THE McGRAW-HILL 36-Hour Course

REAL ESTATE INVESTING

By Jack Cummings

The McGraw-Hill Companies, Inc.

Copyright © 2010 The Jack Cummings
All rights reserved.
ISBN: 978-0-07-174082-1

Contents

AcknowledgmentsIntroductionPART 1 How to Begin Your Successful Real Estate Investment CareerChapter 1 A Sound Investment Strategy Begins with a Goal-Oriented PlanChapter 2 Fundamental Real Estate Terminology Made EasyChapter 3 Simplifying Real Estate MathematicsChapter 4 How to Maximize Your Benefits Through Local OfficialsChapter 5 How to Become an “Insider” to Real Estate InvestingChapter 6 Become a Real Estate Expert in Your AreaPART 2 How to Maximize Property ValueChapter 7 Why Real Estate Values Rise and Fall and How to Take Advantage
of TrendsChapter 8 The Phrase “Location, Location, Location” Is “Wrong, Wrong,
Wrong”Chapter 9 The Secret to Potential Increases in Value Is ZoningChapter 10 Dealing with Building Codes and RestrictionsChapter 11 Discover the Magic of Economic Conversion to Maximize ValueChapter 12 Easy and Inexpensive Ways to Increase Property ValuesPART 3 Finding the Best Property for You and How to Purchase It RightChapter 13 Seven Types of Real Estate You Should Consider OwningChapter 14 Develop Your Own Investment Comfort Zone to Ensure Success in
Real Estate InvestingChapter 15 Secrets to Getting the Inside Track to Real Estate Values and
TrendsChapter 16 How to Evaluate a Property Before You Buy ItPART 4 How You Buy Establishes How You Profit in Real Estate InvestingChapter 17 Four Creative Buying TechniquesChapter 18 Discover the Tax-Free Benefit of a 1031 ExchangeChapter 19 Making Offers and CounteroffersChapter 20 How to Find the Best Source of Financing for Your InvestmentChapter 21 Tips on Surviving Real Estate Problem AreasThe Real Estate Investor’s VIP ListIndex

Excerpt

CHAPTER 1

A SOUND INVESTMENT STRATEGY BEGINS WITH A GOAL-ORIENTED PLAN

This chapter is the foundation for all that follows, and its first purpose is tohelp you establish a positive outlook on the task of real estate investing. Itwill do this by illustrating that there are seven important personalcharacteristics that, depending on how you direct them, will shape whatever youdo in life.

The seven personal characteristics are determination, attitude, sound goals, aplan to attain those goals, patience, due diligence, and perseverance. Each ofthese seven is easily attained. All you have to do is to apply your best effortstoward each of these tasks.

This chapter also tackles the problem of risk in real estate investingand shows the keys to reducing that element in the investment portfolio. Theultimate aim of this chapter is to show the reader the importance ofestablishing sound and meaningful goals and how they are applied to aninvestment plan.

This chapter and those that follow are directed to the goal-orientedinvestor. The problem is that most novice investors are not properly andeffectively goal oriented. The consequence of this is that most investors havedifficulty staying focused on their task and achieving success. Good goals areessential for sustained success in any venture, so real estate investing shouldnot be an exception. The connection between a firm focus (a goal clearly insight) and a winning attitude is very important, because it will shape yourself-confidence and provide a road map for the future. The result will enableyou to overcome needless frustration and to dispel the idea of fruitless effort.

Take everything one step at a time.

KEY TERMS

In this section, the following terms related to establishing a goal-orientedplan are defined and explained:

• Success-oriented attitude

• Apparent opportunity

• Attainable opportunity

• Positive failure alignment

• Successful elasticity

• Comfort zone

• A goal-oriented plan

Knowing and understanding these terms and issues related to them will help youto learn and apply the concepts presented in this and future chapters.

Success-Oriented Attitude

The little engine that could is the basis of this concept. Knowing thatyou can succeed is the driving force that results in effective and worthwhileeffort. When virtually every task begun is completed, strong self-confidenceis generated. This self-confidence is the inner reflection of theright kind of success-oriented attitude. In person-to-person contact, thisself-confidence must be so positively charged within you that it shows ineverything about you. In sports, this kind of self-confidence is what gives oneplayer the edge over another. In essence, the adversary is “psyched out.” Thepositive attitude keeps the winner charged with the vision of success right fromthe beginning. It pays off in sports and also in real estate investing.

In the business world, this simple element is often the only thing thatseparates a closed contract, a signed order, or a profitable venture fromfailure. It is a natural course of events. People want to do businesswith people who exude success and who have the confidence to prove it.

The idea is to look and think the part. It takes both aspects to work. Justthinking success is not enough. You must look the part as well.

• Know that you can and will learn the tools needed to be a success in realestate investing. Just as a novice pilot learns to fly, you will learn thekeys and the insider techniques in real estate investing and you will be asuccess—if you want it to happen.

• Don’t rush anything. Take this book step-by-step and becomecomfortable with the concepts and your ability to apply them as they relate toyour goals. Building your own self-confidence is an essential part to building asuccess-oriented attitude.

Apparent Opportunity

The moment you begin to learn anything new you will have the urge to grasp whatjumps out at you as an apparent opportunity. It is like the buddingpsychiatrist who first learns of a mental disorder and begins to see it ineveryone. Learning about real estate investing is learning how to takeadvantage of opportunities that may have been around all the time; the onlydifference is that you did not have the ability to see them, so they wentunnoticed. Apparent opportunities may be both dangerous andworthy.

Novice investors often jump at a deal that looks good for the wrong reason. Forexample, dealing with highly motivated sellers is a very good source for makingexcellent deals. However, to acquire property from a seller simply because he orshe will sell it for nothing down may not be an opportunity at all because thatproperty may not serve to move you closer to your desired goals.

Every purchase or acquisition should be part of an investment plan. If theproperty can fit into that plan and can be purchased or acquired in such a waythat the obligation does not overburden you or sidetrack you from your goals,then you have examined the apparent opportunity and determined that it is anattainable opportunity.

Attainable Opportunity

Not every worthy opportunity will be attainable. The reason for this is that notevery seller will be willing to meet your acquisition requirements. One of theelements of being successful as a real estate investor is to convertobstinate sellers into willing sellers. This book is designed tohelp you concentrate on attainable opportunities rather than waste your timetrying to acquire properties that are owned by people who are not motivated orwho are unrealistic about property values. You need to make an early decisionabout whether the property is right for you and, equally important, whether theowners will work with you. If not, move on.

Positive Failure Alignment

Failure is not your enemy. Failure is not the opposite of success. Failure is anessential part of the attainment process of every goal. Without failure alongthe way, you will not have that sweet taste of success at the end of the path.

Successful Elasticity

A football running back knows the advantage of being able to make sudden changesin direction and speed. In real estate investing, the ability to make suddenadjustments to your goals and your plans will enable you to move with thechanging trends. In this way, you can avoid economic disaster when outsidefactors have a negative influence. Fixed and unbending goals and plans must beavoided. However, do not be too quick to make changes until you have thought outthe new plan or the adjusted goal. Change for the sake of change is not alwayswise.

It is prudent to write the following sentence on a small card that you look atanytime you are about to make a goal-oriented decision: “Does this property thatI am about to buy or sell take me closer to my goals?”

If you are not sure of your answer, then you have not laid the proper foundationto make the decision.

Comfort Zone

An investment comfort zone for real estate is the combination of ageographic area and a specific type of property in which an investor decides tospecialize. This concept is unique, and later chapters are devoted to providingdetails on how to establish and maintain your investment comfort zone.

A Goal-Oriented Plan

Investing in real estate, or for that matter in any other commodity, should beapproached as one might plan a military operation. There will be objectives toattain both during the planning stage and in the plan’s implementation. Theseobjectives should be reached prior to moving on to the rest of the plan. Theyare interim steps that build your knowledge of the area and subject propertiesyou may consider acquiring.

Because goals have their own criteria and will be different for you than forsomeone else, do not be persuaded to act on a plan that fits another person’sneeds and goals unless you are certain that your objectives can also be reachedby implementation of that plan.

HOW TO BUILD SELF-CONFIDENCE AND A SUCCESS-ORIENTED ATTITUDE

The key to a success-oriented attitude in real estate investing is to build yourself-confidence to the level where you can deal with the total involvement ofbuying and selling real property. It is logical, then, that the first part ofyour plan to become a successful real estate investor should be to outline allthe steps needed to obtain the necessary knowledge and tools of the trade.

Five Steps to Building Self-Confidence

1. Accept the fact that by the time you complete this 36-hour course you willhave the basic foundation on which to select objectives that will move youcloser to your desired goals.

2. Anticipate that you will have strong points from which you can build as wellas weak points that you will have to strengthen or circumvent.

3. Set down clear and attainable long-range goals and work to refine them.

4. Establish intermediate goals and timetables. These mini-goals are steps youneed to take to attain, increase, or fine-tune your knowledge and abilities soyou can succeed at longer-range goals. Your list of mini-goals or steps shouldnever have more than three or four items at any given time. Keep your timetableshort. No item should be on the list if you cannot complete it within sixmonths. You can begin your mini-goal list with item 1: complete The McGraw-Hill36-Hour Course: Real Estate Investing.

5. Celebrate each intermediate step you attain. Pat yourself on your own backand be proud of your accomplishments. By continuing to set intermediate mini-goalsthat can be reached in short time periods, you are setting a pattern forsuccess. Continual achievement creates a strong success-oriented attitude andhelps build your self-confidence quickly.

HOW MUCH TIME IS NEEDED TO GET STARTED IN REAL ESTATE INVESTING?

The amount of time needed to become a real estate investor is divided into threesegments: preparation, implementation, and action.

Preparation: Build Your Knowledge

This is a combination of active study, such as reading this book, anddevelopment of investment habits that will become a natural part of youreveryday life. Much of this “awareness building” will not take additional timefrom your current activities, but can become a part of them. For example,instead of merely driving to work, change your route to get to know theneighborhood where you plan or hope to invest. Look at properties on the market,jot down phone numbers from “for sale” or “for rent” signs, and so on. Thenfollow up by calling the numbers and getting the details.

Implementation: Start Your Comfort Zone Plan

Following completion of The McGraw-Hill 36-Hour Real Estate InvestingCourse, this book can become your guide to investing. It is designed to takethe investor through a systematic process and is an ideal reference guide.

One morning each week plus one full day during the weekend is a reasonableamount of time to devote to fieldwork. Fieldwork is the time spent drivingaround the community, getting to know the geographic area of your comfort zonebetter than any taxi driver ever could. This means not only knowing the streets,but also knowing the zoning, neighborhood boundaries, school districts,churches, public transportation, proximity to shopping, employment, and so on.

Action: Put Your Plan to Work

By the time, you have completed this book you will already be spottingopportunities within your comfort zone that had slipped right past you earlier.Remind yourself that because you have gone through this course you are milesahead of others who are still clueless as to those same opportunities. Springinto action and demonstrate that you have become a member of the true “realestate insiders” fraternity.

HOW TO REDUCE RISK IN REAL ESTATE INVESTING

If there were a way to eliminate risk entirely, that secret would carry a veryhigh price tag. However, the prudent investor who follows simple and provenrules can greatly reduce the element of risk to acceptable levels. To understandhow this is accomplished, one must first realize that risk is a relative termthat does not apply equally to everyone for the same situation or circumstance.It should be obvious that a trained pilot with a 1,000 hours of flight time in aBoeing 747 jet has much less risk in landing that giant of an aircraft thanwould a part-time single-engine student pilot. Likewise, the real estateinvestor who knows his or her comfort zone like the back (and front) of his orher hand and has astutely followed the market for several months or more isbetter equipped to deal with investments in that area.

As your knowledge of the local area increases, opportunities that you wouldnever have seen before start to stand out, almost as though they had a neon signblinking “buy me.” At first, you will have to be cautious and fight the urge totake advantage of every apparent opportunity that comes along. Soon, however,you will gain confidence in your own knowledge and information. Once this beginsto happen, you will feel your success-oriented attitude take over, and then allyour effort will be directed toward your long-range goals. The apparentopportunities will give way to attainable opportunities, and you can begin tobuild a real estate investment portfolio.

THE IMPORTANCE OF MEANINGFUL GOALS

Goals are not essential for life, as many people never grasp the advantage ofsetting meaningful goals or never set any kind of goal at all. Not having anygoals or setting the wrong kind of goals does not mean you will not arrive at adestination. However, it leaves the choice of that destination and the timetableyou will follow to others or to indecision.

A goal that is more distant in time than one year should be divided intointermediate mini-goals. As each step is completed, within a defined timetablethat you set for yourself, another mini-goal can be added. Frequent attainmentof these mini-goals will strengthen your self-confidence and promote a healthyoutlook and success-oriented attitude.

For a goal to work for you it must have four qualities. It must be attainable,measurable, tied to a timetable, and clearly defined.

Goals Should Be Challenging Yet Attainable

The fastest route to frustration is to set goals that are not attainable at allor not within the timetable you have set. The goal “I want to be a millionaireby the end of this year,” for example, while an interesting approach tofinancial independence, may not be attainable.

Goals Must Be Measurable

All goals must have a scale that allows for readjustment and fine-tuning. Thismeans that there should be a way to tell how close a goal is to being attained.Esoteric or vague goals can create chaos as you go about setting your interim ormini-goals, and frustration is bound to occur. These kinds of goals are oftennot easily spotted at first, as they seem to have measure at the time they areset. “Financial independence” as a goal, for example, becomes immeasurable lateron because financial needs and obligations change.

Goals Should Be Tied to a Timetable

The timetable serves several functions. First, it requires time management andthe prioritization of effort. Most people work better if they know they mustcomplete something by a deadline. The key to setting a timetable is to allow areasonable time for each item placed on the list.

Avoid putting things off. This is a self-established timetable, and if thedeadlines are constantly pushed ahead, the whole concept of setting goals andattaining them will be defeated. Frequent measures must be taken to judge yourprogress in accomplishing the task and if adjustment is needed. If any part ofthe goal is changed, there must be a very good reason.

Goals Must Be Clearly Defined

A vague goal can cause more problems than it is worth. Consider a stated goal toown 100 apartment units within three years. Is that a clearly defined goal? Ithink not. It needs further definition so that the investor is not lulled intothinking that the end goal has been attained when in reality it is even fartheraway. A more precise definition could be to own at least 100 rental apartmentsfree and clear of any debt. One element of a goal being clearly defined isessential—the goal or goals must be written down and placed where they canbe seen. In this way, they become an important force in setting dailypriorities.

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(Continues…)Excerpted from THE McGRAW-HILL 36-Hour Course by Jack Cummings. Copyright © 2010 by The Jack Cummings. Excerpted by permission of The McGraw-Hill Companies, Inc..
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