How I turned $1000 into Five Million in Real Estate in My Spare Time

[Jon Klaus]

What were William Nickerson's key strategies? Leverage and pyramiding.

http://www.youtube.com/watch?v=EzxrxiSFx50

[Jon Klaus]

I received this message in my YouTube mail in response to the video above:

"I found your post on Bigger Pockets. I'm also reading the book since I told my wife I wanted the book for Christmas. I've invested for a few years in my spare time but have a question. I haven't read too many pages of the book yet, but isn't what the author of the book describes almost like flipping? I'm about to close on a property now that I plan to fix up since there are a lot of cosmetic issues that need repair and this may fit into the category of fixing it up, selling for a higher price and then buy a larger property."

I don't recall Nickerson addressing what we would call flipping today. Though it certainly must have been done 50 years ago, flipping was by no means a main stream strategy.

I've heard the term "slow flip" in the past. This was defined as buying a property, rehabbing it (if needed), renting it out, and selling it after at least a year to qualify for long-term capital gains treatment. I won't get into the validity of the tax status, but that aside, this method may have merit.

Nickerson wasn't fixiated on holding a property for as short a time as possible, but more as a vehicle to getting to the next bigger and better property. He uses a two year time frame as a goal, but many times he held properties for much longer.

A better criteria for trade up time might be when substantial value had been added to property A, he would then be ready to roll that value into property B.

Example: (I'm changing the numbers to today's dollars so they won't distract too much). He buys a 4 unit property for $120K that rents for $1000 a month, or $12K a year. It is underperforming because of deferred maintenace and poor management, but is in a good area. He fixes the property, upgrades the 2 vacant units, evicts the slow/no paying tenants(s) and within a few years is renting all 4 units for $750 each, or $36K a year.

When he bought this property, he put $30K down on a 15 year loan. Now he owes about $75K. He sells if for $200K and has $125K in proceeds to roll into his next deal, which happens to be a 12 unit property 3 blocks away that is also distressed, like his 4-plex used to be.

As I said, not rocket science. Is this flipping? No, true flipping wouldn't typically invove any tenants and would be done as quickly as possible to keep turning your investment dollars.