I stop short of calling it a mistake. We needed to do something. Our real estate business was stuck in the “Suck Zone” – we had grown to 25 rentals, and they were taking up all of our time, but not producing quite enough income to pay for that time! And we were stuck in a similar Suck Zone with the banks, too. Once we had four mortgages, they didn’t want to lend any more money to us. It didn’t matter that we were running our business profitably, the properties were cash flowing, and our credit was impeccable. We were at their limit for risk tolerance.
So I defend my decision to do what I did. Truly, I didn’t expect Dean Graziosi’s people to take me up on my offer – find someone to refinance these rentals we can’t get mortgages on, and we’ll cash out and buy your $45,000 mentorship program. Within two days they made that happen! Regardless of whether you think these programs are a scam, you gotta respect their ability to get results. So we bought it. I was in the door, finally on my way to becoming a hot shot, full-time real estate entrepreneur. I was going to learn the secrets of the self-made investors I admire. This period of unemployment had catapulted me into the life change that the universe had set up for me all along – my destiny at last! And then I promptly got a job offer.
These real estate guru mentorship programs might be worth it – IF you forsake all else and make building your business your full-time job! Yes, they say you can do it in as little as 5 to 10 hours per week. But I don’t see how. You really need to pour yourself into it, full immersion. And that means you need some working capital to keep your bills paid while learning the ropes, because like any small business start-up it’s going to take awhile to get paid. And that’s a good way of looking at your real estate investment endeavor if you want to do it full-time – it’s a start-up! Most start-ups fail because of lack of working capital. Please keep this in mind.
How we funded – and continue to fund – our real estate investment small-business start-up. I took that job. I had been filling in the morning show at Cat Country 96 for my good friend Jerry Padden, my former boss at KRZ. That was a temporary gig that would end in August, when the regular co-host Becca Lynn came back from maternity leave. We scheduled our all-expense paid trip to Las Vegas for the Dean Graziosi program’s Buying Summit for that first week in August after my job ended. From then on, I would be a full-time real estate entrepreneur!
But that’s not how it happened. Before the morning show ended, traffic reporter Kristy O’Brien got promoted to the New York City market, leaving a full-time traffic gig open for Wilkes-Barre and Allentown. I could work from home. The company would provide me with equipment to set up a studio in my attic artists’ space. It would be a steady paycheck coming through the door – not a lot, but enough. Health insurance – remember I was paying $700/month out-of-pocket pre-Obamacare. Daycare reimbursement. Three weeks paid time off. And most importantly – a set schedule of two split shifts per weekday, no overtime and no weekends, leaving me a few hours per week to devote to our business.
I took the job, and I’m still doing it today. This has allowed my husband to go full-time, wide-open as a real estate entrepreneur. I went to Vegas with Steve and learned a lot. But Steve has taken the lead on working this program we paid $45,000 for. Without him being able to devote himself full-time, I believe we would have wasted $45,000.
Real Estate Investing with “Monopoly Money.” That’s how I think of it. We didn’t have access to that $45,000 – it was equity trapped inside two of our double-block rentals. Dean Graziosi’s people were able to find financing for them where we could not because of our bank’s 4-mortgage limit. The rent money from those units more than covered the payment. And something very interesting happened a little over a year later – Luzerne Bank decided they wanted to do more business with us after all! So we were able to refinance those properties, and two others, at a much better rate and use that cash as working capital. It must be like when you’re married and suddenly more attractive to the opposite sex than when you were single. Or when you’re employed and getting recruited for even better jobs, when you couldn’t even get a call returned while you were unemployed. I guess that’s just how our crazy world works.
What we learned from the Real Estate gurus. Steve learned how to wholesale – that’s when you find properties people are desperate to sell, and help those sellers out by matching them up with investors who are looking to buy properties that cash flow. You don’t need a real estate license to do this, although there are advantages to having one as you have a lot of inside knowledge of properties for sale and how motivated the sellers are. Steve doesn’t have a license. I’m thinking of getting one.
Steve gets paid a consulting fee for each successful match he makes between buyer and seller at the closing. He developed a relationship with a great local title agent, Betty Bilbow at First American Title Insurance Company who handles most of those transactions. Steve’s fee is usually around $1,000 per property – houses are cheap in our area. Investors’ tip – if you want to buy a cash-flowing rental property in our area that has a 10% cap rate or better you may want to call or text Steve at (570) 237-0124. Likewise, if you have a property you want to sell quickly and don’t want to wait several months for a traditional real estate listing to move it, Steve might be able to get you a cash offer you’d find acceptable.
Building up a buyers’ list has created some great relationships with other investors. This has led Steve to become active in several real estate investors’ groups in PA and New Jersey, where he has met a few people he’s done business with. Some of those deals didn’t work out so well, but others did. Investors’ tip – you don’t need to pay a Guru $45,000 to take this advantage! You can find real estate investors’ groups on MeetUp, and Steve has started one with some of his partners at Grotto Pizza, the Wyoming Valley Mall, the second Wednesday of every month. Our next one is September 9th. I will be there, as will our littlest investor, Savannah Leigh. And we only charge $5 and that includes pizza & soda!
Part of our Guru package included a 3-day meeting with a mentor who flew out to Wilkes-Barre to meet with us and consult our business. I attended as much of this as I could during the break in my split traffic shift, but Steve was by his side full-time. The guy’s name was Jared. He was late the first day because he was on the phone making a deal that profited him $100,000.
Jared told us we needed to flip houses. He also told us we needed to flip rental units – offer investors the whole package from soup to nuts. Wholesale them the property. Renovate it for them. Then manage it. A word of warning – the law on the books in Pennsylvania is that only a licensed real estate broker can act as a property manager for a property one does not own. We had a prominent attorney tell us there is a loophole in that law in the case of the owner signing over Power of Attorney. The owner can also make you a minor partner in the LLC that owns the building. However, I find this to be a scary gray area. We work with a licensed broker for property management.
Maintaining Assets Saving Homes, LLC (otherwise known at M*A*S*H*) This was the company Steve set up to renovate the properties he’d found for other investors. He also uses it for the house flips we do for ourselves. By the close of 2013 we had helped one investor friend buy, renovate and rent a two-unit on East Northampton St. in Wilkes-Barre. By 2014 that investor had the one on Madison St that inspired me to start this whole blog thing. Another investment partner snapped up two double-blocks and a 10-unit in Plymouth. He has another one in Glen Lyon we just finished renovating. And a third investor owns a double-block in Wilkes-Barre that is now home to Valley Youth House.
We have just enough income to keep our business in viable debt! But that’s how it goes for start-ups. I’m not telling you a real estate fairy tale here, this is hard-scrabble reality, folks! If you think you can handle it I’d love to meet you! It’s important to hang around people with similar ambitions and an entrepreneurial mindset. We inspire one another!
Our first real flip. Not a building we flipped from crappy to good condition as a rental. Not the house we live in. Our first real, honest-to-goodness A&E-reality-show-ready house that we bought to flip and sell on the open retail market. It was at the corner of Main & Hope. I am not making this up! In next week’s blog post How It All Began Part 8 I’ll tell you all about it, with pictures! It’s a bittersweet story full of elation and pain, lots of plot twists and suspense.