What You Missed August 2018 General Meeting
by Rob Earhart
Relationships In Real Estate Investing
August 7, 2018
Peter began with the statement, “Before I was in real estate, I was in high school.” He went on to explain that he has always been a real estate investor. He interjected, “I understand that everyone is a capitalist.”
Most of us start out after high school and have no debt. You have to get some assets or you will just be working for dollars. If I have a job, what kind of taxes do I pay? “Normal ordinary income.”
If you have real estate income, you don’t have all those taxes. If I have $50,000 in rental income, I have depreciation and don’t have to pay social security or income taxes.
“If you take responsibility and acquire the assets you need, you just have to talk to people who can help you,” he explained.
“I don’t know my neighbors, but I have friends that have rented from me for 40 years, and they are my real friends.”
How do you find good deals? I have only found one good deal in 52 years. What do you find? Opportunities. Your job is to discover what they really want. Discover the uncomfortable circumstances in their lives and see how you can help them.
In order to make people feel secure, get face to face with them, build rapport to show you are confidant and trustworthy. The most common currency I gave to people was my promises. You have to have competency and trustworthiness, and you will build rapport.
Very rarely do I give any money down, but I do give them what they really want.
“I acquire properties to be able to spend more time with my family.”
When I started, I had 200 contracts that were not accepted, but in 10 years I had enough money coming in to not have to work for a living. I had a goal to have enough assets so I didn’t have to do anything I didn’t want to do.
I acquired 33 rentals in 20 years that allowed me to help educate my kids.
For those people starting out: what do you bring to the table? “The ability to manage properties.”
When I started, I used to borrow my dad’s car to show real estate. “How did I get real estate when I had no money?” I asked for help. A couple of years prior, I asked Albert if he knew of any houses for sale. He then accepted a job 2,000 miles away and had to get rid of his house. He remembered I was looking for houses and called me.
What is bad about banks? “It is short for bankruptcy,” proclaimed Peter. You need to find what they want, what they are missing, and it does not entail exchange of money.
Would you sell a house for no money down and no payment? There are a lot of them. Why? They are bleeding from the payments. A vacant house has higher insurance, taxes, upkeep, etc.
How would I buy under those conditions? “I bought it because I showed them that they were paying $1,300 per month and I could save them that money. I bought it with a $100,000 note, and no payments until I sell it.”
They closed because what I gave them was better than what I took from them. I made a friend, and that is more critical.
I did a presentation for Gary Johnston in Vegas about Relationship and Wealth. In 50 years, I have done 71 transactions with 4 people. Do you know how much easier it is to do those transactions with 4 people than 71 people?
My fourth deal was the best one. I was going to put $10,000 down and pay $400 per month. The seller would be holding the $40,000, but I still had a problem. I needed the $10,000. I went to my second tenant who I knew had some money in a bank at 2.5%. I borrowed the money from her at 9%. She was used to getting $20 per month, and I was offering $75 per month. Then I borrowed up to $75,000 from her in the 70’s because she knew I was trustworthy.
My son came home with a truck with a really noisy muffler. I told Jay to take my car and I’ll get it fixed. I took it in and the mechanic told me that it was a glasspack, which cost a lot more than a regular muffler. I asked him if anyone would take the expensive muffler and put a regular muffler on my truck. He said, “Come back in a bit.”
The truck now had a quiet muffler and had not cost me anything. He was now going down the road with a really loud muffler. We both got just what we wanted.
If you send an offer via text, can you see any reactions? No! That’s why you have to be face-to-face.
In 1970, I went to see a triplex. John was an older man of 47 and I was 20. The triplex was trashed by the tenants and he just wanted to sell. He was asking $35,000 and he owed $23,000 to the bank. What was the problem? I was $35,000 light. What did I offer him? My promise to pay his equity, along with $12,000 and $400 per month until it was paid off. He said OK, as long as it was OK with his bank.
The president of the bank met with us and John told him about my wanting to buy the property. He said OK, but John would have to be responsible for my making the payments. He then said I had to sign personally for the loan. Since then, I have done 27 deals with John because I had become a friend.
The bank now sends me leads for people that cannot make the payments.
We still have that triplex and it generates $4,000 per month because I am an investor. “My idea of an exit strategy is death,” exclaimed Peter.
When John wanted to buy a new 18-unit, I sold his two fourplexes, two triplexes, and bought the duplex so he could buy the 18 unit. The family still has that apartment building and it has provided income since the 1970’s.
Then I moved to Florida, because Massachusetts was too full of socialists. I got a free home, because the payments were less than the income taxes I had to pay in Massachusetts.
The wealthiest people are the ones with high assets that will trade equity for more free time.
I then bought a house that had a “subject to” title. It meant that the title had issues that could not be cleared up for some reason.
I would buy a subject-to human’s mortgage. If I find a sale with installments, would they want to accelerate the payments? No, because the taxes are due when money comes in, and they would lose a lot of money to taxes on a cash deal.
Why would people want installments? Sometimes they don’t want to manage a property, so I will take over the payments.
One of the things I learned was to state the benefits of the offer, not the numbers.
I had put in an offer for $22,000 for a duplex, but someone else bought it. He paid $2,000 down and $2,000 paid once a year till paid off. The seller had arranged to get the money each year so he and his wife could take a cruise every year. “I was offering money, he had offered a cruise a year. I lost the deal, but have never forgotten the lesson.”
It’s so very important that you realize that it’s relationships that create deals.
I had to sell a house for Jack. It was a 3-bedroom, 1-bath starter home, so I talked to my 20-year-old son’s friend. He had a Shelby Mustang that did not fit into his new marriage with a child. I explained that he could trade the Mustang as a down payment and buy the house with reasonable payments. He bought the house and had a great home for his family.
If you are face to face, you can restructure deals on the fly. “There are millions of ways to buy real estate, but only one of them is cash.”
I never deal with attorneys, because they are trained on legal versus illegal, instead of what is right or wrong.
Peter ended by recommending a book by John Schaub – Creative Wealth Building, and stayed for awhile to answer questions.