What You Missed November 2012 General Meeting
by Rob Earhart
If You Can't Do It One Way, You Can Do It Another
Presented by: Peter Fortunato
November 6, 2012
“When I got out of high school I wanted to find a way to make $1,000 per month without working,” Peter exclaimed. He decided that real estate was the vehicle that would provide the assets to provide that income. In 17 years, he accumulated 33 houses and traded and sold off houses to get an excellent portfolio of houses to provide for his lifestyle.
“You must plan on how to get to your goal; without a plan you will not attain those goals.” Then, in 1995, my son graduated from high school and said, “I want to be unemployed just like you.” So, we proceeded to work together to be unemployed. My goal was to buy houses with terms that would allow me to rent to tenants that would pay for the houses. My son wanted to flip houses so he bought four houses and sold three, keeping one. “Would it have been better to keep all four?” “Yes, but he needed to make a living.”
When you are negotiating with others you have to understand what your goal is and what is in it for them. “People get more than they give in a deal, so they are satisfied with the results.” As an example, “you gave up your night to attend this meeting because you thought you would get more information that was more important.”
“Why would you sell a nice house like this?” is Pete’s first question. “I’m always surprised at the answers that they come up with.” Discovering the reason they are selling is the most important point in discovering a deal. “I’ve done business with people that can’t fix houses, can’t get along with relatives, can’t stay here, etc.,” remarked Pete.
The next thing is to discover the facets of ownership: cash flow; profit; buy low, sell high; tax benefits; not interest expense, but income interest. After income, people buy real estate for the increase in net worth and appreciation. There are also other reasons to invest in real estate.
A typical deal is finding a decent seller-financed house, then a good tenant to get the use of the home and pay for the house for me. When you are dealing with a new tenant you have to make the sellers feel secure. Are the tenants trustworthy and competent, am I comfortable with them, and do they have collateral?
Typically older people like free-and-clear homes but younger folks want leverage. You have to know the types of investments that are available: single-family, commercial, land, mortgages, securities. You need to know what different types of properties have different benefits.
Is the housing market in Florida the same as the US? No. Is the housing market in Hillsborough the same as Florida? No. Is the housing market in Carrollwood the same as Hillsborough? No. Is the housing market in your neighborhood the same as Carrollwood? No. You have to concentrate on your individual market.
Peter said, “I look for large churches in the neighborhood because they probably have good people in that neighborhood.” I walk the neighborhood and ask the neighbors, “I’m looking for a house in this neighborhood, how long have you lived here?” recruiting an ally and drawing them out. “Do you know of an excess house that might be for sale in this area?” Pete said to ask them to keep an eye out for any houses that might come up for sale.
Seeds and how they grow. People in multi-family want services, people in single-family want privacy. You need to stay in touch with someone that you do a deal with. It could lead to many more. You need to know how a deal can be structured to give the seller what he wants and get you a good return. You also have to have documentation to use at the right time for each deal.
No one wants dollars….they are all going to do something with them. It's your job to determine what they really want. What’s the most common thing I gave to anyone? A promise to pay them. You have all kinds of currencies and you can write your own currency for something you want to sell or to buy.
I buy notes, but I would rather have equity in a house so I can trade notes for properties. Currencies can be services also, trade for what you want. You have to understand the tax impact of different transactions. By knowing how to structure tax benefits, I could trade those benefits in a deal.
You have to learn all facets of real estate to know how to structure a deal so the seller gets tax benefits and you get a better deal. Once you have all the pieces, you can be unemployed and make a living also.