estate, Real Estate Deal Analysis & Advice, Real Estate Investing Basics, Personal Development
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One of the all time real estate investing classics is How I Turned $1,000 into a Million in Real Estate in My Spare Time (later revised to $5 million) by William Nickerson. The book was originally published in 1959 and not only shows how real investment has been a great business for a long time, but provides a model for how real estate investors can grow a small nest egg into a giant business with a little hard work and some patience.

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It also shows the, well, anti-miracle of inflation as the following passages highlights:

“In this case, discounting our target figure by about 5 per cent to $8,200 would represent a bargain. Increasing the $8,625 about 5 per cent to $9,000, the figure we arrived at when making our appraisal, would give us a good buy. To the target price about 10 percent might be added, making $9,500 our top price. If the offer is too low, the seller might shy off completely and refuse to negotiate without a higher starting offer. If the offer is too high, negotiations will be difficult to complete within the boundaries set. The first offer should probably be about 10 per cent less than the $8,625 we aim for, rounded to $7,750” (Nickerson 75).

Good advice for sure. But those prices just sound utterly ridiculous, even for a Midwest investor like myself. And then, of course, there’s the rehab:

  • “Front porch modernization and repair: 270.00
  • Garden Transformation: 110.00
  • Painting Exterior: 500.00
  • Plumbing and heating modernization: 220.00
  • Electrical modernization: 42.00
  • Carpentry additions: 83.00
  • Tile and linoleum rejuvenation: 170.00
  • Painting and decorating interior: 375.00
  • Furniture and furnishings: 27.50
  • Plumbing Repairs: 27.60
  • TOTAL FOR REJUVENATION AND REPAIRS: $1,826.10″ (127-128)

Hahahahaha. Sigh.

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Related: This Lesson From My Mastermind Group Completely Changed My Real Estate Business

The Ultimate Get-Rich-Slow Scheme

Anyway, while some of his advice — such as how to scroll through classified ads in the newspaper for deals or valuing single family rentals on their net income instead of their comparable sales (it was a bit harder to run comps back in the day) — is a bit antiquated, his overall recommendation is still very relevant.

I’ve said real estate investing is the ultimate get-rich-slow scheme, and nothing could highlight that more than William Nickerson’s career. Indeed, my dad once mentioned that in real estate, at least buy and hold real estate, “if you can just hold on long enough, all of a sudden you’re rich.”

William Nickerson’s strategy was essentially to pyramid from a small property into a larger one and then to an even larger one and so on using the built up appreciation, principal pay down and cash flow. Here’s how he describes a path similar to what made him a millionaire (back when that meant a lot more than today):

“ZERO DAY… You take the $2,500 nest egg from your savings account. Then you borrow three times as much, $7,500, making a total of $10,000. With the $10,000 you buy a rental house in need of renovation…

“…TWO YEARS… You sell the improved house for $14,000 [receiving $5,800 back]… You take the $5,800 and again borrow three times as much, $17,400… With this you buy a 4-unit rental-income building…

“…FOUR YEARS… You sell the improved 4-unit building… this leaves you a profit of $11,575…[Then invest that] in an 8-unit income-producing property…” (25-26)

And so on and so forth. While these numbers might sound small, by compounding it in this way, by the twentieth year, your total net worth would be $1,187,195. Wasn’t it Albert Einstein who described compound interest as the “eight wonder of the world”?

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Scaling Up You Real Estate Business

Nickerson then illustrates this process by describing the purchase of a single family house and then moving up to a five-unit and then a 24-unit and so on. Back then, trades were quite common, even complicated three-way trades that remind me of trades between NBA teams. For example, he describes trading the house and some money for the five-unit apartment. Nowadays, such trades are rare, especially for houses. But what it does remind me of is the BRRRR method made famous by BiggerPockets’ own Brandon Turner. Namely, buy, rehab, rent, refinance and repeat. Sure, you can sell (or even trade) your properties to move up, but why not simply refinance them, continue to hold them, and then buy another?

The important thing that William Nickerson’s story shows (as well as Brandon’s, by the way) is to keep the long-term perspective in mind. Buy and hold can often feel like a slow, never-ending grind to simply scrape by. In the beginning, there’s a lot of work for just a little cash flow. Indeed, one metric we use is that any house we buy must cash flow at least $100 a month while fully financed. But if you think about that, $100 a month doesn’t go very far. Even with 10 such properties, you’re only making $1,000 a month, which is nowhere near enough to live off of. (Of course, that’s fully financed; they cash flow much better with less or no financing.)

Related: 6 Critical Lessons Every Newbie Needs to Know About Real Estate Investing

Compounded Advantages

But the cash flow itself is just one of the many advantages of real estate. Cash flow only covers the “I” of the IDEAL acroymn that highlights the advantages of buy and hold real estate investment:

I: Income

D: Depreciation

E: Equity Buildup

A: Appreciation

L: Leverage

These various advantages begin to compound on themselves, and your growth slowly but surely becomes exponential. Sooner or later, it just hits you that you’ve made it and that you’ve built a great portfolio of cash flowing assets and a sizable income to boot. Many years after he started in Oregon, my dad had this very epiphany, and later in Kansas City, my brother and I had the same one. But it certainly doesn’t happen overnight.

In the end, the lesson is to remember and beat into your mind that real estate investment, particularly buy and hold, is a get-rich-slow scheme. It may feel like a long, arduous climb. But trust the numbers and the system that those who came before us, such as William Nickerson, used. You will get there. It just takes hard work, time, and a bit of patience.

Investors: Have you read this book? If so, what did YOU learn from it?

Let me know with a comment!

Andrew Syrios has been investing in real estate for over a decade and is a partner with Stewardship Investments, LLC along with his brother Phillip and father Bill. Stewardship Investments focuses on the BRRRR strategy—buying, rehabbing and renting out houses and apartments throughout the Kansas City area. Today, they have over 300 properties and just under 500 units. Stewardship Properties on the whole has just under 1,000 units in six states. Andrew received a Bachelor's degree in Business Administration from the University of Oregon with honors and his Masters in Entrepreneurial Real Estate from the University of Missouri in Kansas City. He has also obtained his CCIM designation (Certified Commercial Investment Member). Andrew has been a writer for BiggerPockets on real estate and business management since 2015. He has also contributed to Think Realty Magazine, REI Club, Elite Daily, Thought Catalog, The Data Driven Investor and Alley Watch.

    Katie
    Replied over 3 years ago
    Using the newspaper to find leads may be antiquated, but Nickerson’s (and others’) method for figuring reasonable rent is just as applicable today. First, find the typical tenant wage for your community. The rent should be about one-third of that wage, adjustable for unit size. Studios will be less, and 3/2 houses with garage and yards will be more. The typical one or two bedroom apartment rent should be very close to one-third the typical tenant’s wage for the simple reason that it is the tenant’s wage which pays the rent. Over the last twenty years, landlords have turned this guidance upside down. First, they set a rent and then require the tenant to make three times more than the rent. If this procedure actually worked, we would not have the present situation where nationally more than 50% of tenants are paying more than 50% of their income for rent. Tenants get themselves into this situation because a place to live is a NEED, and the competition that should keep market rent approximately equivalent to reasonable rent does not exist. When I appraise the cash flow of a prospective property, I use the per-zipcode FMV rent guidelines set by HUD, NOT the asking rents on Craiglist or elsewhere. If a property cannot cash flow at truly reasonable rent, I do not want it.
    Jack Forester Investor from Cumming, Georgia
    Replied over 3 years ago
    Thanks, Katie! I didn’t know this existed. It’s just what I was looking for.
    Tapanga Matthews from Mississauga, Ontario
    Replied over 3 years ago
    That pyramid strategy sounds great! Makes sense. The numbers will definitely be different in the market in Toronto though. But still amazing. Keep up the great work Best Regards T.Matthews
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied over 3 years ago
    Yeah, Toronto is quite expensive, you can probably get to a million by just buying one house and paying off the mortgage over 30 years.
    Ayo A. Specialist from Lawrenceville, GA
    Replied over 3 years ago
    I’ve read it. One of the greatest real estate books in existence ever. While I am yet to implement the strategy since I’m taking care of school and decent size credit card debts with barely above minimum wage work, I found that translating the dollars from “1959 dollars” to “2016” dollars with a site like http://www.in2013dollars.com/1959-dollars-in-2016?amount=1000 makes the numbers more reasonable.
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied over 3 years ago
    That’s definitely true, old prices aren’t as good as they sound when you actually look at what it would be apples to apples. But those prices certainly do make me shake my head.
    Jamal Wilson from Compton, California
    Replied over 3 years ago
    Definitely on my reading list. I’m trying to mix real estate books in the am and downtime and business/personal development books in the evening. What are your thoughts on the Compound Effect by Darren Hardy? ITs pretty similar without the focus on real estate. Thanks for the review!
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied over 3 years ago
    Unfortunately, I haven’t read it. Do you think it’s worth checking out?
    Douglas Skipworth Rental Property Investor from Memphis, TN
    Replied over 3 years ago
    Great post, Andrew! I love your reason for why real estate is the IDEAL investment. I’ll definitely be using that acronym from now on. Thanks so much.
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied over 3 years ago
    It is a great acronym and definitely needs to catch on. Brandon said he was going to “steal it” but I haven’t seen it around. Never before have I been so disappointed about not being “robbed.”
    Sahegin Charolia from Houston, Texas
    Replied over 2 years ago
    I cannot find this book anywhere. The amazon one has very bad reviews saying the book is not complete, has missing pages and other problems. Does anyone have any other places to get this book from?
    Katie Rogers from Santa Barbara, California
    Replied over 2 years ago
    I checked it out of my local library.