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This is the final call we’re going to have for 2012. The holiday season is upon us, so this is the 12th of December and next week is the 19th and people’s minds is usually getting prepared for Christmas; if you celebrate that particular holiday. And then the following Wednesday would be the day after Thanksgiving or after Christmas sorry, so people’s minds are usually in other places and then the following Wednesday is actually January the 1st which is the day after New Year’s, so we’re going to continue our conversations on the 8th of January 2013.
And then we’re going to be going deep into one of my favourite books I’ve ever written and it’s the book, “Multiple Streams of Income.” There was a hiatus, there was a period of time when the last book I wrote – the one we’re talking about now was written in 1987 I think and there was a period of time all the way until the year 2000 when the “Multiple Streams of Income” was written or published and there’s a period of like 13 years between those two books. A lot happened on those 13 years and there was a lot of reasons on why there was a big hiatus in the books I’ve written and I’ll talk about that when we get to our 2013 conversations but anyway, this is the final conversation we’re going to have about this particular book that was originally called “The Challenge.” It is now being called “The Road to Wealth” and in our previous conversations, we’ve been talking about how “The Road to Wealth” contains a lot of the fundamental basics about how you can invest in real estate and talking about the bargain finders and talking about the “don’t wanters” and the list of reasons why people want to sell their real estate.
I will be teaching a seminar in March of this coming year. It’s the first time I’ve actually taught a real estate class in like 13 years. There are reasons why I haven’t taught it a lot but this kind of marks a beginning of a new conversation about real estate. I think real estate is coming back and it will once again regain its position as one of the fundamental basic best investments that a person can make in their lifetime. We saw a bubble of real estate values that were – the bubble was created by the fact that people were speculating too much based upon real cheap money. Every time you have cheap money, the market just reacts ridiculously and if you can ride that way and get out to the top, well, you’re doing really well but most people don’t. They buy a property, they hold it for 30 years, and it finally gets paid off and ends up being the one asset that they really paid for in their entire lifetime. And sometimes they use that asset for borrowing against buying current income and things they want to buy, but the bottom line is it’s coming back.
Of course this might be fool’s gold. I’ve been out there testing the waters, asking some of the major experts. The market has firmed up dramatically here in San Diego, California and I’ve heard the same kind of reports up in San Francisco. That’s just good indicative signs that the inventory, the supply of real estate has started to firm up which is exactly what we want. We want it to return to its normal ways of building and creating supply and demand for real estate.
There are a lot of demographic things that are changing. The older folks like myself in their 60’s are no longer needing or wanting to buy properties and they’re usually downsizing. I went the opposite direction; we upsized into this one. But bottom line is it’s going to regain – for one major reason is place. It always was a major inflation hitch and that means we’re going to have some more inflation in my opinion and you’re going to need to have assets that will be able to survive the escalations of inflation. If you have lower inflation, then hard assets like real estate and gold don’t do very well. But we’ve just created too much money and we’re spending a billion dollars – I’m sorry, a trillion dollars extra every year in money we don’t have and that’s just an enormous amount of money. We’re just literally going into debt and that debt is eventually going to make the value of the currency less and less valuable. The inflation is going to increase and therefore assets such as real estate are going to be very highly priced.
So let’s go to the final conversation about “The Road to Wealth” and let’s talk about the “Master Checklist for Wealth.” As you see right here, the “Master Checklist for Wealth” is based upon the principles of finding, funding and farming. As I wrote my book over the years, I ended up refining things and adding things and taking things out. One of the fundamental teachings I had from the very early stages is that if you can be good at these three skills, you can be good at real estate.
You need to know how to find good deals. You don’t have to have the money to find them. You don’t have to have good credit to find them. You don’t need anything to find a good deal. You might not be able to buy that good deal but you should always be looking for good deals. You should always put some of your time and effort in to kind of scanning the newspapers and looking online for great deals.
Like I said last week, you should pick a target territory – a territory in your city where you become the expert. Where you notice in this little square, mile square area of your city where you should say to yourself, “I’m going to be an expert on the values of that particular area,” because of the thousands – the two thousands on that properties that are within that mile square area of your city. There’s going to be a turn-over of real estate. Five percent to a larger percentage of those properties are going to sell every year. Buyers and sellers are going to be coming together and end up buying and selling and the people who sell are going to have reasons to sell.
Like the “don’t wanter” analysis we talked about last week. They’re going to have money problems or they’re going to be transferred or they’re going to need to get a larger property or they need to get a smaller property or they inherited it and they got to get rid of it. So this inventory in this target territory is going to come cause a turnover and I can guarantee you, if you become an expert in that area and let people know and sometimes you can go door to door to door. You can literally just ring the doorbell and say, “I’m not a real estate agent. I’m not trying to list your property. I’m a real estate buyer and I’ve selected this area of the city as my buying farm and I know that properties come up for sale regularly. The first thing that people usually do is they think of a realtor and they list it and they put it on the market and see if they can sell it. But if you like to save the commission and we can negotiate face to face and one on one, if the terms are right for me, I’m an investor and I like to find good deals.”
You just be blunt, right out front. Just tell them the truth. “I’m looking for good deals. I like to buy 10 to 15 percent below the market; sometimes more. I can have access to a great amount of cash and I can close quickly if the price is low enough. So here’s my card and if you know somebody who is in your neighbourhood and is trying to sell, just take my card. Just put it somewhere where you’d think about it and one of these days, you’re probably going to sell and guess who I’d want you to call? Just give me a call.”
If you just set it out as your goal once a week, you just took one street in your buying farm. There might be 10 streets that cross each other and so, “Okay, this week I’m going to walk all these houses of this side of the street and I’m going to ring every doorbell and I’m going to give my card to every single person. I’m just going to check it off on the little map I’ve got here. Yup, I’d give my card to this person; I’d give my card to that person. I’d give my card to that person.” You’re planting seeds. These seeds might not grow immediately, but eventually they will and eventually may come to fruition.
Now when I was an investor myself in the early ages, this is exactly what I did. I picked a target territory that were the 10 square blocks directly south of Brigham Young University and I owned several of the properties in that 10th square block. I knew that students who wanted to live close to the University, who wanted to walk to school every day would be picking this particular territory. This is where they’d be looking primarily for a place to rent and therefore I knew there would be a constant turnover of rentals. People would be constantly needing the best closest area so this is my target territory.
I literally went down to the County Courthouse and back in of course this was years ago, let’s see how many that’s 74 – let’s see yeah 74 to 80 so that six year period of time, so that would have been 45 years ago. Wow! But I was able to make photocopies of every square block in that buying farm and literally taped it together and did what most people do; the “paralysis if analysis.” I did too much analysis rather than just me knocking on the doors and talking to sellers and planting seeds. From when I was a real estate agent at that time, I was focusing on investments for my clients and I was a real estate investment adviser for two or three years and then before I finally left it, I just started investing on my own account.
But during that period of time, I had in my wall, in my office, at the Lincoln Realty office in Provo, Utah – in the little office that I had, had this big map on it. Frankly I was doing a lot of that work frankly because I was more afraid of talking to real people than to pretend like I was doing something, but at the very least, it got me to think about this buying farm. Now there are several things you can do. You can either knock on doors and literally talk to everybody face to face to face and the other way to do it would be to get the addresses of all those properties in that buying farm. You can create a mailing list of all the addresses in that particular area and you can send them a letter. So if it’s 1000 people who own properties in that particular area, and then 1000 times 50 cents is what it’s probably going to cost you to send a letter to every one of those people, and that’s – was that $ 500? So that’s a good chunk of change.
Rather than knocking on the doors and walking around, you’re sending – let’s see 50 cents, yeah that’s 500 bucks. Now what’s the result of the $ 500 mailing? You can probably get it bulk mailed and do it a lot less than that but essentially it’s going to cost you about $ 500 to be able to communicate with that group. If you can afford the time or they can afford the money, then you go knock on every door. If you can afford the money, rather than you can afford the time, then you create a mailing and you do that mailing regularly; at least twice a year.
You’ll mail to that area and you will say, “I’m not a realtor. I’m not trying to list your property. I’m not trying to harass you. I’m a buyer. I’m an investor. I buy property. If you’re available for sale, then let me know. If you know somebody, maybe one of your neighbours here who is trying to sell and wants a buyer. It doesn’t want it listed and hope that it sells, where it sits there for a month or two or three or sometimes six months or longer, but if you want an immediate sale…” See how sexy that is? An immediate, “I’ll write you an offer on your property, the day you tell me that you want to sell. It may not be the offer you want, it may not be the price you want, it might be a lower price point but you know what, I’ll make you an offer immediately.”
Of course your offer would be 20% below the market. It will be whatever financing you can handle. If you need cash and you don’t have the cash to buy it, then you’ll have to write a “create-you” offer. Bottom line though is you can write an offer immediately. And it’s always subject to your inspection of the property so literally, there is no risk to write the offer. You write the offer subject to your inspection of the property. Therefore, if they assign that offer to make it binding, you have an out. You don’t have to buy it. You can look at it, you find out perhaps that it’s in bad condition or you find out it has issues about it that would make it difficult for you to sell it; then you can just say, “I’m sorry. I’d break this contract because it was subject to my personal inspection and I didn’t like my inspection.” It could be subject to a lot of other things but the bottom line is, writing an offer.
Now sometimes and I’ve done this before, my friend John Shelders has been teaching this technique and was teaching it during some of the times he taught for us, but long before John Shelders came along, I had done this exact same model where I had literally picked some properties in the area that were free and clear; a lot of properties where the sellers owned these properties. I didn’t have to deal with the bank; I was dealing directly with the owner. And these days, they say that about half – I think I’ve heard that about 40% of all the deals that are being snapped up here, these real good bargain properties are all cash offers; where people have no mortgages at all. They don’t have to wait for the bank to qualify them for a mortgage; they just pay cash.
So at least 20% of all the properties you see everywhere you look at, wherever you drive in the city, at least 20% of them are free and clear; there’s no mortgages on them. So the owners – I mean, I’ve got a house up in Utah and there’s no mortgage on it. So somebody comes in and writes you an offer. They’re negotiating directly with you. They’re not having to pay off a loan and having to go get a loan from somebody else. They buy it and sometimes they’ll pay out cash and if you don’t have no mortgage on it, then it comes directly to you.
So I went off and I researched properties in a certain price range. I wanted them to be below the median price and every city has a median price. Every neighbourhood has a median price. That means half the properties are valued above this median price and half of them are valued below that. So if there are 100 sales that happened that year, half of them would be below – let’s say in the San Diego area, probably half of them would be below $ 500,000 and then half of them would be above $ 500,000. There’s a median price.
Usually a realtor can help you with that number. Sometimes you’ll read it in the newspaper where they report median prices for certain different neighbourhoods and certain different cities. Like in Los Angeles for instance, once a year they publish that, show them what the median price is. You’ll find out that some neighbourhoods, their median price is much, much lower and some areas are like much, much higher. So you try and pick areas where the median price or that average – I know it’s not quite an average but kind of the middle area, property values below the median. Why below the median; because those properties below the median would always do better in swings in the market.
If there’s a downturn in real estate, a down turn in economy, people who have been stretching up to get in to the more expensive properties are going to give up and say, “I can’t afford this payment anymore.” But they still want to own a house. They’ll drop down; so the demand for properties in the lower price range is always going to be greater. Why? Because people who can afford a house who will be coming up and so there will be demand from the bottom and there will be demand from the top coming down. So there will always be more demand for real estate below the median. The higher up you get, the lower demand and that’s why sometimes when the property values drop, the bigger properties – the ones that are in the higher price ranges, they drop the most because there’s less demand or there are a few millionaires running around looking to buy properties at that particular time. And then the millionaires are usually looking for bargain properties with the cash they’ve got so those in the upper price ranges are going to suffer the most.
So I want to pick properties that are below the median. I want to pick properties that were at least three bedrooms. And you can go online and you can look through the multiple listings service and literally can scan through the neighbours or the price ranges, you can scan through the houses. And you’re looking for a couple of things. You’re looking for little flexibility and the remarks by the seller like “need to sell quickly” or “might consider a little trade for something you might have.” Just any kind of out of the ordinary remarks by the realtor who’s asked the seller how flexible really are you. You’re looking for some flexible remarks. You’re looking for properties that are below the median price, with some kind of flexibility, that are free and clear, with no mortgages on then.
Now I found – with the realtor that I was working with, I found 10 properties like that; 10. Of course it was a smaller town of 100,000 people located in a college town where Brigham University is located and so I wrote 10 offers simultaneously. 10 offers on the same day and all 10 of them subject to the fact that I’m writing 10 offers today and I could only have the funds to buy one. Therefore, whoever accepts this offer more quickly will be the winner of this little auction; in a sense.
Have your realtor help you with some of the legal lease but essentially, you’re writing one offer subject to the other offers you’ve written. You only have the ability to buy one property. So now you make 10 simultaneous offers and all 10 people get those offers. You’d pass them out to the realtors who are representing them and in this case I found them listed in the multiple listings service, so all these properties were listed with real estate companies. So every offer by my agent had to be presented to every one of the agents that represented the listing of all the property I was writing an offer on. So it took a couple of days to get all the offers out properly.
Bottom line is, I only had money to buy one and it was an all cash offer and I only had cash to do one and I was actually looking for a property where I could put 25% down and have the seller carry the financing. I had the 25% down but I didn’t want to get a loan from a bank. I wanted the seller to be the mortgage holder. So I was willing to put a lot down and I wanted the terms so – this is all coming back to me now sometimes when I’m thinking of these stories.
So I didn’t negotiate on price. I didn’t say, “ I want you to sell way below the market.” I picked whatever their listing price was and then I gave them full price offer. I gave them 25% down which was a lot of cash at that time. Let’s just assume that was $ 100,000 property. It was actually a little bit less than that but just for 100,000 for easy illustration. It was $ 100,000 property and I put $ 25,000 down. Most people get a mortgage from a bank and they have to give monthly payments on that $ 75,000 loan. They got to qualify for it, etcetera. In this case I was saying, “I’ll pay you your price. I’ll put 25% down. I want you to be the bank and the 75,000, or the 75% loan that you’re going to carry, I want it to be zero interest with equal and monthly payments spread out over the next 10 years.”
So you divide 75,000 by 120 payments, which is 12 payments times 10 years. So, 75,000 times 120 – whatever that is. $ 675,000 I think or something like that. That would mean that the seller would get zero interest but would get monthly principal payments all the way for 10 years. I would give them their price, but I wanted the terms.
Now there may be tax consequences for the sellers because sometimes the IRS imputes an interest rate that they say, “You can’t carry a zero percent mortgage. Our captain’s going to have to talk to you about that.” Well the rules change constantly and so the interest rates have been so low lately. Back when the interest rates were seven, eight, nine, sometimes 10%, getting a zero percent loan was really awesome. But even a three or four percent loan we had today, it means you’re going to have to make monthly payments for the next 30 years. Wouldn’t you rather just do it in 10? This kind of a deal would probably work out better today because the sellers realize that if they take all the cash that you give them and they put it in a bank, they still are going to give you a one percent interest anyway. So why don’t you just get equal monthly payment for the next 10 years, right?
Well one percent accepted my offer. I put 25% down. So let’s say 25,000 down in monthly payments over the next 10 years and let’s just figure that out. Let’s just do the math on it. So I’m going to take 75,000 and I want to divide it by 120, that’s $625 a month. I’m going to times that by 12, well $ 7500 a year times 10 years, so 75,000. So $ 625 a month. Now what can you rent that property out for? It kind of depends on the city and location but I bet you can get at least 625 for it. And more than likely, since it’s a home, three bedrooms, you’re going to get 1000 or maybe more. So I’ve got enough rent to cover the mortgage payment and maybe make a couple hundred dollars in possible cash for every single month.
So what’s your return on investment? Well you’ve got $ 25,000 invested in let’s say $ 200 a month times 12 months is about $ 2500 a year. 2500 is return in investment, return in cash flow net, net, net. The investment was 25,000 so that’s 10% cash on cash on your investment. Where are you going to get a return like that? You’re not going to get a return like that. You can get 10% rate on return on your cash, cash, cash that’s coming in. Of course that’s assuming you can find a $ 100,000 house and rent it out the way I described it to you. Obviously the numbers are going to change depending on what city you’re in or what state you’re in so you’ll have to do these numbers for every individual property. But the bottom line is, you’re making 10% on your money – okay so maybe it’s five or six percent on your money net, net, net but that’s still a lot more than you can get in the bank and a lot more than you can get in any investment you can look at.
Let’s take the next area. You’re going to have return on investment of – every time you make a payment of $ 625 a month times 12 months, so that’s $ 7500 in equity build-up. Meaning, the mortgage was 75,000 at the beginning of the year, at the end of the year it’s 67,500. Or $ 7500 worth of value that has been – when you should have made the monthly payments, your equity is gone. The loan is gone down; your equity’s gone up.
So if you were to sell that property, it might take you a year to sell it. If you can sell it for whatever you bought it for without any appreciation at all, you’d end up with a net returned back to you of $ 7500. So you rent it out and get some positive cash flow, you’d have $ 7500 worth of extra equity. Well what’s your return on investment there? You got $ 7500 by your $ 25,000 investment and in your first year, that’s going to be over 30%. $ 7500 divided by 25,000 equals, oh I multiplied it sorry. So $ 7500 by 25,000 is actually 30%.
So if you’re getting 10% cash on cash and you’re getting 30% equity build-up, that’s 40% of your money. Of course that’s in the first year and as the longer you hold it, the more your investment. Because the next year, you’re going to have to reinvest all the assets that you have and you’re hoping to have a better return. So the bottom line is if you hold it for five years, your internal rate in return will be 15, 18 or will be 20%. Over a long period of time, that’s a great, great return. That’s not all though. I mean you’ve got your cash flow and you’ve got your equity, since it’s zero percent loan.
What if it doesn’t appreciate in value? What if you bought it for 100 and then five years from now and you try to sell it, it’s worth 125? Or what if you negotiated not full price but you negotiated 10% below the market so immediately you got $ 10,000 worth of equity because you lowered the price. So in other words, if the property increases in value or you bought it lower than the value the day you bought it, you didn’t get a return on investment there. So what’s 25,000 divided by your $ 25,000 investment? If you bought it for 100 and you put 25 down, your investment is 25,000. If it increases to 125, your rate in return is 25,000 profit, divided by 25,000 investment is 100% on your money.
So you got cash flow 10%, you got equity build-up of 30%, you got 25,000 appreciation of 100%; that’s 150% on your money. So you see what I’m saying? Real estate is an incredible investment if you organize it and buy it in a carefully structured way. You see nothing can touch real estate, ever.
The problem with real estate values is they declined dramatically in 2007, 2008, 2009. Why? Because they took away the demand. People couldn’t get mortgages anymore. They took away the ability to buy so you just immediately killed the demand and then you have all these extra supply, hoping that people would be buying it. So you got an inordinate supply with a choked-off demand, no matter what it is you have. You did that with diamonds. The reason that De Beers controls the diamond market so well is they never want an excess of supply. The demand will be constantly there. People will always be getting married, always want to give anniversary gifts, always want to have diamonds but they’re controlling with fierce intensity the supply. They do not allow more diamonds to come to the market place because they want to maintain it, so it always looks like the best investment.
Well they didn’t do that with real estate. The supply went nuts and then it went to zero and nobody wanted real estate and nobody could sell it. It never happened in our lifetime, it hadn’t happened in our parent’s lifetime or our parent’s, parents life. This has never occurred before in this way; especially in a broad way. There was a little problem in the early 1990’s but the bottom line is to have it in every state of America was not good. Is that going to come back? Yeah, supply is getting sucked up. All these foreclosures are getting pulled away by a lot of real estate investors and demand is still there. People still want to own the American dream; own houses. They know that the market got slammed but people are still buying them. They still want to own a home or they want to rent a home. So homes will always be an investment that you want.
So anyway, the master checklist for wealth is what we’re talking about today and this is the screen shot of what the conversation is about. Finding good deals or manufacturing good deals. It is about finding or creating an opportunity. I just talked about how I created an opportunity by making multiple offers on a specific kind of real estate that I specifically identified for me to want and one of those offers was accepted and I ended up making – I ended up buying a property exactly like I just described to you and making a huge rate in return.
So your goal is to find that “don’t-wanter.” That’s the person who doesn’t want the real estate. Scan the ads daily. Put your own ad in the newspaper, online. Cars and bumper stickers and flyers of repossessed property. Talk to realtors or find the creative realtors and other professionals such as divorce attorneys and people who deal with people who have high need for creativity. There are investment clubs almost in every city. There are clubs that are called REIA. R-E-I-A so you want to just Google that. The R-E-I-A. The Real Estate Investors Association or something like that. These REIA clubs are all around the United States. They’re owned and operated by individuals who like to find a place for the club to meet and of course the owners can earn some money from that particular club. By inviting guest speakers to come in and speak to their audiences, and if the guest speaker has a product that they’re selling, then the REIA can usually get 50% of the proceeds from whatever real estate marketer they’re talking about.
Music clubs was originally started by Albert Lowry and there were a couple Lowry Nickerson clubs or groups back in the mid seventies. And then when we launched our seminars in the late 1979 and then all the way through the mid eighties we had these clubs called the “Rand Groups.” Rand Group stands for Robert Allen Nothing Down. So a Rand Group will be formed in every city where we would hold a seminar. It would be one of the reasons why people liked our seminars is because they could find a local group that they could go to. There would be a local president of that group and they were voted in by the group leadership.
Well I just had somebody in the Atlanta area who took advantage of being a Rand President and started to invest people’s money. He became an investor and essentially ripped people off and ended up going to jail for it frankly. But the group – since it contained my name in it, guess who got sued? I got sued and they were basically saying, “Hey you’re president for the group that you started has ripped off the people in Atlanta so we are going to sue you.”
I finally was able to exit myself in the lawsuit but it took me many hours and $ 10,000 to protect myself and finally I was extricated from that lawsuit but from that point forward, there were no more Rand Groups. We eventually said, “If you want to start a group, please feel free to do so. There is one in your local city.” And eventually all the groups that were called the Rand Groups and all the groups that were called the Lowry Nickerson Groups, they kind of formed together and then from that point forward, they became the Real Estate Investors Association, REIA. The REIA Groups which still exist to this very day in many cities all around the United States.
And yes you should go to those group meetings because you’ll find people who think the same way you think. You’ll find out that there are people in the marketplace and you’ll find out that you could get good information and yes there will be things that would be pitched and sold at these particular meetings but the reason that you want to be there is to find a really great deal. So when you’re out there looking and you don’t have any money at all, but you found a good deal and you tie it up. You write an offer on it, subject to your inspection. You’ll say you’ll offer them 10, 15, 20% down, but you don’t even have it. You take that offer to one of the groups and you say, “This offer expires in three days but this is a great deal. I’m looking for an investor to help partner with me on this thing. I’d like to flip it to some investor. Let them take advantage of this great deal. Just give me $ 5,000 to be the person who identified the deal and found it and tied it up.” Sometimes you find an investor there and sometimes you don’t. But at least you find a concentration of people who are interested in the real estate market and you showing up on a meeting like that and networking and talking to people, looking for the right kind of team, it’s a great place to go; in my opinion.
So, that’s what I’m talking about. Investment clubs is the one that’s discussed there. Foreclosure sales, calling on banks and finding out about the properties that they own, mailings to expired listings, foreclosures, out of state owners, divorces, and evictions. When you get out to the county courthouse, there’s all kinds of information that list all the problems that people are having. Whether it’s a lawsuit they had or a divorce they had or a foreclosure that’s going on, debts. It’s just a litany of people problems out at the county courthouse and this is where you’ll find high grade ore; high grade ore down at the county courthouse.
So you’re going to give a preliminary score based upon what we talked about last time. Using a “Bargain Finder” is going to give you a score – the total score that you see right here where the total score is going to be based upon those five areas of analysis. We talked about this last time or a couple of times before. We’re looking at the location, we’re looking at the condition, you’re looking at the price, you’re looking at the financing and you’re looking at the flexibility. All those five areas of analysis will give you a score of one to three. One is poor, three is excellent.
So you ask the questions on those five areas. What’s the location; good, poor or excellent? What’s the condition; poor, average or excellent? What’s the financing; poor, average or excellent? It scores one, two and three in all those five areas of analysis and you’re going to come up with a score of zero – or actually five to 15. If it scores 11 or more, you should go look at it. If it scores 11 or less, then you don’t waste your time. Or write an offer or you just give them an offer on the phone, “I’ll pay all cash. 20% below the market; all cash. I can close in the next two weeks. If that’s interesting to you, let me know.” If they say, “Well yeah, make me an offer.” Well then hey, you write them an offer based on that analysis. And now you got a property 20% below the market. Now you take that offer to your local REIA Group and you say, “Here’s a great deal if anybody wants one.”
So anyway once you get the preliminary score, then if the score is 12 or more, you do the final score and you do the neighbourhood analysis and the market study and the appraisal if necessary. And isn’t this just kind of like your finding, funding, farming. So step one is finding a good deal. Step two is flipping into this next area is to find the resources to finance this opportunity. You have to fund it so what resources are you going to need to solve this problem? Are you going to do a long term financing with the bank? Are you going to do a short term financing with some kind of hard money lender? Are you going to borrow the money from somebody else? Are you going to do – do you need cash for fix-up? Do you need a good credit? Do you need a strong financial statement? Or do you need some of the internal assets like time and knowledge and courage and connections and creativity and talent and skills?You know on the left hand side is the hard money assets and on the right hand side are the soft money assets – the internal assets. What do you need to be able to pull this together, right?
And finally, you got to locate the long or short term financing that’s necessary. You have to call the banks and choose the best rates, most flexibility. Have at least one bank back up. If one bank is proceeding down the path with you and saying they’re going to close on it but at the very last minute they pull out, you should have another bank in the wings that you go to as your backup plan. And you locate a partner if necessary and you can find your partners by talking to the seller. Maybe the seller has somebody that they thought might want to buy it.
Investment clubs, investment seminars, .ads in the paper, flyers, talking to the renters – maybe they did want to buy it but they just didn’t know that it was available for sale. Cold calling realtors friends and relatives. You know you got to find the money. You have to find the deals and then you have to find the money. If you have the money, then you’ll have to find it but if you don’t have the money, you have to go find the money. When you find the deal and you find the money, you profit from the middle process.
And then step three is you got to finish it. You got to follow through on the details. You open an escrow. Meaning this is where the final papers are going to be placed for the signing. You pick a date for the closing and you figure out what the estimated closing costs are going to be. Get a preliminary title report. Find out what the title is. Do they actually own this property? Do they have a title to it? Are there problems with it? Are there loans attached to it? Are there any judgements or problems with the title? You work with the title company. Get all the paperwork necessary. You deposit your necessary payments, your financial statements, etcetera. Check with your city on zoning if necessary and schedule a closing date.
And then you have to prepare the property for sale; a general cleanup. Estimates for fix-up, getting partners money for fix-up, finding the people who will do the work if you can’t do it yourself, preparing a flyer, distributing a flyer; in other words finding a buyer. Now you’re either going to keep it or you’re going to flip it. If you keep it, then you’d prepare it for rental. If you flip it, you’re going to prepare it for sale. In this case, we were preparing it for sale, right?
If you prepare it probably for rent, you got a general cleanup and estimate costs for any fix-up for the new renter. You put ads in the paper to rent it. Check with rental agencies. When you find a renter, you have to inspect the property with the renter. Check the renter out and make sure they are credible. Sign the agreement, close on the property set files and open a bank account for the cash flow that’s going to becoming from your rental property. Make regular inspections and make sure your renter is taking care of it and not destroying it behind the closed doors.
So essentially it boils down to those three fundamental conversations; finding, funding, farming. Finding good deals, funding – which is finding the money and farming is deciding how are you going to farm this? Are you going to keep it or rent it and get cash flow from your crop? Or are you going to flip it? Are you going to turn around and sell the farm to some other bidder at a higher price than you paid for? Therefore you’re selling the farm right and fixed it up and its value and you sell the farm to somebody else. So how are you going to farm it? That’s the way I’d like to think about it.
And if you really just put all your study around those three areas and don’t get overwhelmed about so much details – there’s so much to learn about real estate investing. I mean every week, I learn something new and I’m the guy who wrote the all time bestselling real estate book in history. And I’m going to learn new things every week; a new way of doing it that I never thought of before. Because there’s always these little – well not little, but there’s always people out there investing in real estate and they’re finding their own path at the top of the money mountain.
So you look at the successful ones and you find out exactly how it works. I sat in with a fellow who was teaching a real estate seminar just two weeks ago. I hadn’t sat in somebody’s seminar like that for a couple of years. And I just noticed what he was teaching and got a chance to have lunch with him later and find out what his cookie cutter was. What’s your cookie cutter? How do you organize the details of real estate or have a specific way in which you invest in real estate? And for him, it was finding the cash to do the deal. And he has been able to determine by the county records which properties were purchased with all cash; no bank financing involved.
I found out that in some counties in the Los Angeles area, that as many as 40% of the offers were all cash. Well the names of the owners of the people who bought those properties are a public record. And if somebody can track down the names and the addresses and the contact information for all these cash buyers, now you have a list of people who want to invest in or have invested in real estate using all cash. So, might they be interested in an all cash deal that you would show them, if you negotiated a found a great real estate deal and tied the offer up and offered all cash – just it wasn’t your cash. Now it’s subject to you getting the cash; therefore you’re riskless on the offer. Now you take that offer and you track down the people who have lots of cash and now you just flip it to them. You say, “Give me a couple thousand. Give me 5,000 or 10,000. It depends on the deal. This is an incredible deal and maybe you’d get more, in as much as 50% of the profit on this deal.”
They have the money, you have the time, you found the deal, you partner together and in many cases, that’s a 50-50 deal. But if you’re just a brand new beginner and if you’re really a smart person with lots and lots of cash, I can give a 50% of your deal; at the very least it’s a negotiation. You can say, “Give me a little cash” or you can say, “I want half of this deal.” It’s a negotiation process.
So anyway that’s his cookie cutter. Great little seminar that they teach and it’s very, very organized, very systematized. Well there are just hundreds of ways, a hundred little cookie cutters out there and you’re going to find your own cookie cutter. My cookie cutter was the “50 Nothing Down Techniques.” You know the 50 ways of negotiating with the seller and be able to lower the cash needed on your part. The bottom line is the “50 Nothing Down Technique” process has been taught to millions of people around the United States and it was doing extremely well until people screwed it up in 2007, 2008. But now here in 2012, almost the ending of 2013, we’ve had a six year period of time where the market’s dropped.
In my opinion, we’re about – we’re right here. It got driven up too high and then it dropped dramatically. We’re right here. Could it go back down again based upon the economy? Well yes it could. We never know. But generally I think the inventory is going to get sucked up. We have about 300 million people in America today. Well in the year 2040, we’re 2012 now but by the year 2040, there are going to be 400 million people who live in America; 400 million. Where is that extra 100 million people going to go? Well they’re going go to your property. Well if you’re younger, if you’re an aggressive investor, over the next 18 years – let’s see it will be 28 years, on the next 28 years, what’s going to happen? Yeah, your property is going to go up in value. No doubt about that; over the next 28 years – by the year 2040.
If you bought a house today and just made monthly payments on it, rented it out, eventually the rents are going to rise because inflation is going to hit us. And eventually when you get to 2040 when the mortgages is all paid off – it can be paid off earlier than that but suppose you do a 30 year mortgage and by that time, you’d have it paid off or very close to it. That property you’d buy for let’s say 100 cents on the dollar is going to be worth 200 cents on the dollar, maybe 300 cents on the dollar. And by the time you get to 2040, you’re going to have a free and clear asset.
What are you going to do if it has monthly payments attached to it? The monthly payments seem smaller now. It was bigger when you bought it but later on, you’ll have nice cash that’s coming. But when that mortgage gets paid off and the last monthly payment is paid, all the rent comes to you. It’s just like a cash cow.
Yeah I used to have issues in renting and things of that nature and problems with tenants and all kinds of issues. And yeah you have to deal with those issues. That’s the territory of real estate investing. But what if you had 10 properties like that? Like every two years, you bought another one. You look for a really incredible deal and you finally found it, you can buy it enough to rent it out. Maybe it took you two years to save on another down payment and now you got two of those in there – two properties. Now you got – two years later you bought another one and two years later, you bought another one. So in 2040, when you’re getting to your retirement age and if you’re into your thirties now, then down then you’re going to have 10 free and clear properties.
What’s the rent going to be back at that time? The same house that you rented out for 1250 a month might be three or $ 4,000 a month. Let’s say that’s $ 3,000 a month and you’ve got 10 of them so you got $ 30,000 a month. And yeah inflation is coming around so the $ 30,000 in 28 years from now, is it worth the 30,000 today? Maybe it’s only worth $ 10,000 but still you got $ 10,000 worth of actual money flowing into your life. It wouldn’t make you rich but you can retire.
Now you got 10,000 bucks in value at that time, if you need to sell all those properties to get to four, five, six, $ 800,000, just sell one. And what’s it worth? Maybe it’s not worth 800,000. Maybe that’s what you sold it for then but today if you use its value today, maybe it’s only a quarter of a million dollars that’s paid. You sold a property and you bring in a quarter of a million dollars, what are you going to with that? You see. You got nine left. You still got a little bit of cash for a little cash flow, but you got chunks of equity that you can sell off. Every couple of years you sell one and if it increases in value, you sell another one.
Now you got a retirement plan that sets you up for life, plus your social security, plus the other things that you’ve done in your life. Life is good, right? Is it easy to do? Well one of the ladies that we did a challenge on “The Neil Cavuto Show” show. We brought 100 millionaires on that show. This was in 2006. I released the book with Mark Victor Hansen called “Cracking the Millionaire Code” and with brought 100 millionaires on that show with us that day and one of the ladies who tracked me down was a woman who read, “Nothing Down.”
She said, “Bob you say in Nothing Down that we should buy one property per year.” And I’m actually saying that you should buy one and flip one. You should buy one to keep and you should buy one to flip. When you flip it, you try to make 25 or $ 50,000 on that one property. When you flip it, you don’t have any mortgage, you got a chunk of cash. So you got chunks and streams. A chunk of cash when you flip it and a stream of cash flow when you keep it and rent it out. She said, “I did exactly what you told me to do. I bought the book.”
Of course this was in 2006 so she said,” I bought the book in the mid eighties so in 1986 and I did exactly what you told me to do.” I very rarely met people who do exactly what I told them to do. But she bought a house that year and she bought one in 1987, then bought one in 1988, bought one in 1989 and by the time she ended up on that show, “The Neil Cavuto Show,” she had 20 properties in her portfolio. Some of them were free and clear. Some of them she bought as the years went by. Some of them had less equity in it but had she followed that exact same plan, she had a million dollars worth of equity in those 20 properties that she started in 1996 up to the year 2006.
The same kind of thing could happen to you. It could make you a millionaire; just a little dribbles and a little investment over a long, long period of time. What got everybody in the speculation game in 2007 and eight and nine or seven and eight was because people were thinking they could buy a property today for 200,000 and sell it for 300,000 and they’d make a big chunk of money. So they started buying and bidding up these properties and values rather than saying, “I need to buy a wholesale.” You always buy a wholesale. You never pay retail for properties.
I was using an example of a student whose father came from China and had a lot of cash to invest. I actually talked to the realtor that I recommended in church the other day and I met him and I said, “How are you doing?” She said, “Well they’re getting their cash in from China and I talked to the son whose father had the money to invest and he’s going to college here in San Diego.” He said, “What should I do? Should I buy one that’s hot right now when the market’s tough?” And I said, “No, no…” And she says, “Yeah but we’re writing an offer on a property in San Diego and there are six people who are bidding on the same property.” I said, “Well, good for them.” “Yeah but I need to get in now because the property is going to increase in value.”
Good morning everyone! Welcome to our conversation today. Welcome, this is Robert Allen talking about, “The Road to Wealth.” This is I think the third conversation we’ve had about “The Road to Wealth.” I hope everything is going well for you in whatever part of the world you might be at. I’m here at our home in Utah. It’s a pretty good weather outside but we could expect some snow shortly.
But at any rate, come on in and let’s talk about this chart that you’re seeing right here. Remember last week, we talked about the mindset of an investor. I talked about climbing the mountain of wealth. Let’s see if I can return back to some of the pictures. This is one of the pictures that we showed last week, which is the mountain of Mt. McKinley up in Alaska.
You know it’s been a long time since I’ve actually used this story as an illustration of what it takes to achieve great success. Just showing this mountain and what it takes to climb at the top of this mountain was – it’s like probably been maybe 10 years since I’ve really used this is my Power Point presentations. I actually went back to early 2000’s, where I created a Power Point presentation using this particular image and it reminded me of a great example of what it takes to achieve great success. If you want to climb at the top of a mountain, it’s hard. And yet when you get to the top of that mountain, you can really get greatly rewarded as a result of doing that.
When I showed you this presentation last Wednesday, I was actually speaking to some audiences. The very next day and I pulled up the slide and it really, really was very – what’s the word I want to use? It was very helpful in the presentations that I was giving. Because usually we talk about, I give imaginations about what it’s like to live a beautiful life in the future and walk up to your front door of your beautiful dream home, but there’s really no conversation about how hard it takes to be able to get to that dream lifestyle.
This example of climbing the top of Mt. McKinley shows that the rewards are huge but the difficulty is huge, and yet people want to take sacrifices if they just know the rewards are there. So once again in the speech that I was giving you in Mexico for two specific audiences, I asked them how many of you are willing to climb at the top of that mountain for a million dollars in cash if you knew that it was real; and everybody raises their hands. Here in Mexico, in the central part of Mexico in a couple very nice cities, more than likely the folks that were in the audience that I was speaking to had never seen a mountain like that and had never attempted to climb a mountain like that. And yet when I asked them how many of you would climb that mountain, the tallest mountain in North America for a million dollars in actual hard, hard, cold cash; everybody raises their hand to that.
So if you want to choose some great success in your life and you’ve ever seen somebody who is at the top of that mountain that you admire and respect, you’ll realize that although they may tell you some of the challenges they’ve experienced as a result of climbing at the top of that mountain, more than likely there’s a lot that you don’t know about. That’s why we respect them for doing that.
Now I’m going to scan forward through what we were doing, the climb at the top of the mountain that I was teaching the folks in the unemployment lines of Saint Louis, Missouri. If you’ve been following us for the last couple of weeks, we’ve been discussing this book called “The Road to Wealth.” The original title for that book was called, “The Challenge.” It was about me going to the unemployment lines of Saint Louis, Missouri and talking – these are the folks that I actually selected to train and to work with.
I showed them how to find real estate deals and this was the system that we used. When you really think about what are the characteristics of what you need in order to be successful at finding a real estate deal – your five essential characteristics or the information that you need. You need to know what the price is, you need to know what the property condition is, you need to know what the financing is going to be, you need to know the location. And there’s one final piece that you probably wouldn’t find in a real estate appraisers lexicon but it may be the most important characteristic of a creative real estate inventor’s tool kit, and that understands the seller’s motivation and flexibility.
When a seller needs to sell a piece of real estate, what’s the reason that they’re selling? How soon do they need the money and do they actually need the money? Do they just need the relief from a bill perhaps that they have incurred and they have monthly payments attached on that bill, and now they’re trying to sell this asset, recoup a lot of cash in order to go pay off a bill or an obligation or a debt that they owe, without having considered what are the other options. Perhaps you could buy that property and assume their debt or obligation without having to come up with a lot of cash. Now the person’s responsibility to pay the debt has been eliminated, they just also eliminate their property with it.
Therefore the debt goes with you as the new buyer and the old seller walks away without the pressure of the debt, and then you don’t have to come up with the cash. So bottom line is you need to understand what motivates that seller to sell. And these five characteristics we’ve talked about in both the previous books that we’ve discussed – we talked about “Nothing Down,” we talked about “Creating Wealth” and now with “The Road to Wealth,“ we were using this system to teach people who were from an unemployment line and they needed to make some money quickly.
So I taught them a scoring system that I’ve shared with you in previous conversations. I’ll discuss it briefly with you here. Again, it’s based upon those five points of analysis that we just talked about. Location; and you’re going to score every property in a poor, average or excellent mode when it comes to the location. The same thing with the property condition, same thing with the price, same thing with the financing and the seller’s motivation and flexibility. You can do this in your head. You don’t have to have a form like this that you fill out. Frankly you just go through the five areas of analysis and you ask yourself, “Okay what about the location; is it a poor location, if it’s an average location or an excellent location?”
When we talked about “Creating Wealth,” I actually read every one of these areas to you so I’m probably not going to read them again. But the bottom line is, in my original very, very conservative analysis, I have always said if it’s in a bad location, always give it a zero and never buy it until you’re an expert real estate investor. Then you can buy properties that are in locations that may be questionable or you can buy properties at distances that may be hard to reach where you have to fly somewhere to look at your property. I have always said that you should buy a property within 50 miles of your own home because as a brand new investor, there’s just so many things that you are learning, that if you have to get on a plane and fly to look at a property or analyze a situation or deal with a tenant that’s giving you challenges, that it’s much better to do that from a close distance than a far distance.
And then once you’ve become an expert, yeah you can buy a property across the state lines and some other country even perhaps but the scoring system to get you to buy it is always going to be based upon these five areas of analysis and in your head, you can figure this out. You just add up the scores. Is it poor or average or excellent? And do any property that you’ve ever analyzed, you give it a score of zero, two or three when it comes to location and you just add it up.
The next thing is what does the property look like? What condition is it in? If it’s in a poor location and at poor condition, if it needs major cosmetic and structural improvements and you got to spend at least 10% of the purchase price to be able to get it to be livable or marketable, then this is not good. That’s from a very conservative standpoint. Do people buy properties that are in poor conditions to fix them up and sell them? Is there higher profits to be earned from a fixed-up property? Absolutely; fixed-up is excellent. It’s a great way to invest in real estate. But as brand new investor, dealing up with the challenges of fixing up a piece of real estate you’re trying to buy, that’s just an extra risk that you add. What if you start fixing up a property and find out that behind the walls, there are some problems that you didn’t anticipate and now the cost balloons?
In other words, there are more unknowns in fixing up a piece of real estate. I like to buy properties that’s in good conditions, in good locations. They’re owned by sellers who have poor selling problems. Problems that that seller has, not that the property has but that the seller has. The seller needs the cash or the seller has some need to get rid of that property and the property is excellent, in an excellent location. Those are the kinds I like to find. But if you go into the fix-up game, your profits can be bigger but risks can be bigger.
So I was trying to create a scoring system that was more conservative for the beginning investors so that’s why I give it these points. If it’s a true fixer-upper, cosmetic improvements would be nice but not immediately necessary, costs don’t exceed 5% of the purchase price, then that scores a two. That means it’s an average condition. If it scores a three, it’s in excellent or good condition, then it doesn’t need any recent – it already had some recent renovations. It doesn’t need any fix-ups. It’s immediately movable and it looks good to whoever would want to buy it.
When it comes to the price, this same question applies. If the property is something in a really desirable location and frankly the seller has increased the price because they’re really not all that flexible, then that’s not good. You want to be able to buy a property below the price or below the market; at least 5% or even 10% below the market, if you give it a high score. And as the market conditions go down, if the market is what call a buyer’s market – a buyer’s market is the perfect time for buyers to buy because the sellers are having difficulty all over the place selling their real estate and therefore they have to negotiate with other sellers. There’s a whole bunch of properties in your neighborhood with for-sale signs on it, that’s a good sign when it comes to a buyer’s market if you’re trying to negotiate a good deal. And when the economy is bad, frankly you want to be more conservative. You want to buy properties at least 20% below the market or even more.
Now things have been very tough over the last five years. Things started to soften in 2007 and then in 2008, we went off a financial cliff in the fall of 2008. But 2000 real estate prices were already starting to seem exorbitant for the market conditions in 2007, 2008, 2009, 2010 and 2011. That’s been five years, as the demand for real estate dropped dramatically. Why? Because people weren’t making the profits they thought they would be making. Their properties weren’t increasing in value like they hoped they would. It wasn’t a hot investment anymore so the demand dropped off dramatically and then part of the demand was making easy financing available through these non-qualifying mortgages.
So when you have easy money and a hot market condition, prices have to go up. But when you remove the financing like they did in 2008 and you couldn’t get a mortgage any longer, the demand for real estate plummeted. And now we had all these properties that were in anticipation of the huge market demand, builders were just over building and now we just had a glut of real estate. So you had a dramatic increase in supply and a dramatic decrease in demand. And therefore what happened was a catastrophic situation when it comes to real estate; catastrophic. Even today, there are many people whose properties were purchased at a higher price point and have now declined in value so far that they are caught underwater. They don’t have any equity in them. But they like the home, they like the location and they can handle the monthly payments and therefore, they just hang in there. Well this is about to change. In fact it’s been changing over the last six months or so.
A year ago, when I was asking people about properties in San Francisco, they’d say, “Oh yeah, the market is still pretty soft, banks are dumping their properties on the market place. Lots of supply, demand is still low.” But people need to live somewhere. People are moving in to cities that are high demand and after awhile, the supply starts to gets snapped-up and it gets to the point where the number of days to sell a piece of real estate might be 90 days, might be 120 days, might be 180 days, it could be as long as 365 days where properties would remain on the market and not get a single offer. As that inventory gets finally snapped-up by real estate investors buying properties at the low hard cost fix to buy them, to build them and new people moving in to the city, the inventory starts to go down and the number of days it takes to find a property goes down to six months, five months, four months, three months, two months and then it starts to get – and then we start to flip into what we call a seller’s market where buyers are competing with the limited inventory and therefore prices start firming up. In some cases, people pay more money than what the listed price is for. Now that’s happening.
Many cities that hasn’t begun yet but in Californian cities especially in San Francisco and San Diego which are the high demand cities of California where the weather is even better, I was talking with realtors just yesterday as a matter of fact. Realtors who have been in business for the last five years and they’ve seen what’s happened to the marketplace and finally realized that the inventory has shrunk down dramatically. Meaning the banks don’t have any more in their inventory. They’re holding on to all those properties that foreclosed on and they’re judiciously letting this inventory comeback on the market so they can get their full price in the properties they’ve got; they can get their money back.
So the bottom line is we’ve got waiting lines for people to buy real estate in the San Diego area. I’ve heard that over the last three months and in San Francisco, the same thing is happening. But what does that mean? It means that you’re going to start to see across America over the next year, you’re going to start to see that the real estate crisis is over. Not in some cities but in many of the high demand areas, the real estate crisis that we’ve been through for the last five years is over.
Now I remember the times in the years 1989 and 1993, 1994 – that five year period of time in the last part of the 1980’s and the early part of the 1990’s which was now 20 years ago, same kind of problem happened. We had savings and loans that lent money indiscriminately. People were buying lots of properties and taxes in Florida and California, in Arizona – seems like these were the areas were overbuilding happened because there seems to be a lot of land in all those countries or in all those states for people to build on. Bottom line was they had a glut of real estate and the same problem happened. The savings and loans went bankrupt, the government swooped in and picked up all these properties and then formed a corporation called the Resolution Trust Corporation to acquire all these properties that the savings and loans had accumulated from all the foreclosures that were happening, which forced the savings and loans in the banks to go out of business.
Therefore since they were guaranteed by the government, the government took the savings and loans under their wing, took all the assets that the bank had and then literally sold all of it for pennies on a dollar all in a period of time, it was real estate bonanza time for real estate investors. It appeared as if the market was terrible and the real estate would never come back. Well it did. It came back big time.
What does that mean to those who bought properties 20 years ago in 1990? It means if they bought them right, they are now sitting on properties that by year 2007 had doubled, quadrupled, maybe even more in value. And then we hit 2007 and prices started to soften big time and then they dramatically dropped. Sometimes people would buy a house for $ 200,000 and wouldn’t be able to sell it for $ 25,000. It dropped almost to like I said pennies on the dollar and in the areas in Cleveland and in Ohio and in the Midwest where – I would go online in 2009 and see properties that literally were in neighbourhoods that were dramatically dropped in value. You’d buy a house for $ 5,000 that really had sold for 100 or 150 or $ 200,000 which is like shooting fish in a barrel. Well those times are over or they’re soon to be over. Therefore you need to be more conservative; you need to look for deals.
I had an investor who came to California. Actually he’s from China and had a lot of cash, a multi-millionaire, son was going to school in San Diego and the father wanted his son to be able to learn how to invest in real estate. He wanted to be able to buy his son a property and they just went out there looking for real estate deals and they just weren’t – this was about a month ago and the properties were not as prevalent as I remember them being a year ago, a year earlier. He said, “We need to buy something. We need to snap it up right away because there’s just so much demand.” I gave him the advice I’m going to give you, especially in this case that they had cash.
Had a lot of cash to invest and wanted to give his son a good experience in investing as he was going to college and wanted to buy a property his son could live in and then could learn the process of investing in America. They’d come from the Far East and therefore they had some extra cash to invest and they said, “Please help us find a piece of real estate” and I spent some time talking with them in my office about what to look for and I showed them this form that I’m sharing with you now, this form right here. And I call it the Bargain Finder Form. I showed them the five areas of analysis and told them that they needed to be very careful about what they invested in. I’m just going to show you the other areas of financing and the seller’s motivation and flexibility.
You take these five areas of analysis as I showed them and I said when you look at a piece of real estate, you just literally score it based upon poor, average or excellent. And the most you could get by adding up all the points on this scoring system – if I’d look at the location, let’s say, it was an excellent location, I’d give it a 3. Property condition is a 2, needs a little work. I give it a 2, that’s 3 plus 2 is 5. The prices, let’s say it’s on the market. Let’s say there’s no negotiation and that gives it a 2 so we have a total of 7. Financing. They got to come up with all cash. And I give it a 1, that’s an 8. And the seller’s motivation and flexibility they’re not very flexible at all. So I give them a 1, that’s a 9. When you add up all those points, if you get less than 11, you don’t want to buy it. You don’t want to buy it at all because there’s not enough deal there. You only want to buy if it’s a great deal.
But let’s go back over our little scoring system. What if we’d look at properties in a good location, let’s give it a 3. It’s in good condition. It’s ready to go. We give it a 3. That’s 6. Price. Let’s say we can buy this thing below the market. Let’s say we can get it 10%, at least, that gives it 3. Remember we have 3 plus 3 plus 3, that’s 9. Now what about the financing. We’re going to have to come up with all cash. That’s not good. That’s a 10. And then we look a seller’s motivation and flexibility. Well they were flexible enough to lower the price. Are they really, really, really desperate? Well if they are really desperate, they really need to get some cash this is good for your negotiations. That’s a 3. That’s 13. The dividing line score is 11. If it’s below 11, the score is less than 11, you got to negotiate better or just go find another deal. If it’s above 11, 11 is the dividing line, it’s kind of like they better try to negotiate a little bit better. If it’s a 12 or a 13 or 14, very rarely you’re going to find 15. But if it’s 15, that’s really good. You negotiate. If the seller’s offering that property 10% below the market and they’re really desperate, you know they’ll take less than 10%. They’ll go to 15% below market. And if you have lots of cash that’s sitting there, waiting to pounce on the right kind of deal, you could make it a lot more quick. You could say to them, “Listen, maybe you got another real estate investment or maybe another business that you’re trying to buy and it’s a once-in-a-lifetime deal.” You have a piece of real estate that’s worth a hundred cents on the dollar and they’re willing to take 90 cents on the dollar, a 10% discount, but you realize that they’re really, really motivated. They’re either motivated by desperate need or they’re motivated by incredible desire to do something else with that money. And you could say, “Listen, you can buy into this other business. The window to buy it is really narrow. To buy into it would be the deal of a lifetime and therefore, making a little bit less on this real estate deal so you can go make a whole bunch more on another opportunity means you shouldn’t too worried about the price. I’ll offer you 80 cents on the dollar, 20% below the market or 25% below the market on one condition. I’ll give you cash and we’ll close in 7 days.”
And now they’re going, Boy, this cash, buyer’s sitting there ready to buy and they’re not motivated to buy. They’re looking for the deal not looking to just jump into the market while everybody’s driving prices up. Have we learned nothing in the last five years? The reason the market collapsed is because people were buying properties in a frenzy and they were competing with each other and they weren’t looking for great deals. If you got the money in the wings waiting for the right great deal to happen, timing, buying it, being able to close on it without any contingencies and be able to get financing is extremely valuable to the right kind of buyer. And when everybody is negotiating and closing on great deals and there are – suppose there’s ten offers. They’re coming in to buy a piece of real estate and which person’s going to get the deal? It’s going to be the person who gives the best kinds of opportunities for the seller. So you could say to the seller, you got 10 buyers all waiting to buy it. Eight of them are going to require them to go get a brand new mortgage. And you know how hard it is to get mortgages these days. You’ve got three of them that have cash but they have all kinds of contingencies and you got to jump through some hoops. But you have one buyer here that is not willing to pay all cash. Sorry we just don’t do that for a full price offer. If you want full price, sell it to one of those other nine people. But we need 10% below the market. That’s just the way it is. But we can close quickly. We can close in 7 days, guaranteed. In fact, here’s the money. It’s sitting in the bank. It’s right there. There’s our money. It’s ready to pounce. And maybe you’ll make five offers like that. And only have one of them actually go through where they’ll actually take your discount. But at least now you’ve found a discount and you’ve made money the day you buy it.
And that’s the secret of investing in real estate. You want to make money the day you buy it. The market for that house is 300,000 and you bought it for 270,000, at least 10% below the market. You know that you’ve made 10% of your money immediately because you could turn right around and sell it within the next six months, recoup your investment and make some immediate profits. This is the advice I gave to this recent cash investor to always be on the lookout for the deal not just try to buy something, anything to get involved in something like that. There are a lot of reasons why people become motivated like that. And me and acronyms, I created this what I call the Dontwanter Conditions acronym just to show you what causes people to get flexible.
Obviously divorce is a big, big one. But the property’s obsolete and needs to be fixed up or changed or repaired in some kind of a way that maybe the roof is bad. Maybe there’s a negative cash flow and perhaps the property’s worth say 300 but you could buy it for 250. Why? Because the seller has a tenant in there and is losing a thousand dollars a month and just can’t afford the thousand dollar a month negative. Maybe you could afford the negative, if you could get the right kind of deals. Does that make sense? The seller’s being transferred. There’s wrong management situation. There are arrears in their monthly payments. They have negative location. They got taxes, an estate situation, retirement, competition. Maybe another, another competing apartment is stealing all their clients because they have upgraded it to cable or whatever and so this 2 apartment buildings side-by-side. Maybe yours has a higher vacancy because the brand new building next door is stealing all your tenants from you. So that means the competition has decreased the value of that one property. And therefore you’ve got to figure out how to solve that problem and perhaps the owner doesn’t know how to solve that problem.
So competition has created their desperate situation. Big one comes from out-of-state owners. People who own property out-of-state are always more flexible because they don’t know the values of property. And if they ever had a bad tenant situation, they become desperate almost immediately. They say, “Get me out of this thing.” Some people are just afraid or they have debts or they’re just ignorant of what the values are. Or they don’t have – they have a lack of time. They need money for another investment like investment capital needs. They got a terrible partner. They’d rather buy a fancy Mercedes and drive the car than have a real estate deal that isn’t all that fancy. In other words, get me out of this property, I want to go buy a fancy car. Or maybe sickness and so there are a lot of reasons that people become desperate to sell.
And in the personal area, most of them are because of personal issues. Now I’m looking here on the form and I see that there’s actually a typo, a mistake in the math. There are 13 reasons are personal, 4 were of a process of management are actually – it says in the math there, it says there 14. Now that’s not correct. Two of them were based upon the property itself and one was based on people. Generally you’re looking for a desperate seller who has personal issues with a great piece of real estate. Does that make sense? You’re always looking for these circumstances. You see there are a lot of times where people, the out-of-state owners, and they don’t realize that markets in San Diego area have, or whatever area that you might have to be in, they don’t realize the market has turned. All they realize is that it used to be a real soft market but today it’s really hot. And they don’t know that. So, you research out and find people who have out-of-state ownerships. You learn to confine your target territory. I challenge you to do that where you pick a territory in your city where there are at least a thousand properties bounded by, say, a mile on each side. You pick a target territory in a good location in your local city and say this is my buying market. This is my buying farm. And you start noticing every for sale sign that goes up in that area. You become an expert in that area. You become your city’s expert. You realize that when a property goes up for sale you track how long it takes to sell it. When does a for sale sign come down? You start keeping records of the properties in that area.
When get some research at the local courthouse and you literally found out that 10% of the properties in that area were owned by out-of-state owners? That means that there may be, out of a thousand properties in your buying farm, a hundred properties are owned by people who live out-of-state, who don’t know that the market is hot now, to whom you send a letter and you say, “I’m a real estate investor. I’m not a realtor. I’m not trying to list your property. I’m trying to buy a property. I sent this letter out to a hundred individuals who have properties that I’ve researched out. I want to know if you might be interested in selling and of course I’m an investor and I want the right kind of a deal. But for the right deal I’ve got a cash offer to make you.”
Now what are they going to do with that cash offer? Well suppose a hundred letters get received in the mail. You can even send them FedEx. It might cost you a little bit extra money but it cost you 20 bucks to send it by FedEx and you’re sending it to a hundred people. That’s 2000 bucks. That’s a good chunk of money. But that means that a hundred people that actually get your offer. They open it up. Inside they see a formal letter from a real estate investor. That’s you. And what percentage of those people will have received that offer on a day when they might need the cash? Out of the hundred people who got that offer, I’ll bet you five of them would be desperate for money. They don’t know what the values are in your city. You should know what the value is in your buying market. You should know that the property that you’re sending an offer to has a certain value. Let’s say it’s $200,000. And you know that properties in your neighborhood are going to sell from 150 to 250. And that therefore if you make a low-ball offer, you should be okay. One way to increase the odds of success on that would be to send a hundred offers. And that means you do a lot more work on it but you literally make an offer based upon what you think the value would be for the properties that day, in that month.
Let’s suppose that the values of properties are generally in the $200,000-price range and you make an offer of $150,000 in cash and you send out a hundred offers. Of course in your offer it’s subject to the fact that you have made simultaneous offers on other properties and that the first person who accepts the offer competing with the other ones wins. In other words, you turn the tables where the realtors want there to be a bidding war for one piece of real estate. You turn the tables and you make a bidding war for many pieces of real estate. In other words you send out a hundred offers with substantially below the market pricing and quick closings and all cash and of course obviously you have to go through the process of finding the cash or finding the partners to have that kind of money. And that’s a different conversation. We’ll talk about that later. But today, let’s assume you have that cash. Even if you didn’t have that cash, there’s ways that you can do this. By the way I just was – a friend of mine teaches real estate seminars and finds out that sometimes a very high percentage of the properties that get sold in markets these days and this is 2012, 2013. In these days a lot of the properties that are being purchased are being paid for in cash and that’s as much as 40% of the real estate deals being done today in many of the cities are done with all cash.
What if you have a list? We could research the names of the owners of these brand new properties that bought them in all cash and what if you had a list of them? What if you could send out to that list a deal that you had found that was incredibly good deal and you could flip that property to these people with cash? That’s what’s happening these days. And I’m just kind of giving you an idea of what’s taking place. The bottom line is if you have cash or if you can find cash, you’re in the driver’s seat always no matter how hot the marketplace is. So you send out a hundred offers, literally signed offers subject to the fact that you’ve made simultaneous offers for other properties and that you can only purchase one with the cash that you have. But you want the best deal. If a seller opens up the mail and finds there’s an offer to buy a property that they own out-of-state and they need the money, they may be highly motivated to buy it. Thank you. If you’re highly motivated to sell and you got an all cash offer even below the market, even in a hot market, there are ways to find the right kind of real estate deal. See what I’m saying?
Now we have a hundred offers out there. We might have 80 rejections. People that don’t even look at the offer they say, “I’m not going to sell. My mother-in-law lives in that property. I’d never sell that property.” But you have 20 people who might be interested. You have 10 of them who might call you on the phone and maybe actually you might have 20 people call you on the phone. What are you doing and what’s the deal here. And you’ll have some more savvy investors saying, “I’ll get an appraisal on the property and make sure that I know what the value really is.” And of course, those are not very desperate are they? You’re looking for that one person who maybe inherited a property six months earlier and they never wanted it. It was kind of a dumpy little thing and they just couldn’t – maybe they tried to sell it. Nobody would buy it because the market was so soft and then now a year later they have this bad experience of realizing the property is not in the condition they want. And they don’t realize the market shifted and the values have firmed up. Values are moving up and they only have this bad experience they had for trying to sell it maybe a year earlier, when they inherited it. Let’s say it was a year ago. Somebody comes along and suppose they had listed it for 189 just trying to get any kind of a buyer and they were willing to take 150. But they listed at 189 and they didn’t get a single offer. Finally the listing expired with the realtor. They had a bad taste in their mouth. Now a year later, they’re willing to take 150. You come along with the 150 offer in all cash. There’s no real estate commission involved. They might just sign that offer and send it back immediately and say, “Yeah let’s do this.” Obviously it’s still subject to your inspection of that property. At which time you’re going to say, “My quick cash offer was subject to me looking at this property to make sure it’s good condition.” You have a property inspector come through and make sure. You might spend $400, $500 to have a professional property inspector come through and check this property inside and out. Making sure all the electrical systems work and the plumbing systems work and the heating systems work. Everything works or if not, they’ll point out what the problems are.
At which time you can come back to that seller and say, “It was subject to my inspection of the property and I find out that there are $2,792 worth of improvements or fixes that need to be made to get this into good condition. Therefore my offer is now lowered by $2,700.” And the seller goes, “Oh this is terrible. Well, okay. Let’s do it.” Now you’re acting like an investor who buys property the right way rather than a speculator who gets motivated by the competition from other speculators. That’s not the way we do things. If you had – and if people had just lived those kinds of rules even during the height of 2004 and 2005 and 2006 and 2007, when things started to peak, if they had always been a smart investor buying with wholesale thoughts in mind, then when the market crashed, they still might have been underwater. But not nearly as much because when you pay full price or even above the full price for a property that you’re negotiating for. That’s just not smart. Anyway, you’ll find the clues if you happen to be in the city.
What we just talked about was the scenario for buying properties from out-of-state owners. But here’s the scenarios if you’re looking in your target territory, the area where you found a thousand homes. Maybe it’s a mile square and your city located next to a, maybe, a university or a very nice park, something like that. And you’re always driving through and looking for tell-tale signs of people who don’t want their real estate. Tall grass, weeds, peeling paint, discarded trash, abandoned vehicles, broken or boarded-up windows, posted notices from city or county officials, fire damage, wind or water damage, any kind of mismanagement due to tenant abuse or any sign that the property’s vacant. Any of these visual signs as you’re driving through your neighborhood – you should drive through your neighborhood at least once a week. Maybe it should be your Sunday drive, after church. On the way home, let’s say, “Let’s go drive by our target territory, our buying farm.” And you literally drive up and down the streets of your buying farm once a week and you’ll notice if there are any new for sale signs . If so, you stop and you ring the doorbell. Just say, “Hi. I see this up for sale sign goes up. It wasn’t there last week. What’re you’re selling for?”
You go through the five areas of analysis. “Is this a good time to talk?” You ask them. Sometimes if they’re not highly motivated they –. they’ll say, “No, talk to my realtor.” Well they’re not very motivated, are they? If they say, “Yeah come on in I need to get rid of this thing.” You go, “Good let’s talk about it.” What are the five areas of analysis? The location is a pretty good location. The condition of the property, may I have a quick peek? Number 3, what’s the price? This is the way you ask the price question. You say, “What’s the value of this property?” And they might say, 200,000. And then you say, “What is your price?” And they say, “200.” If they just told you that it’s worth 200 and they told you that their price is 200, you know that they’re not motivated. And you also let them know by that because you expect a good deal. If the value’s 200, you want them to say 190. The way you ask the question about to find out how motivated they are, you might say, “I know this is a personal question. Forgive me. You don’t have to answer it but it would help if I kind of had an idea of what your reasons are for selling and what you’re planning on using the proceeds from the sale for. I might have some other ways of dealing with that to help in the selling process.” In other words you’re trying to find out what their motivation is. Sometimes they won’t answer that question. They’ll say, “Well like you know, that’s kind of personal,” but sometimes they’ll just blurt it right out. They’ll say, “Yeah my wife and I are not doing very well.” Or, “I got another job offer across the country,” or “I’ve got this other investment opportunity where I need some cash to go.” Now you understand their motivation. And the more about their motivation you know, the better it is for you to negotiate. Sometimes they answer it, sometimes they won’t.
Anyway, you have to be a real estate detective to sniff out the great deals. And if a person is trying to sell and you come along before the realtor talks to them, as soon as the realtor talks to them, they’re going to try to get the highest price they can get. And they’re going to say, “Let’s try a high price first and then we’ll lower the price later.” Then we of course add the real estate commission on the top of that. Immediately 6 or 7% is gone because they’re going to increase the value. Generally, they’ll increase the price to cover that commission. That doesn’t happen in every case but in the majority of cases in my opinion, when you have a realtor involved that’s more cost to the buyer. It’s better to negotiate with a seller who hasn’t listed with a real estate agent because there’s more money that the buyer could get from you. That means a less cost for you because the commission is no longer there. Anyway, the process of finding and becoming a detective for real estate is the secret or – it’s not a secret it’s the process that you go through and it’s essential. It’s what a smart investor does. Even as market prices change, even if the market flips from a buyer’s market where sellers can’t sell to a seller’s market where it seems like all the buyers in the world are competing for the same real estate, regardless of whether you’re buyer’s market or seller’s market, you want to find a wholesale deal. You need your price or you need your terms. Your price or your terms. That’s just the way it is.
If you can get both, that’s even better. What I mean by price or terms, I mean you’re either going to buy that property below the market to 5, 10, 15, 20% below the market or more. Or you’re going to say to the seller, “Okay, I’ll give you your price but I want the terms meaning I want to give you nothing down. I want to make no monthly payments for 6 months. I’m going to go in and fix this thing up, increase its value. I don’t want to invest a lot of money into it. I’ll make you monthly payments perhaps but I don’t want to put a lot of money down.” You try to negotiate less cash. It’s either all cash or no cash. If it’s all cash, you want to negotiate the price. If it’s no cash, you want to negotiate the terms. Those are the discussions we’re going to have today about the road to wealth.
We are going to end our call today and we’ll be discussing a final conversation about the road to wealth next week. Anyway sorry about the little glitch we had with the recording getting frozen somehow. But I have version A and version B recorded up there for today’s date. I wish you well. Have a wonderful day and we’ll see you next week. Same time, same place.
Good morning everyone! Welcome as we get started with today’s broadcast on “The Road to Wealth” and we’re just about two minutes early and we’ll be starting in just a moment. Come in, welcome! We’re starting here in just a moment. It looks like the time has arrived so welcome everyone! This is Robert Allen. Welcome to our program today. We’re going to be talking about “The Road to Wealth.” How you generate wealth in your life and this is what the cover looks like for the book called, “The Road to Wealth.” It’s a re-edition of the book called, “The Challenge.”
Today we’re going to talk about this challenge that I was involved in with this particular book. Remember the challenge that I said and this was in 1984 so this was well over a decade ago, well actually a quarter of a century ago, time flies. I said, “Send me to any unemployment line. Let me select someone who is broke, out of work and discouraged. Let me teach them in just two days the secrets of wealth, and in 90 days they will be back on their feet with $ 5,000 cash in the bank, never to set foot in an unemployment line again.”
This was definitely a major challenge in my life and it was a difficult challenge. It was a challenge that meant that I had to take some incredible risks. We went to St. Louis, Missouri and we selected people from the unemployment lines of St. Louis, Missouri and we showed them how to make money in 90 days or less. Starting with no cash and no credit, no job, nothing. It was a major, major event and it was scary. It definitely was one of the most difficult challenge that I’ve ever done.
When I went to the unemployment lines that day – this is a younger me in a three-piece suit, the different glasses; a different man, handing out flyers to invite people to come to a challenge. The very next day whereas we’re going to select some people to work with and I touched on this briefly on our previous call a couple of weeks ago. I ended up selecting Philip and Karen in the center; Nora, right next to me in to the left – to my right and then Mary and Steve on the far left of the photo that you see there. What we ended up selecting them to participate in this challenge and the challenge was set-up so that – we wanted them to go through a test; a challenge to prove that they were qualified to be part of the people we’re going to select and write a book about. Now their stories have been read by hundreds of thousands of people and I wanted to select the right people.
So we did a selection process where we invited people; there were 50 people who showed up that day for the challenge. I expected 200 people. We had a big room with 200 seats in it and only 50 people showed up and so I said, “Uh oh, we’re in trouble now.” Because I wanted to find the strongest candidates I could find and there weren’t as many candidates as I thought. So we went through a process of having them fill-out an application and I told them they’re going to have to work hard and they’re going to take a lot of risks and I’ll be working with them personally and that we would share with them the techniques and strategies for creating wealth.
Well, we had them fill-out the application and we talked a little bit about it and then as they walked down the aisle in the Cheshire Hotel that day, as they walked toward me and I looked at them and just evaluated them very quickly and essentially if they looked me in the eye, I put their application in my right hand. If they wouldn’t look me in the eye, I would put their application in my left hand. And essentially, that’s how we made the first selection process. I wanted them to be confident enough to look me directly in the eye and let me know that this was something they really, really wanted. They’ll look down if they were a little nervous or a little embarrassed or whatever. They were in my left hand and they did not pass the first test.
Then we sat down and we evaluated them throughout the day and we interviewed them one on one, on one. We selected those 50 people down to several different cuts if you will. By the time we were done, when a person would go to the board to see if their name had made the cut, we posted the board of the people we thought would be the best candidates and if they looked up on the sheet and they saw that their name was not there, they had not made the cut and they said, “Oh, darn it!” and so they literally left. We told them the next day that at The Daniele Hotel in a suburb of St. Louis, Missouri, we were going to be giving them copies of my books and some tapes and things like that and if they wanted to come by The Daniele and pick up the book we had for them, then they’re more than welcome to do so and we told them that they had a gift waiting for them.
Well, the real secret was if anybody came to the hotel the next day and literally walked down the hallway and poked their nose in the door during the seminar that we’re going to teach to the three that we were going to select, that they were automatically invited. They automatically made the cut. So the first cut is a no. They said no they were not selected so they got the next opportunity. Very few people showed up the next day but if they just showed up and picked up their book at the bellman’s desk and walked backed in the room, they would have been in. But the ones who were in are these three re-selectees; two couples and a single woman and when they were finally in, we were down to eight people.
We had the ex-mayor of St. Louis, Missouri; Mayor Poelker came that night to The Cheshire Inn and we interviewed all eight of our selectees and literally, we knew we had some good candidates but all eight of these people were called on the phone and told that they were not selected; all eight. A 100% rejection. What we were looking for was a person who would not take rejection. And who we ended up with was Philip and Karen who is in the center there.
Essentially, calling us back and saying, “If I got to be the waiter at the back of the room so I can just watch what’s going on, you don’t have to select me but I just want to be there.” And Philip, he was in because that was what we were looking for. Same thing with Mary and Nora; Nora standing next to me in pink, she’s an amazing woman. She found out at the selection process that she had not been selected. When she went to the interviews in the evening of that first night, she found out that in order to be selected, she had to be unemployed. The truth was she did had a part-time job as a bar maid in the suburbs of St. Louis, Missouri and before she knew she had been selected or not, she went immediately home. She drove right to the bar where she worked, she walked right in to the bar – her boss and she said, “I’m sorry in order for me to be selected for this process that I’m going to be involved in, I can’t be employed at all.” She quit her part-time job.
Remember this woman, her house was in foreclosure. She was a single mom, she had five kids and her life was upside-down. She wanted it so bad, she was willing to do whatever it took and this is a lesson that all of us need to learn. When you want something, you’ll do whatever it takes. Then she called my hotel the next day. She tracked me down somehow and she said, “I want to be part of this.” Just the fact that she had been rejected, told that she wasn’t selected and didn’t take the “no” but continued to pursue it regardless of what she had been told, that was the qualifications that we were looking for.
Do you take a “no” and really believe it? Until you hear at least five “no’s” from the same project you’re working on, you haven’t heard enough “no’s” yet. Most people quit after one or two “no’s”. Three sometimes, four at the most but until you get to the fifth “no”, you haven’t heard – you haven’t had enough rejection because 80 % of all the success happens after the person hears the fifth “no” and only 20% of the success happens after you hear one of the four “no’s.” So literally, you have to be a person who can resist and withstand the word “no.” It’s the most powerful word. It’s a word that you should love to hear. When somebody says “no” to you, you just don’t hear “no.” You hear, “not yet.” “No-t yet,” you just don’t hear it. It means next. It means that I’ve got four more “no’s” to hear before I literally believe that this is really a fundamental rejection.
I mean how many stories have you heard about the great people throughout history? You all know Colonel Sanders or you know even the author who thinks he’d go rich. All of them had stories of being rejected time after time after time. Abraham Lincoln, I mean we could go through the greats of all history and I’ll tell you over and over again, they just didn’t hear the word “no.”
So the qualification we were looking for was the person exactly like that and we found those three. Remember though that all the people had been rejected that day, all 50 of them. If any of them had gone to the second “no” and actually had showed up at the hotel the day we were doing our two day training with these three people and their spouses, if they just showed up and walked down the hallway and found out where we were and walked in the door and say, “I’m here. Just let me sit in the background. I don’t have to participate. You don’t have to coach me personally but I just want to watch what’s going on.” Anyone who would take in the second “no” would have been in; would have been selected, and they weren’t. So the bottom line for you is just don’t hear the word “no.” Just don’t.
I was trying to show these folks that they needed to go to a “new world,” a world that very few people really understand. It’s an “old world” that we live in to a “new world” that very few people ever see. In the “old world,” you assume that somebody else is going to take care of you. The government or your family or somebody else is responsible for you. That you’re dependent upon outside sources and forces. You’re an employee. You’re checking your pay check every week. You’re fearful and afraid to act and you want security and you get what you see. If you see scarcity, if you see lack, if you see bondage, then that’s what you get; scarcity, lack and bondage.
When you look at the world, you have to see the world that entrepreneurs see. You’re not a victim although many people kind of feel victimized like, “They did it to me.” You want people to take it easy on you. You lower your standards to get the love that you need. This is the “old world” programming and that’s not the way you want to think. You want to be in what we call, “the new world attitude.” You’re responsible for yourself. You’re independent. You’re the boss regardless of who you work for. You act in spite of your fear. And even though you’re afraid, you say, “Give me opportunity. Don’t give me security.”
As I’ve said many times there are two doors in life. The door marked “security” and the door marked “freedom” and if you choose the door marked “security,” you lose both. You lose your security and your freedom. The door marked “security” is a false door. When you open up the door marked “security” it leads you into a prison where security takes away your freedom. If you open up the door marked “freedom,” it takes you in to a world marked “risk.” Yes, risk and danger and yet the risk can be controlled. The freedom is amazing and therefore if you see risk and behind that risk you see opportunity and abundance and freedom, that’s where you want to go. Because in choosing the door marked “freedom,” you choose a life of growth, a life of opportunity, a life of freedom, a life of abundance. However, it’s a risky world. It’s a dangerous world.
Well the world is dangerous regardless. Since it’s a dangerous world, most people want to be secure and they know they want to be taken-cared of. The bottom line is, there is no such thing as security. You have to make your freedom. You have to be responsible for it. You have to volunteer for the danger. You say, “Let me go!” And in the process of doing it, it makes you a better person. When you run from fear, it weakens you. When you face your fear and march towards it, it strengthens you, it builds your self-esteem. What you want is a person with self-esteem who says, “I’m not afraid to act” or “I’m afraid but I’m going to act anyway.” That’s going to increase your self-esteem.
So you’re precious. You want to grow. You want to be challenged. You want to make progress even if it means going alone. In other words, “Don’t love me just to be loved. I want you to love me because I’m worthy of your respect and your love and I’m worthy of it because I respect me.” When you respect you, the world will respect you. When you love yourself and the reason you love yourself is because you are willing, because you’re valuable enough that you’re willing to take some risks for yourself; then people recognize that. They are attracted to that. They see, this is a “new world” person, not an “old world” person.
So as I was showing the folks in St. Louis that day, I wanted to show them that sometimes the world doesn’t make sense. It’s just blotches of things that are on a canvas but I wanted to show them that there is meaning behind the images that they see. This is a horse and a rider whereas you might not have noticed – it’s possible you could have but you might not have noticed what that was until you were shown the outlines on what it will be and now that you see that from this point forward, you see the horse and you see the rider which is obvious, right? Whereas before, sometimes when you look at it and you don’t notice what it is. Well, what I was trying to do is to teach our young entrepreneurs how to recognize opportunity and how to see it in the confusing part of life.
So in order to do that, I told them the story of “The Go-Getter” and it’s a book that was written in the 1920’s. So now, it’s been out of print for so long that anybody can publish it. It’s in what they call the public domain. So Peter Bernard Kyne or Peter B. Kyne wrote this book called, “The Go-Getter” and it’s a story that I tell often whenever I’m speaking to various different audiences because it’s the story of a man and he’s a veteran and since the book was written in the 1920’s, it talks about a man who’s coming back from World War I. He’s been injured and he’s lost an arm; he’s a vet but nobody will give him a job. The story about “The Go-Getter” is how he went through various different tests that he was given in order to get a job. The people he went to apply for at a job, they didn’t like him and so they rejected him and there he got his first “no.” As soon as they told him they didn’t want him to work for him, they wouldn’t hire him, he immediately went back in the office in a different way and found the chairman of the board in his office and walked in and said, “I’m here to be hired.”
Other low level people, there was some VP’s that have turned him down but he went to the top and the person who was at the top recognized this person’s skill. He recognized that this was a go-getter and a go-getter just can’t be told “no.” When they hear the word “no” they hear the word “yes.” They just keep going forward as if there was no rejection at all. So he went to his – he was a retired chairman of the board with an emeritus status, he turned it over to some of his other younger lieutenants to take care of the company and so he went to the younger lieutenants and he said, “Hey this go-getter, you really ought to hire this guy.” And the VP’s said, “No, we’ve already turned him down. We’ve already said no.” And he said, “Well, let’s give him the test of the blue vase and if he passes that test, will you hire him?” And they said, “Well sure. Anybody who passes the blue vase test, he is the one who – we’ll hire them because there are very few people who ever passed that test.”
Well they’ gave him the test of the blue vase and long story short, was a series of very, very difficult challenges. Every time he was given a challenge to get this blue vase in a window in downtown San Francisco; a beautiful blue vase, the matching blue vase he’s told is actually on a mantle of the chairman’s good friend who’s having an anniversary. So the chairman calls the go-getter, this Vietnam or this World War I vet and says, “If you get this blue vase for me – it’s a Sunday afternoon. Get the blue vase. Bring it to my house. I need to be able to take it to Santa Barbara because I’m meeting them with this friend of mine tonight.” And so they sent him off this errand to get this blue vase or blue “vas” however you say it and the blue vase – if he finds it, they give him the coordinates and the address of where the shop is, where this antique store is located in downtown San Francisco and he shows up at the address and there is no store there and there’s no blue vase; there’s nothing. Now he could have taken the “no” and say, “Well, obviously they gave me the wrong address so tomorrow when I go in to work, I’ll just tell them that the address was wrong.”
But he said, “No, I’m going to find this place. If I need to go in a circle around the blocks of the central part of San Francisco…” And so he literally started on the central parts around the Saint Francis Hotel, Union Square and he literally started to walk around in circles; concentric circles around Union Square until he finally found several streets away the actual antique store with the blue vase. Yup, it’s right there and now he found it and therefore the first rejection or the first “no,” he passed the test.
The next “no” is the store is closed. How is he going to get in? He looks up at the sign, it’s owned by Mr. Cohen. He goes to the phone-book and he looks up the Cohen’s and he finds out there are dozens of Cohen’s in San Francisco and literally calls every Cohen in San Francisco; trying to find the owner of the Cohen’s Antique Store. He comes back and he finds out, he thought it was spelled C-o-h-e-n but it’s actually spelled C-o-h-a-n or something like that. The name – he’s been calling all the en’s instead of calling all the an’s. Well little did he know that they had changed the sign while he had been gone from the en’s to the an’s and literally they were trying to get him to quit. So he went in and called without thinking about it, not knowing that the sign had been – got changed. He went back and called all the C-o-h-a-n’s and finally found a maid that was home and said that Mr. Cohan was actually at the country club and he was eating food at the restaurant or the dinner on a Sunday night and so he calls the country club and he gets the maître d’ on the phone and he says, “I have an emergency. I need to talk to Mr. Cohan.”
Mr. Cohan comes to the phone and thinks it’s an emergency and of course it is and he says, “I need to buy the blue vase in your window” and he says, “I’m so sorry. I’m in dinner. I’m not going to open up the store for you but you can call the manager of my store.” He gives him the name of the manager and so on and on and on, he finally gets to the store and there are more parts of the story that I’m kind of missing but what he’s trying to show by this story – Peter B. Kyne was this go-getter would not be stopped. He would not take “no.” He would not be rejected. He called the manager on the phone and he said, “Listen, I need you to open up the store and I have to get this blue vase. It’s absolutely important…” and persuades the guy to come down and open up the store.
He opens up the store, finds out that the blue vase is much more expensive that what he thought. He doesn’t have the money to buy the blue vase. They guy or the fellow that’s the store manager won’t take a cheque. He says, “Wait here.” He runs back to his hotel and he gets an extremely valuable diamond ring that’s been given to him by his mentor a long time ago, it was extremely valuable but at least valuable enough – he brings it back to the store owner and he says, “This is a diamond and it’s worth much more than this vase and I need this vase and if I don’t return, you can have my diamond. But I’ll give you my cheque; I’ll give you a diamond, whatever it takes.” And finally he gets the blue vase.
He rushes off to the home of the chairman of the board to give him the blue vase. The chairman’s left. So he finds somebody who – and of course I don’t know the way in the 1920 version reads but a lot of people have recreated the blue vase story or actually if you go online, you could find audios of the blue vase story is what they call it but the real book is called “The Go-Getter”. And in the blue vase story, they’ve updated it to now it’s a Vietnam vet and it’s in the seventies and the eighties instead of the 1920’s but bottom line was he hires somebody to get in the car and take him after the chairman of the board. He knows he’s going to be in his limousine and so they track the chairman of the board. In the 1970 version, he gets a friend who has a helicopter and they fly down the freeway and they land the helicopter and stop the limousine but the bottom line is when he finally finds the chairman of the board, he stops his car, he brings in the blue vase and the chairman of the board says, “Wow! You’ve passed the blue vase test. Nobody passes the blue vase test. I mean there’s only a handful of people who’s ever passed this test. You entered into a very rare, rarefied group of people.”
And there was a little secret towards the end of it on why – who the previous person who’d past that test was. I’m not going to let that secret out of the bag. You can read the book yourself or get a copy of the blue vase audios but the bottom line of the entire story is, this person could not be stopped. And the reason I told this story to our unemployed folks, these are people who really were out of work and really had no money and really had no jobs, really were behind in their rent, really were with their own homes in foreclosure, really were in desperate circumstances; desperate.
I was trying to tell them if you want to get to a “new world,” you cannot be stopped. You have to decide what you want and then you have to go get it and be the go-getter.
And I essentially was trying to tell them through this story that anyone with the right attitude can do anything. Is it easy to do? No, it’s extremely difficult. When you are in the middle of turmoil circumstances, when you’re life is upside down it’s really hard to be a go-getter and yet sometimes that’s the only way out of your circumstances.
So in the book, I talk about, “How do you know if you’re a go-getter?”
- When you love a challenge
- Adversity seems to make you stronger rather than weaker
Some people are just like that; when you throw a challenge at them and you tell them it doesn’t work and you tell them to quit – they get stronger. You take a championship basketball team. I’m not a betting man but they tell me that the odds of a team – a championship team, a team that’s in the top echelons of great teams, when they lose a game, the very next game they play, the percentage of winning is much, much higher. It’s almost – that’s the sure bet. Although they could still lose that’s why you don’t want to bet but the bottom line is it’s like 78% of all the games after a loss are wins by a team like that. The words adversity, the loss makes them mad. It makes them say, “We’re going to prove ourselves. We’re glad in the next game play, you watch us. You watch the way winners really play.”
- When somebody tells you no, you don’t take it personally. You try another way to get a yes.
And very few people can handle “no” but it’s a sign of the go-getter. The go-getters are goal-oriented. They know where they want to go. They know what they want. They are very locked-in and focused just like the go-getter in the story wanted that blue vase. He wanted it. No matter what it took, he was going to get it and because of it, he won a huge job in their company and although he wasn’t admired by the Vice Presidents, they knew that they had met their match. They knew that this person could not be stopped – that the chairman of the board although he had been retired, could spot a go-getter when he saw one.
- People don’t look upon obstacles as permanent barriers but as temporary inconveniences.
- People that are go-getters don’t make excuses.
You can either make excuses or you can make money but you can’t make both and so when you really, really, really want something; you’ll do whatever it takes to get it. If you don’t really want something, if you’re not really convinced or a 100% desirous of it, you’ll make an excuse. But if you really want something, you’ll make a way. So which is it for you? When somebody tells you “no,” did you make an excuse? “I guess I wasn’t good enough.” “I guess this person really didn’t need it.” “I guess the weather wasn’t good. The starts aren’t in alignment.” You can make excuses all day long and you can make enough excuses everybody makes. “I don’t have enough money.” “I don’t have enough time.” “I don’t have enough knowledge.” “I don’t have enough self-esteem.” “I don’t know enough people.” Those five major excuses stop everybody.
And yet if you really want something, if you’re really a go getter, you’ll find a way. You’ll find a way around the money. You’ll find a way around the time. You’ll find a way around the knowledge. You’ll find a way around the self-esteem. You’ll find a way around the fact that you don’t know enough people. You’ll find a way. You’ll just figure it out. You’ll do whatever it takes. You don’t find excuses, you find ways right?
- You’re always thinking of news ways to do things better even if it means breaking with tradition.
- You are willing to put up with criticism since you realize that most criticism comes from negative thinkers.
And yet from time to time, criticism is good. It’s, “Hmm… Maybe they’ve got a point.” So you process it. You say, “Well, let me think about that.” But you don’t take it personally; you don’t let it hurt you and yet it’s so hard. It is so hard to not take it personally.
- You’re a positive thinker – you love to find the good in every bad situation.
There’s got to be some good in here somewhere. There’s got to be something –some lesson that I learned from this bad situation and therefore you become a “learner” not a “blamer.” If you’re a “blamer,” then you’ll make excuses or you’ll blame other people for your problems. But if you’re a positive thinker; you’re a “learner.” “What can I learn from this?”
- Anyone can learn basic go-getter skills as described in the following pages as we talked about in this book and with practice, you’ll be surprised not only how much easier but how much more rewarding it is to be a positive, optimistic go-getter than to be a negative, pessimistic loser.
So the first part of the training of these folks in the unemployment lines was about “Attitude” and “Aptitude.” Attitudes of go-getterness is what I was trying to teach them. They had to be a go-getter; even if they didn’t have any money or a job or anything. And then there were skills that I was going to teach them. These are what I call “Aptitudes” and these two foundations of any kind of success.
Which of those is much important? Well the attitude in my mind is much, much more important. So you have the right attitude – you can always find somebody with the right aptitude. You can always get somebody who knows what they’re doing through skill or from practice and experience to do the things you want them to do. Sometimes you don’t have time to learn the aptitude to get the skill. Sometimes you just need to hire the skill or partner with the skill or do whatever you need to do. Just have the right attitude and find the right aptitude or gain the right aptitude through experiencing and learning and training and drilling, but those two are essential to success. You got to have both of them.
And so one of the ways that I shared with the folks and I remember this was in a hotel room in St. Louis, Missouri and I showed them this photo or a photo similar to this about a mountain right here. And I said to them, “This is Mt. McKinley. This is the tallest mountain in North America; 23,400 feet.” It is called the – it is called in the Denali Mountain Range – I think they might even refer to it now as Denali but it was originally called Mt. McKinley and it’s in Alaska and that’s a picture of it.”
A lot of people have climbed at the top of that mountain. I know one of my close friends; Werner Berger has climbed at the top of that mountain. He got within about 200 feet to the top of that mountain and the weather came in and 200 feet away from his goal, he had to go back down the mountain. He didn’t reach the top. What do you think Werner Berger did? He made arrangements to go back again and he climbed the entire mountain again until he could stand on the top of Mt. McKinley. Of course this was one of the seven tallest mountains in the seven continents of the world. Antarctica, South America, in Africa, in Europe and obviously the biggest mountain of all is Mt. Everest and that was the final mountain that he climbed and he’s getting ready to climb again.
He’s now involved with me in a business that – in one of my secondary businesses or actually it’s one of my primary businesses. It’s a network marketing company that I’m a part owner in and obviously I’m building in. It’s called Arrix. A-r-r-i-x and Werner is now involved in that company with me and I’m so proud to have him there because he’s a go-getter. He just does what it takes. He’s 70 I think and this next year he’s planning or the year after next, he’s planning on climbing Mt. Everest again. He’s been to all seven of the top mountains – but I wanted to talk about Werner.
Well the reason he’s a go-getter is because within 200 feet at the top of this mountain, he couldn’t make it without getting himself killed and he came back down and climbed it again. Nothing was going to stop him. The reason he’s climbed Mt. Everest is because nothing stands in his way. And he wants to be the tallest mountain – I’m sorry, he wants to be the oldest person to have ever climbed Mt. Everest. There’s a Japanese gentleman who is older than Werner and who has climbed Mt. Everest and Werner wants to be the oldest. This is what he wants. He wants to be the oldest and nothing is going to stop him so he’s going to go again to the top of the highest mountain in the world. This is the kind of people I’d like to hang around with; don’t you? People who think that way, people who are that kind of winners.
So the reason I showed this mountain to our folks in the unemployment lines, I wanted to work on their attitude and I said to them; suppose you go to the mailbox today, you open it up and there’s a letter from the attorney. It seems to be a very formal letter and it says that your long lost cousin has passed away. Maybe you did not know that your cousin was a very wealthy gentleman and has tracked you down and has left you a large amount of money in his will and wants you to receive it. Unfortunately he was a very eccentric man and he’s taken the key to the safety deposit box in Switzerland which is filled with a million dollars in cash. The money is there. You can verify it. You just can’t get to it because the key that has been taken and placed in a silver container has been transported to the 20,400 foot level or 23,400 foot level of Mt. McKinley in Alaska.
It’s been hidden in a very special place. Only you would be able to find it when you get to the very top of that mountain. You have to climb that mountain yourself. You can’t have somebody else climb it for you. You have to have a photo of you standing on the top of that mountain holding the key to prove that you were there. Then when you’ve got the key, you come back down the mountain. You can go across the ocean to Switzerland. You can take the key and open up the bank vault and there are your million dollars in cash. Sitting there, waiting for you.
I ask audiences, I say “How many of you…” Oh by the way, there’s a time limit. You have to do this within a year. I asked the audience, “How many of you would climb that mountain in a year if you knew there was a guaranteed million dollars waiting for you?” Now of course most – every audience and every person in every audience raises their hand to that. And I say to them, “What’s it going to take?” You don’t know how to climb a mountain. You’re going to have to learn the skills that are necessary to climb it. You’re going to have to have the attitudes that are necessary to climb it. You’re going to have to change your life. In order for you to get to the top of that mountain, you would have to be a different person than who you are today. You’re going to have had to become more determined. You’re going to have to work on your inner strength and your inner drive and your inner motivation. You’re going to have to become a kind of a person who has what it takes internally – internal fortitude, to climb a mountain like that. And then, you’re going to have to use that internal fortitude and drive to build the skills, climbing on smaller mountains until you finally get to the bigger mountains. Until finally; you can stay on the top of that mountain and hold in your hands the keys to your future.
But when you open up the box – the safety deposit box with your million in it, it’s not the million inside that bank vault that’s the price. The price is the fact that you were the kind of person who climbed that mountain. The money is almost worthless because if you’ve done that, you can do anything. You can climb any mountain. If you want to launch a business, that’s just a mountain to climb. Whatever you set your mind to and your heart to and organize your team of people towards, you can get whatever mountain you decide to climb.
And this is the ultimate goal of the folks in the unemployment line that day was for me to show them how to have that kind of attitude. So I had those two stories – one is the story of the go-getter, the other one is the story of going to the top of the mountain and doing whatever it took to get there; becoming the kind of person that would be a wealth person inside. It’s what I call “capital W” Wealth. Inside you it’s the “small w” wealth – it’s the cash in the bank vault but who is the kind of person who can fill that bank vault up anytime they want with more money? That’s the kind of person that it was going to take.
So with these two stories we launched into now the skills that were necessary and the systems and I talked to them about Dr. Edwards Deming who said this quote that, “94% of all failure is as a result of the system – not the people.” That systems are what usually break down and I’m going to disagree with this quote a little bit because it seems to think that the skill is really in having the right systems is really what’s the most important but it’s really the process of creating the system and pursuing the system and doing the system. If you have the right kind of system and you persist with that system, then that’s what creates success.
So the power of the system, it S-aves Y-our S-elf T-ime, E-nergy and M-oney. That’s what the acronym means. I created that acronym when I wrote this book, “Save Yourself Time, Energy and Money” and whenever you want to create some wealth, you’re always going to ask, “What’s the system?” So I taught these folks the system and I think I shared this with you a couple of weeks ago.
For those who are just joining us again today, this is what I showed them. I said there’s the system, here’s the diamonds in front of you except one of those is a real diamond and the rest of them are cubic zirconium. They’re all fake; they’re not real. I took these 50 stones and poured them out on a black velvet pattern in front of my unemployed folks, with no jobs and all their financial pressures and their houses in foreclosure and I said, “I’m going to teach you a system for finding real estate deals.” And I said, “There’s a real diamond in there if you want it, go get it. I’ll give you 60 seconds to find it.”
Each one of the three had a chance to find the real diamond and none of them found it. Even though Mary – her father had been a jeweller and she worked in her father’s jewellery store as a teenager for many, many, many months. She knew diamonds or at least thought she knew diamonds. But I gave her 60 seconds to find the real diamond in there and she didn’t even pick it out. And now after 60 seconds I said, “Would you like to know the system?” I said, “Okay, let me show you. Start the clock for me.” 59, 58, 57, 56…
I take all the diamonds and I have to make them look exactly the same. So I turn them over on their flat face with their points facing upward so they all can be seen from the same perspective. It takes about 50 seconds to do that. All I’m doing is turning the diamonds over. I’m not even looking at them. I’m just turning them over so they all look the same and then with 10 seconds left, I stand over the diamonds and look down on them and you can see that there are a lot of identical stones – those are the worthless ones. The real stone has a flaw in it. That’s what all diamonds have – flaws; unless they’re perfect diamonds. Those diamonds are too valuable to use on a test like this but almost every diamond – the diamond that you might have on your finger right now has a flaw in it. It has an inclusion and that makes it a little less valuable but that’s just the way almost all diamonds are. They have little tiny little flecks of dirt and specks and cracks and things like that and you can see them with your naked eye, if they’re seen from a perspective like this.
I selected a diamond that you could see with your naked eye to see the flaw in it and I said, “There it is. There’s the diamond. Do you see it?” And compared it next to the one that wasn’t a diamond and you look at both of them and they could see it. And then we touched on it for awhile, I jumbled up the diamonds and we’d say, “Okay, let’s try it.” We all turned it over and I said, “Can you see the diamond?” They said, “Yes, yup!” They could see it. I taught them how to see the opportunity – the system of it. And then they said, “Can we do the test again?” I Said, “No. You had your opportunity. You see, I get the diamond every time because I know the system of finding diamonds but you didn’t get the diamond because you didn’t know the system.”
So I said, “There’s a system for finding real estate. There are diamonds in the rough. There are lots of seemingly, appearingly good deals but there is only one really, really good deal.” And I said, “On the way to the hotel today, in your car today driving to this hotel, you drove by thousands of properties; thousands. And yet there are probably five or six or maybe 10 properties that you drove by today that had enough profit in them. That you would made enough money on that one deal to pay for your entire year’s salary working at a job you hate – if you could find a job.” None of them had a job, they’re all unemployed but I said, “If you found a job – more than likely it wouldn’t be your ideal job and yet working at that job for an entire year, you’d make less money than finding one good real estate deal and you drove by that deal today on your way to the hotel. I’m going to show you the system of finding those deals like that.”
And then we start with the process of teaching them the system for finding real estate deals and real estate deals are found everywhere. You can find them right in your city too. It’s not complicated. It’s not difficult. It just requires the attitude – refusing to say “no,” refusing to hear “no,” refusing to stop persisting until you get what you want.
By the way, I’m talking to you hear from Queretaro, Mexico. I’m here working with my network marketing company as they’re starting a big launch throughout all of Mexico and they’ve just got all the foundation laid. So I’m here in a beautiful home; I’m in the suite of this home looking out the windows is a beautiful lake over here. It’s a magnificent home. It’s probably 15,000 square feet; just huge. It’s spectacular! It’s hard to describe how amazing the home I’m in right now is. Talking to the owner of this home and his wife and he can tell you story up to story, up to story of becoming the go-getter, of doing whatever it took, having failures and yet rising above the failures. The reason he’s in this home is because he’s a go-getter. He just does what it takes.
Now the system for real estate for you to learn is just three fundamental principles. One, two, three; how to find deals. You don’t need money to find deals. There are deals everywhere, so how do you find them? Next week when we go in to our conversation, we’re going to talk about the bargain finder. We’re going to talk about how to find “don’t-wanters.” We’re going to talk about how you run them through your machine – your oral processing machine and come up to find all the gold nuggets that are found in your prospecting for a real estate deals; but it’s just how to find deals.
Number two, how to fund those deals and number three, how to finish or how to follow-through or how to farm or how to flip – it’s one of those F words. You find, fund, flip. Find, fund, farm. Find, fund, finish, follow-through – whatever. I call it farm. I want you to finding, funding and farming. Farming means, “All right so you found a deal and you found the money to buy it. Now it’s yours, you own it, what are you going to do with it? Are you going to keep it? Are you going to rent it out to somebody? Good, good for you; rent it out to somebody. Or are you going to hang on to it and rent it out and out a tenant in there? Fine, do that. Are you going to be a holder or are you going to be a flipper?
You have two choices. I would suggest if you want to do the real estate game, you should be doing one flip and one hold every single year. If you do that every single year – buy two properties a year, keep one, hold it for a long term portfolio, flip one and make a chunk of cash. Therefore you want to have two kinds of streams of income. One is what I call “chunks” and the other one is what in call “streams.” So chunks is you’re flipping property, You make 10, 20, 30, $ 50,000 or like a deal – one of the first deals that I flipped and I made $ 6,000 on my very first flip.
Then on another flip about, a little about two years later, I made$ 7,000 on another flip. This of course was 30 years ago so that was a lot of money back then for me at that time. Then I flipped to a property and made $ 75,000 on one deal on a flip. Cash was fun. I took that money as a single man and I went to Europe with it with a couple of buddies and I bought a Volkswagen van and we picked it up in Frankfurt, Germany and we drove 17 countries all around Europe.
We went across into Northern Africa – into Morocco and we went all the way up into Eastern Germany and up into the Scandinavian and Sweden and all over France and all over Germany. We had an absolute blast. Blew all the money and came back home and I still had a lot of equity in real estate but that’s when I found my wife and since I got back home from that incredible trip, that’s when I spotted my wife across the field in a party and as they say, “The rest is history.” Some enchanted evening you may see a stranger; I saw her – I knew her but I hadn’t seen her that way. And when I saw her, I was smitten and I had been smitten for the last 35 years. I’m done. I’m toast. This is the only woman for me and at least that’s the way it is so far in my life and I hope for eternity, it never changes.
So the bottom line is this persistence is what it takes. In anything that you want to succeed at, you have to literally be a go-getter. You have to be the one to climb to the top of the mountain no matter what it takes. In anything – in your relationships, in your body, in your time, in your organization; anything in your life is something you persist on and when it comes to real estate, you have to find deals. You have to be persistent until you find them.
I know you don’t have enough money to buy it. That’s not the point. The point is you need to be a bargain-finder. Find bargains even if you can’t buy them. Be looking for them. Don’t wait until you have the money or you have the credit; don’t. Go looking right now; this next week. Go to an online newspaper or look for classified ads or find a friend of yours who’s a realtor.
So you don’t know how to find real estate – so what? Find a friend of yours who’s a realtor and say, “I’m just starting the process. I may not be able to buy anything lately but show me the multiple listing service. Show me all the properties that are available. Let me go online. Show me how I could research.” Just start the process. Why? Because that’s what go-getters do. They just figure it out.
In fact if all I taught you was go find a good deal, find somebody to help you find it. If you don’t find the money, somebody else does. If you don’t have the credit, somebody else does. If you don’t have the cash flow – monthly income, somebody else does. If you don’t have whatever the banker wants – cash, cash flow, credit, collateral; somebody else has it if you don’t have it. And what if you tied up that real estate deal? What if it’s a $ 200,000 house and you find it in a place that the person really needs desperately to get rid of it and they own it free and clear, there’s no mortgage on it and they need some cash. They’re willing to sell it to you for $ 125,000; it’s worth 200. The market is a little soft but with enough time you know that if you have enough time, you can sell it for 200 but you don’t have the money. You found a deal. It’s the deal of the month. Maybe it might be the deal of the year and you found it and you say to that owner, “My business partner has the cash. I just want to make sure that this is legitimate and therefore give me the opportunity to find – you’ll give me your word that if I bring you the cash, in the next 72 hours you’ll sell the property to us.”
The best way to do it is get a signed contract saying that he’d sell it for the price that he quoted. But the bottom line is now you have the deal and you’ve got the opportunity. Now you got to find the money. Well, where do you find the money? I’m not going to tell you how to find the money – next week we’ll talk about it but what if you had the deal sitting on your hand and it’s worth 75,000 bucks; you have 72 hours to raise the money. What would you do?
You’d find a way wouldn’t you? Or you’d find an excuse. Somebody would say or you’d say to yourself perhaps, “I don’t know anybody. Nobody I know has any money. All my friends are poor so this opportunity of $ 75,000, I guess I’m going to lose it. I guess I’m done.” Is that your excuse or would you find a way?
This is what a go-getter would do. They’d go to the tallest building in their city and they’d take the elevator. They have pictures of the property, they have the contract signed, the time deadline they are set, they’d or a friend of theirs that’s a realtor showing what the comps were – comparative prices of the properties that were sold recently there and they would get in the elevator and they would go up and down the elevator and as people came in they would say something silly like, “You don’t have $125,000 do you?” That may be the worst sales pitch of all time and they might say, “No.” “Do you know somebody that has $ 125,000?”
Maybe their attorney walks in to the elevator – a fairly well-heeled attorney and you go, “I’ve got this deal. I have 72 hours to close on it. It’s worth a fortune. It’s at least $ 75,000 worth of profit. I don’t need all the profit here. I’ll let you have most of it. Just give me 25% of the profit, you can have 75%. You’re an attorney. Check out the deal. This is it! Do your research and if I close on this thing in 72 hours, the profit’s there. The money is there and you’d find the money.”
Would it be – would the security maybe throw you out of the elevator after awhile if you start annoying too many people? Maybe. They probably wouldn’t – there’s nothing illegal about that but they might ask you to leave the premises which means you go to the next scraper and you’d get in the next elevator and you go up and down. This is what a go-getter would do. They would find the money. Then they would bring that person together, they’d put it into an escrow and there would be some trust involved and who knows they might get taken advantage of then. Maybe their partner would not give them any of money and maybe they’d be done. They wouldn’t make a penny.
But you know what they learned from doing that process even if they have not made a dime? They learned that if they can do it once, next time they’ll do it again but this time they’d be a little smarter and make sure they tied themselves up into the deal so they could make the money from it. In other words they might lose but their courage and their determination and their inner wealth would grow.
Well we could talk all day on this. I want to thank you for joining us today. We’re going to talk next week about the systems for how you find those real estate deals but more importantly is to have the attitudes that go with it.
From Queretaro, Mexico, I wish you well. Good luck. God bless. Until next week; this is your friend and mentor Robert Allen. Goodbye!
Hello everyone! Welcome to our call today. We’re just getting all set-up technically and looks like we have some folks here. Welcome everyone! I’m setting things up so I could experience the chats with you. So if you have any comments or questions, just throw them over on the chat and we’ll be starting here in just – well here we go.
Let’s get started, shall we?
Welcome everyone to our conversation about creating wealth, multiple streams of income, how to make money, how to become financially successful. This is a series of calls we’re going to be doing over the next several months as I literally share with you all the books that I’ve written over a long period of time. Some of these books you might have in your library, some of them you might be adding as you learn more about it. We’ve been talking about, “Nothing Down” as the first book and we talked about “Creating Wealth” and that’s the second book and in each book I’m going to go over about a month’s worth of conversation about it.
So today we’re going to be moving in to a book that is not on my major list of the books that I’m showing right here because well, it really wasn’t one of my “major” books. It was the third book that I wrote and I think it’s one of the best books that I’ve ever written, frankly but it didn’t do really well at the box-office as they say. It could have done better. It came out at a time when the real estate market was kind of going through a dive.
So “Nothing Down” was written in 1980’s so from 1980 to 1986, “Nothing Down” was on the New York Times Bestsellers for 58 weeks. Throughout the decades of the eighties, “Nothing Down” was the number 11 hardcover bestseller for the entire decade. So it was a huge, huge, huge bestseller and “Creating Wealth” was very similar to that. It came out in 1982 in the time when the market was just taking off when it came to real estate; doing extremely well so the publishers wanted to have another book for me and it came out in 1987, I think – I guess when it came out.
Well, the tax laws that Regan had instituted in the earlier part of the eighties got rescinded or got changed, dramatically changed. They had a lot of depreciation given to real estate properties and you could buy a piece of real estate and depreciate it more quickly and therefore you’d get a lot of tax advantages so real estate was hot, hot, hot. When they took all those tax advantages away in 1986 when the laws were changed, real estate got cold, cold, cold real fast and went through a real dip. Real estate seminars didn’t do very well in 1985, 86 and so when the book was being written during that period of time when it came out in 1987, if I’m not mistaken; the book came to a kind of cold reception.
And in addition to that, the first book is called “Nothing Down”, the second book is called “Creating Wealth” and the third book is called “The Challenge”; terrible title. You don’t walk in the bookstore to find “The Challenge.” You want to see the title that stands out from the bookshelves and screams to you and says, “Buy me!” Subtitle is, “Send me down to any unemployment line. Let me select one who is broke, out of work and discouraged. In two days time I’ll teach him the secrets of wealth. And in 90 days, he’ll be back on his feet with $ 5,000 in the bank, never to set foot in an unemployment line again;” terrible title. You don’t go to a bookstore if you’re unemployed, out of work and discouraged. You’re not wanting $ 5,000 in 90 days. You’re not coming from an unemployment line; bad title. What can I say; horrible title.
Well I’m calling you here from what I call the “exponential house” and this is where we do our broadcasts every single Wednesday, at least for the next year or so. Well no, I guess throughout the next many months; probably the next 10 months.
When I did the challenge for “Nothing Down“ I said, “Send me to any city. Take away my wallet. Give me $ 100 bill for living expenses and in 72 hours, I will buy an excellent property using none of my own money.” Great challenge, great publicity, made me famous forever because I’m that crazy guy they dropped in the city, took away my wallet and brought property. Well, when the LA Times article came out about it, huge, huge, huge; publicity, publicity, publicity; bestseller list on and on and on.
Then I came out with a book, “Creating Wealth” and I needed another challenge. I’ve kind of fallen into this pattern of doing challenges so the challenge that I set-up for myself is what I just repeated to you. Well if you don’t think I can do it, if you’re sceptical about the fact that I can be dropped in the city and take away my wallet ,give me a $ 100 bill and I’ll buy, why don’t I send an unemployed person like anybody? You know in an unemployment line, let’s pick somebody, let’s go out in the market, let’s buy a piece of real estate, let me show you that anybody can do this. You just have to have systems and techniques and mindsets. Go do what I tell you to do and it will give you great results.
So we went to the unemployment lines of St. Louis, Missouri and this would have been in 1984. So June of 1984, my partner Tom Painter and I – at that time he was an employee of our company challenged – let’s see, what was the name of the company? I can’t remember now; long since passed but anyway Tom was a partner, my brother was a partner and a friend of mine named Dave McDougall, we formed this company in Provo, Utah.
By the way, that building today that I bought and renovated and sets our main offices on the main street of Provo, Utah – 145 East Center in Provo, Utah; that building was bought from me in the year 1986 or seven. Well 1986 I think – bought from me in 1986 by a company that you might have heard of before; back then nobody has heard of it, was a company called Nu Skin. And Nu skin, eventually that was where the network marketing billion dollar company was founded – well it wasn’t founded there but that’s where their headquarters were in. In my building that I sold to them were a lot of these – where my corporations were. I sold that building to them as I moved to California. They continued to build and grow the Nu Skin Corporation; the network marketing company that’s now all over the world and now they moved form that building. I don’t think they were there longer but about two blocks further to the west. They have this big high-rise in the downtown center of Provo, Utah where Nu Skin has its main headquarters.
So a lot of history and things that you probably didn’t know about but bottom line is we did this challenge to the unemployed folks in St. Louis, Missouri. This is an actual photo of me going in to the unemployment lines for real and I’m basically handing out applications and saying come on to my meeting tomorrow morning and I’ll teach you how to start from this unemployment line and make some money, get out of this unemployment line forever.
We literally interviewed people who – we had a lot of flyers, we had about 1200 flyers – people all over the unemployment line of the offices in St. Louis, Missouri in that year. Now why St. Louis? I’ve been with a bunch of buddies as we drove across the United States in 1974; I graduated in 1974 with my master’s in business. It was a horrible recession in 1974. Kind of reminds me of what we’re going through now. Nobody was getting jobs as they came out of college and I didn’t get one either. I made my application at 30 top corporations in the world; General Foods, General Motors, General Electric and General Mills and generally in any way I could think of that I could make this offer to – my job offer and I got rejection letters from all 30 of those corporations. I remember how devastating it was to get the 30th rejection. What am I going to do?
Well sometimes the best thing that happened is it forces you to go in a different direction. I decided to buy real estate and find a mentor that will help me; and my friend Paul Dukes was in my ward. He was a multi, multi-millionaire and an incredibly wonderful guy and a great mentor.
I went to him and I said, “Paul, I’ve got an MBA.” I graduated in – the two of us at the bottom of our class. I was the second to the bottom in our class and the two of us hadn’t found jobs. I’m sure there were others but I certainly – I was one of them. The guy that was at the bottom of our class collecting garbage as a garbage collector – you know, with the garbage truck picking up garbage, he got a job. That’s just what I heard. Me, I’m the worst member of my MBA class no doubt, just didn’t understand most of the concepts of production management and statistics and all those math subjects that just drive you nuts. So I graduated but I wasn’t at the top of my class but I did follow my intuition.
My MBA director called me in his office and said, “You’re going to take a job here in Provo, Utah? You’re going to work selling recreational real estate in Southern Utah with a friend of yours and your ward? That’s not what we trained you for. We trained you to lead the corporations of America; not stay here.” I do remember that of conversation but I don’t remember exactly what he said so in credit to him, I just remember feeling embarrassed that my MBA director was in a sense, ringing me out.
But I followed my intuition and this really is an important part of the wealth – my intuition said, “Stay here. Work with this mentor that will help you.” I’m not going to go into that story in too much more detail but the bottom line is I did work with that mentor. Three or four years later, I was a millionaire; bought many properties. They increased in value during that period of time and then I did write the book “Nothing Down” in 1980. So I did graduate 1974;by 1980 I was not only a millionaire but I was a bestselling author of a book that would be one of the major bestsellers of the entire decade.
One of my MBA professors was a – I was his class personal assistant – not personal assistant but an assistant in class for Steven Covey, who challenged me to write a book when I’d taken his class several years earlier, but this time since I’ve got the New York Times Bestseller, he’s coming to me as Steven and saying, “Can you help me publish a book?” It was actually the gentleman who was editing his book – his name was Ken Shelton, he came to me and said, “Bob, here’s the manuscript. Look at it over. Give me some feedback,” which I did. A little bit of help perhaps to my mentor Steven Covey who recently passed away. God rest his soul; the bottom line is that kind of took me into this pattern of writing books which I love to write and now doing these challenges which I love to do. Now in 1984 which is 10 years after I graduated and I could not find a job, when I was in the unemployment line 10 years earlier – I never had been in a technical unemployment line collecting unemployment benefits but I know what it’s like to not find a job.
So I passed out these applications to these people; they come the next day. We had the room set-up for a couple hundred people in The Cheshire Inn in Saint Louis, Missouri. Blaine, my – I’m trying to think what his name was. Blaine Lee was a coach and helped me and Tom Painter set things up and I had the suite in the Danielle Hotel in just the suburbs of Saint Louis, Missouri and it’s still available, I mean you can still go to the Danielle Hotel in the suburbs. We had our main selection process in The Cheshire Inn in Saint Louis, Missouri. The Danielle, we had the suite and we were in the process of selecting the three people we were going to work with to do this challenge.
Now the book was not written at that point. I’m telling you the story that leads up to the book being written. We were just doing a challenge which really was to kind of promote the previous book which was “Creating Wealth” so here we are selecting people at the unemployment lines. These are the people we selected. We selected Mary and Steve. Steve was a Baptist Minister in the kind of the poorest section of Saint Louis, Missouri. Mary, his wife couldn’t find a job – had made applications to many places – wonderful gal; wonderful couple. Philip and Karen, living in the poorest section of Saint Louis, Missouri; in a duplex apartment at the top floor. Nora, living in the outskirts of Saint Louis, Missouri. Nora Jean Boles – so here are the three people I selected. Norah Jean Boles, Philip Moore and Mary Bonenberger; those are the three we selected. The story of selecting them is really kind of amazing in on itself.
If you don’t have a copy of this book by the way, you can always send me an email. I’ll think of what email to send where you can send it to and I’ll send you a copy of the book, “The Challenge.” It’s in a digital format. Why? Because the publisher sold so few copies of it that they eventually gave the rights back to me so I have the total rights to do whatever I want to do with it and so I give it away a lot. Because it’s a powerful story of what was written a lot of years ago. It’s over 25 years ago and yet its principles are very fundamental. You see as we go through the book in the next month that the principles are very powerful. They’re in my opinion timeless, although 25 years ago they’re buying properties in the 50,000, in the 40,000 price range. Now prices have quadrupled in many cases and then they have gone backed down again in many cases and they’re starting to come back up again.
So here they are. Each of these people had a very special part in my life. It was – as a younger man you can see, well this was the picture that was taken; big glasses, I look fairly the same, same kind of hair. That’s me 25 years ago. This is the cover of the book and you can see why it didn’t sell. Terrible title, terrible cover, terrible sub-title, terrible book. No, not terrible book! Why did I say that? Terrible book marketing program. The book itself is one of the best books I’ve ever written. It’s the story and I either had to fictionally write this story. Well, I had to write a non-fiction book in a story format; never had done that before. My first two books were very left brained; don’t do this, don’t do that. This is the story of Philip goes to the unemployment line and finds out about this person, this millionaire coming from out of town to select some people to work with and I mean the story is – it’s the story and when you read it, it’s just like a novel.
I’ve never done that before so literally, we had owned at that time a very large section of Provo, Utah where the old BYU Campus used to be. It’s called Academy Square and I probably should have a photo here to show you but the old Academy Square was where my dad had gone to college and it was 100,000 square feet on one square block on University Avenue in Provo, Utah. So it was a beautiful, spiralled, old building that BYU had let go to move their campus up on to “The Hill,” further north and to the east of where this huge piece of real estate was and I bought that property. Leverage there was I had to buy it and now was in the process of developing it – and having trouble doing it by the way. This was 1986. I borrowed three quarters of a million dollars to buy this thing and I used a lot of my resources. The bottom line, it was more than three quarters. I don’t know, I can’t remember how much it was. The bottom line was 100,000 square feet of space and these old magnificent buildings in this old square block in Provo, Utah and this is where I wrote that book right there.
I would drive through the vacant huge, huge buildings and they were totally dark and beaten up and moved out of – it had been vacant for maybe 30 years and it had gone through a series of owners and I just was another in these series of owners. Today if you go to Provo, Utah to the Provo Municipal Library or Public City Library is there and it’s gorgeous, it’s beautiful. You can thank me for holding on to it for a period of time so that it could eventually get to the place where they were able to develop it into this magnificent space. I wanted to develop it myself into “the center of excellence.” We raised some bond money to put together and then as they say the world – my world fell apart and the seminar business closed down. By 1986, I was leaving Provo, licking my wounds, trying to start again from scratch with – well not nothing but on the way to nothing.
It was a fast 1980 to 1986 and then it was a very fast downhill from 1986 to 1989 and then it started coming back up again. So maybe too much story but anyway the bottom line is this is the book. I wrote it in this huge facility in a vacant space; at a space here and there and I would just work on a computer. Remember how our computers used to be, they’re pretty old, big, clunky things. I had my computer in this space, I had electricity into that room and a space here and a heater during the winter times. I wrote it and it took me about two years to write this book. I don’t think I wrote it every day for two years but in over a period of about, from 1984 to 1996 when I sold it to Simon Schuster. It was about a two year period of time. I actually brought people in who were writers to sit with me as I had to change my writing style and I would write a paragraph or write a sentence and it would be a long and wordy sentence.
I remember the photographer for the challenge, the experience we had in Saint Louis, Missouri who recorded it – recorded the whole thing put it in to a storage unit. As we were getting ready to figure out how to get money fromit, didn’t pay the storage unit fees. The storage unit was taken and all the filing that we had done and all the audio that we had done – I didn’t find this out until a couple years later, was sold off. I don’t know where it is now. It’s probably in some dump somewhere. But anyway, that filmer, photographer; he filmed the whole thing, spent lots of thousands of hours and created an audio program from it that was pretty powerful but all the raw footage and everything else was lost. He had been a writer, a screenwriter, scriptwriter and I don’t know where he is to this day. He lost a fortune of that project and who knows where he is but bottom line is he lost all my footage too. He flew in Provo and sat next to me at my computer screen and when you read the manuscript, now you’ll see that it flows very nicely. Well the manuscript that I wrote was about a thousand pages. I sent this off to my publisher. It was a huge, thick manuscript of so many words and he said, “You got to cut this in half. This just doesn’t work.”
So that’s when I brought in the screenwriter to sit right next to me and literally take a sentence that I’ve written and he’d say, “Can we say this in shorter words? Can you say that more quickly?” And I said, “Well yeah, we could probably edit that word out, that part out.” “Well can you say it more quickly?” “Well, we could cut this part out. Does it make it stronger or weaker?” “Well if we cut that phrase out, read it. See if it sounds…” And he’d read that part to me and say, “Is that stronger or weaker?” And I’d say, “Well, it’s actually stronger.” So we would take a sentence of maybe 50 words and we would boil it down to maybe five words. Because when you do it in film, you can’t have all the dialogue, talking on and on and on. It has to be short words, simple phrases, right to the heart of the matter and so I had to take this manuscript of s thousand pages and boil it all the way down to the manuscript that came here. It’s a much, much better book. It’s faster, zippier; I think you’ll enjoy it. If you hadn’t read it yet, well let’s see where are we going to send your email to this?
firstname.lastname@example.org, send me an email to that email address and I will get you a copy of it, if you don’t have your own copy and I’ll give it to you.
So anyway, the book “The Challenge” comes out 1987, by this time I was unemployed again. By the time the book came out and nobody bought it – my two previous books had sold a million copies each and I don’t know if you understand how difficult that is. While all the books get published this year in America, this is now 25 years later. There are a lot more books out there. Back when I published these books in the early eighties, there might have been 50,000 hardcover books that were published in each of those years in the first part of the 1980’s. Today they’re going to be five times, maybe 10 times as many books published – a lot of them self-published because people can now publish their own books without the help of a major publisher. It’s kind of like the music industry used to have these big companies like Apple Records and whatever. Now, instead of Shimon Shuster and Random House and all the major publishers, anybody can publish a book in a matter of minutes, it seems like. They can put their eBook up in Amazon.com and they can start making money all by themselves. It’s a different world and that’s just the way it is.
So this book that came out in 1987 just sold only 50,000; 60,000 copies. But sprinkled throughout this book are all kinds of places where I indicated, if you’d like to get a free anything – a free cd about the “Go-Getter” book which is called “The Blue Vase” which I’ll talk about here in a minute, there are like 15 places throughout this book where I asked them to send me or call me on the phone and get more information if they’re interested. Of course anybody who reads this book and they finish reading this book and they could say, “I want to be mentored by Robert Allen.” “I want him to take me through an experience like that.”
And we had like 5,000 people – well, many more people called, 10,000 people called – I don’t know but according to some rough conversations I had with my partners back then that this crazy book eventually ended up with the names and addresses of enough people who bought my training program where I would teach people how to do exactly that. Let’s go into a city, let’s not take our wallets, let’s go buy some real estate. It was revolutionary at that time. Today people go out and go on buying tours and they get on buses and they drive through Las Vegas and they buy real estate. Well back when I started this industry, we would literally get a group of 100 people, we would send them out into the city and they would go make offers and then come back with signed deals. It was a five-day seminar that was called “The Wealth training” and people hit $ 5,000 for “The Wealth Training.”
Well of all the people who read that book and they know the challenge, according to my rough estimate, there’s about 5,000 of them came to “The Wealth Training” and paid a $ 5,000 fee to be there. So although the book itself didn’t do very well in the bookstores, the ones who did buy it were a very highly-targeted audience for me and ended up coming to my seminars. There was a 25 million – over the next three or four years, $ 25 million flowed in to our seminar business as a result of that book which essentially had flopped in the publishing world; but not in the seminar world or not in the, what I call “info-preneuring” world.
Publishers sometimes they’ll publish a book and if it doesn’t succeed, they just throw it to the side and they go out and find another book. When that book that they threw to the side, if it really was promoted and worked on and driven deep into the various different ways in which you could generate money from that book, then the publishers would be not failing like in the thousands these days but they would be succeeding – much, much more successful today if they did an info-preneuring novel and not a publishing novel; but that’s another story. This book became my rights now which I can give to you if you want a copy of it.
So here’s the folks – the cover of the folks on the back and then my partner Tom Painter as we promoted the book took it and renamed the book to “The Road to Wealth – how to create lifetime streams of cash flow.” That’s a photo of me in probably 1980. Terrible glasses; not happy about that photo but it was a – we soft published it, we changed its name and then it became a better book. We’ve probably given away or sold hundreds and hundreds of thousands. I don’t know if we got in to the millions yet but certainly hundreds of thousands of copies of this book have been given away either digitally or printed wise.
And then the book moved in to its next phase and this is the 2005 Edition I think or 2008 Edition. Different photo; much, much better cover I think and because I like the photo a little bit better. Though what I’m trying to say from the challenge that we did there is you can make money starting from little or no money. I don’t care what your credit rating is, it doesn’t matter what your job happens to be or doesn’t happen to be.
I see Eldon is there and I’m glad Eldon is working for you and Leo. Oh, Leo is there. Great! How are you doing Leo? When I went to san Francisco with the publication of the first book “Nothing Down – send me to any city, take away my wallet, give me a $ 100 bill, in 72 hours I’ll buy an excellent piece of real estate using none of my own money,” I didn’t realize that five years later – it was a wonderful five years; lots of toys, lots of fun, lots of travel, lots of money flowing through the bank a gallon but five years later, six years later all gone.
So now, I have to start all over again but this time, rather than playing at going to a city and take away my wallet, where I knew I’d go back home to a very, very nice house on Osmond Lane in Provo, Utah. It’s one of the finest, finest jettings of land out over the valley. It was a beautiful house and at the end of the house was where Alan Osmond of the Osmond Brothers lived and it was a big house and it was beautiful. We were right there next to him as neighbours. Our kids would ride their four-wheelers all around the lot we had next door where we’re going to build our dream home. We had plans, we had dreams and all those dreams got destroyed.
By this time, I could now go, “Send me to any city – San Diego. Take away my wallet – didn’t have a wallet. Let me start from scratch – nothing but debt; three million in debt. Business gone, cash flows wiped out.” The bank called a loan that I had taken out to buy the Academy Square, they called a loan. They demanded their several thousand dollars back in immediate money because I didn’t have the cash in the bank because my credint card was kind of tanked. They literally took my royalties at Simon Schuster, all my properties. I’d written a blanket mortgage on everything. “Do you want to buy this one at Academy Square?” Which was the dumbest thing I could have done. Excuse the metaphor but it was not so.
Now I’ve just taken some people out of the unemployment line, I showed them how they could make some money. I guess I’d better show myself how I could make some money. And so from the bankruptcy that ensued from that – it took several years to finally come to fruition but from this catastrophic loss of me promoting the book “The Challenge;” it was being promoted at the worst time in the real estate market and the worst time in my life and I’m trying to teach people how to be “financially successful” when my life is upside down.
I tried to show when I went to San Francisco, when they took away my wallet that you can take away all the things that the banker wants – she wants cash flow, she wants credit, she wants good collateral, they want chunks of cash in the bank. They want the four C’s; cash, cash flow, collateral, credit. Did I have any of those? Didn’t have any cash flow, didn’t have any cash, didn’t have any collateral – it was all gone and credit, shot.
And yet the people in the unemployment lines, they didn’t have any of those four C’s. What did they have? Well I was trying to tell them that the banker wants the small c’s – Cash, cash flow, credit, collateral; you need to have the Big C’s, the capital letter C’s that are inside of you, the C’s that make a difference. Like what? Well, confidence. I wasn’t sure I was all that confident when I lost everything but I knew I was confident that I had to make some money. I was very confident about that.
We were living in a rented home here in San Diego. Of course it was in one of the nicest neighborhoods in San Diego; on a lake but the rent was much, much lower than the monthly payment would have been on that house and we were starting from scratch.
I needed confidence. I needed clarity. Clarity is like, “I got to figure out what I’m going to do with the rest of my life.” I needed chutzpah. That’s a C word. C-h-u-t whatever; chutzpah. I got to go for it. I needed all of those things. Clarity, confidence, commitment – I needed commitment. I had to figure it out and to tell you the truth; I didn’t have a lot of those things. I was really pretty shell-shocked. I was. What am I going to do with the rest of my life? Well I can speak French. I wanted to be a French teacher at one time, maybe I could teach French. But I was a famous author. I had at least two huge million dollar copy bestsellers. One that was kind of a bomb but I’m sure we could look past that. There was probably another book but I mean I didn’t feel I could write another book. Why? Because I felt like a fraud. Like here I am, a bestselling author, the rich guy wasn’t rich anymore and what should I do?
Now this is where my friends come in to help. Tom Painter who had been with me on the challenge in Saint Louis, Missouri as an employee sees that the company we had closed its doors, let these 50 people go, Bob moves away and he’s inspired. I think he was inspired – I believe in that word, to come to California and seek me out. He comes to this rented house we had and we had a little room down and the lower part of that house was vacant and we went into it. It was a little small room in a very– it was a beautiful, nice house on this lake but the room was vacant and it was a room we didn’t occupy. We went in that little room and we started brainstorming. “What am I going to do with the rest of my life?” And Tom says, “Let’s do the seminar business all over again. We did it once, we could do it again.” He was frankly, he was on the road crew of this business we had before. It was when we went to do seminars; he went out and helped with the seminars. He kind of been through all kinds of jobs. He wasn’t one of the major leaders of the company but he certainly understood it from all the different ends of it and I said, “I don’t know if I really want to start a business up again like that.”
Of course I feel like a fraud, number one because how can I go stand in front of an audience and tell them that they can get rich when look at my life, you know? And he said, “Well if we did a seminar, what would it be like?” And I said, “Well first of all, this money stuff – they had me on these infomercials because we did our seminars around the country and I’d be getting out of fancy cars and out of airplanes and on the beach with my family and this house that we – in Malibu.” We did all these – the appearances of wealth so that we could attract people into our seminars and I said, “That’s really not what I think wealth is.”
Well, what do you think wealth is? Well wealth is more spiritual and it’s internal stuff and it’s positive thinking and it’s all these inner C’s. We have to give credit to God in this process because you just have to and by this time of course I’ve been driven to my knees where I could – because money is a drug. It makes you stupid sometimes and the stupid thing about money is that you’d begin to think that you’re the one that made it. You think these opportunities, you’re the one that discovered these opportunities and this idea for “Nothing Down” that popped into your head, it was your idea.
And truthfully now in retrospect, those were ideas that were given for me to try to promote the concept of entrepreneurship. I think it was a very spiritual thing for me and I didn’t give credit at that time because when the money comes in, you start to think – it makes you prideful and what pride does is it makes you think you’re invincible and this is the opposite of truth. We’re always vincible. We can be vinced, and this drove me to my knees.
I had literally in that rented home – I remember very, very clearly with vividness, feeling like the weight of the world was on my shoulder and the stupidity of what I had done with an incredible amount of fortune. I never took care of it; I never managed it. I just assumed it was always going to be like that. It’s kind of like a baseball player gets a huge, major contract and goes out and buys all kinds of toys and houses and jewels and everything else and you know what happens; most of these major baseball players end up bankrupt. Why? Because they don’t know how to handle money and neither did I. The loss from that was – I could smile about it now but I wasn’t smiling back then. I was carrying the weight of the world on my shoulders. I felt so stupid. How could I blow through this opportunity? How could I think it was me? How could I not realize that this was a blessing – of me to be able to see if I could handle money like that?
When all gets taken away, when it’s all – nothing’s left. The guy who wrote “Nothing Down,” has nothing left. Oh my gosh! I remember going into that closet, falling on my face. You’re supposed to kneel, I felt so low. I fell flat on my face. I said, “God, how could I have been so stupid? I didn’t put you first, I put the money first.” I put me first. I made sure I got all my toys and if there’s any money left over for giving or charity, philanthropy or tithing, there wasn’t any money left after all of that. Maybe a little here and there and I tried to give lip service to it but I wasn’t, I wasn’t a giver. I was a taker. I took the money and ran.
So I had a powerful experience in that closet that day. Just actually it’s about – as the crow flies, the house on that lake is about a mile; that direction right over there. It’s a beautiful community. It’s called Fairbanks Ranch and that’s where a lot of very successful people live today. It’s where Ray Crock of the owner of Mc Donald’s, the creator of Mc Donald’s, this is where he had his magnificent estate; huge estate. And if you get inside the gates of Fairbanks Ranch, you can still drive by that unbelievable mansion. It’s on this hill and with the walls all the way around it and when you drive by Mc Donald’s, the guy who started Mc Donald’s has a house about a mile in that direction. I was living in that community on a lake, paying rent, hanging on by my fingernails and fell on my face in the closet that day and I had a profound experience.
I didn’t see any angels or I didn’t hear any voices but I had this profound, deep, burning experience; just impossible to describe unless you had one -where I knew that God knew my name. I felt love that was hard to describe. I know how low I was because I felt how heavy I was when I walked into that closet and I know how light I felt when I walked out. I felt that somehow I didn’t know how I would come through it; somehow we’d be okay. I felt a different kind of confidence. It’s not this blustery, “I can do anything” kind of confidence. It was this peaceful confidence where I just knew I’ve figured it out.
And then things started to happen. Then Tom comes to help and re-focus and direct the seminars that we were going to do. We started from scratch. I needed a marketing guy because I’m not a marketing guy. I love marketing, I love the principles, I love to teach and I love to talk about it but in order to do it, you need somebody who just does it with you and for you. The same way that Walt Disney had Roy Disney, his brother who did things that Roy couldn’t do. Tom did things for me that I couldn’t do.
We started to build a little company called “Challenge Systems.” Right down here, I actually can see the ocean right in the distance there. That’s the Jimmy Durante Boulevard is where we started from nothing, with no money. Send me to any city, take away my cash, credit, cash flow, collateral and let me get on the path that I’m supposed to be on rather than talking about how wealth is so incredible. You can be rich, rich, rich instead of saying you can be Wealthy with a capital W. You can attach yourself to your purpose in life. Now if you’re in alignment with higher power and you’re higher vision of what your life is about or should be about, you will move yourself towards that, then things go fast. You have leverage because the leverage is the leverage of the universe. Wow!
And so I can’t see the street but I can see the Del Mar Racetrack right there and right across the street from the Del Mar Racetrack is a little office space where on the second floor, we created “Challenge Systems” and we started to sell enlightening seminars. Seminars where I would tell the truth about my experience and I would talk about unabashedly, my belief in the higher power. For those that don’t have a belief in the higher power, many of them get turned off by that. I am not the person to be your mentor if that’s your feeling about it. If the way I share with you my spiritual experiences and if you have a part of you that’s kind of skeptical about it or even turned off by it, then more than likely we are not supposed to be on the same conversation because this is what’s true for me and I’m going to say it.
Whereas I didn’t say it before; I didn’t say it as much and it took me a long time before I could get this blunt about it frankly. I was always a little worried about what people might think, what my beliefs are about God but that they would think less of me; therefore I was afraid. Aren’t we all of rejection and what people might think of us? We’re always worried about who they are. Who are these people out there that are going to be afraid of what we think and what we’re doing, what our life is about.
Our life is about one time on this planet – in my opinion and during this one time, we need to do what we’re supposed to do. Supposed to is the wrong word; do what we were born to do. That’s what we do; regardless of what anybody thinks about it. Then we find our path and we follow it. We have to create it. We have to hack through the jungle to make it happen but we do it.
So back there in that location, we started this crazy little company called “Challenge Systems” and our first seminar was 93 people, in the Highway 8 down here in San Diego. It’s been a long 25 plus years. Gosh it’s coming up it seems. This is going to be 30 before you know it. It’s amazing what could happen to your life if you just keep moving forward on your passion, on your dream, on your path.
So anyway, 93 people show up at that seminar; $ 1000 a piece. I never charged that much money for a seminar before but we decided we had to raise the price. Tom did brilliant marketing. 93 people showed up. I think Dennis was there as one of my guest speakers because he was a friend at that time. I had some other folks. I cannot remember everybody that showed up but there they are; 93 of them.
And we’re talking about money, we’re talking about wealth, we’re talking about buying real estate and all the personal growth stuff that goes with it and I’m essentially talking about my more – I’m trying to be more authentic. I don’t want to be a phony. I want to be real and I want to tell the truth. Because wealth is great but at this point I’m standing in front of an audience and these 93 people and what does my life look like? Well I’m living in a rented house in the nicest neighborhood but it’s a rented house and I’m hanging on by my threads or my fingers and yeah, I was born to teach that seminar. I was born to talk about it. I was born to tell the truth about it.
So I stood in front of those 93 people and would never forget to this day and I knew that the image that they thought of me was not true. They thought I was on the pedestal; this very successful real estate mogul. They were assuming that in order for them to reach the pedestal with me, they’d have to think like me and be like me. And I said, “Stop.” I was going to tell the truth. You see I always be truthful but I mean sometimes I just never told all the truth. I’d say, “Yes you can make money in real estate.” “Yes these are the techniques.” And they actually work but if you manage your money this way, you can get yourself in trouble.
Anyway, the bottom line is I remember me saying and me being horrifically afraid because I was going to have to tell the truth. I remember saying “Stop.” I assumed that when I was going to say what I was going to say that all of them would stand up, go to the back of the room, demand a refund and leave. That was my fear because as I read in a book the other day which I’ll be sharing with you, “Fear makes you stupid.” Riches make you stupid too but fear makes you stupid. It makes you do stupid things. It makes you follow the illogical worst case scenario in your mind. And my worst case scenario and that was what the fear was them rejecting me, standing up, demanding a refund and I was left with nothing again. That was my fear.
So I said – I stepped up to my fear and I faced it and I said I’m just going to tell you the truth. The truth is nobody in this room has the worst credit rating than I do. Nobody in this room owes more money than I do. I’m not talking about mortgages on real estate because that’s owing money. I’m talking about debt; millions of it and I’m not the example of the person you want to be when it comes to money – at least the managing of it. In the making of it, I can make it. I’m good at making it but managing and taking care of it is not one of my strengths.
So bottom line is – the truth of the matter is, I’m going to have to use the techniques I teach you – I’m saying to them, in order for me to dig out of this hole and I don’t know if I can make it and that was the truth. It was similar to that in my conversation with those people. I assumed that once I was done, that the seminar would be finished and they would all go home and say bad things about me.
Isn’t that crazy, the beliefs we have, the rejections we can build up in our minds and the sense of low self-esteem sometimes that creates this kind of fear. The truth is when we had a break, they came up to me and they said, “Well finally, somebody tells us the truth. We don’t care how hard it is. Just tell us what we need to do.“
In the very sense, because I told them the truth, they liked me more; not less. They admired me more because I was willing to say it and I was willing to do what they were going to have to be doing and that we were doing it together towards the goals that we all had for each other. That was the turning point for me. I could finally just say what’s true for me and if a person was listening or watching or in the seminar where I’m at, that’s what comes out. Hopefully, that’s what I hope comes out; authenticity. This is what you get.
This is the Bob. Some people like it, some people don’t. It doesn’t matter to me one way or the other. It’s the tuning fork that I’m hitting on the table. It’s resonating and at a certain pitch and if you’re on this call with us right now, perhaps most likely this pitch is resonating with you. If it isn’t resonating with you, then more than likely you won’t be here next week. You will be off finding some other guru whose tuning fork resonates with the pitch that you’re tuned to.
But I finally decided that I’m not going to please everybody. There is only a small percentage of people who are going to listen to this song as I sing my song and they are going to go, “I like that. I like the lyrics, I like the song. I like the tune.” And then they’d become groupies, they become fans, they become friends, they become, “Yeah! We like the way this sounds.” And yet, some people just don’t like this at all.
For a lot of years, I was trying to please everybody. You can’t please everybody. If you try to please everybody, you offend everybody. Because by trying to take care of one group of people who is not the person – is not the group of people you are destined to sing your concert to or your song to, you ignore the ones you were supposed to sing to and they could tell it. They could tell you’re begging this other group of people, “Come on! Like my song. You’re going to love it. It’s going to be great.” They don’t hear your song or they don’t resonate with it. They don’t like it. They hate it and you’re trying to get them to like it?
Find the ones who are resonating with you. Talk to them. Avoid the ones who don’t like it. That’s not your job. You weren’t sent here to talk to them. You were sent here to talk to these people or that person, the ones in the audience that are lighting up, that are beaming. Oh yeah, oh yeah. They’re smiling and you’re enjoying it and you go, “Yeah, you guys come on up. Let me talk to you in the front here. Let’s let these other people go to find the people that are going to teach them how to get to the next level. Goodbye!” Send them all away. Send them home. “Goodbye. We’ll see yah!”
And the ones that you’re destined to talk to, talk to them. Teach them, guide them, love them. They’ll love you for it and they should, because you love them. That’s just the way it works. From that point, 25 plus years ago, well things have gotten better. First of all I got into a tele-seminar yesterday morning about the same time in London and the guy was doing a conference call and recording it for his database of 200,000 people and I got to speak very similarly like the way I’m talking to you right here and it just felt good.
Does Julio Iglesias or does Don Henley or any of the stars out there, do they ever get tired of singing their song? Celine Dion, she’s playing in Vegas or Garth Brooks. We went to his concert here a month ago. Garth Brooks, unbelievable show. Whoa! What a show! Whoa! Do you think he enjoyed that? Garth? He’s been singing the same songs he’s been singing for 20 years. He loved it. That’s just what he does and we loved it. It was unbelievable. You got to go to that concert. I guarantee you, you’d come out of the concert and say, “Now this is a performer.” Unbelievable! He’s sitting on the stage with one guitar, sound, nothing to back him up, all alone on the stage talking to us. It wasn’t a huge concert. It was just us and he talked to us right to the heart. It was unbelievable! If you have a message like that in you, you do. You have people whose song has been prepared for you to sing. It’s time for you to sing it. Step into it and enjoy it.
Now we’ve been talking about “The Challenge” book and now you can see that “The Challenge” book is a very, very special book to me. Because it was during this time with this book that I found my song and learned how to not be afraid to sing it. There wasn’t another book that came out of me for another 13 years. I wrote three in five years, six years; nothing for 13 years. Why? Because it took me a time for me to pay all the debts and go through the bankruptcies and get all the challenge stuff out of my system and a couple of businesses went down in the middle of that but the bottom line is it was time in the year 2000 for me to step forward and to sing. It took me 13 years to kind of put the pieces back together again, and this is me now.
Anyway, I want to thank you for joining me on this call today. I hope this has been valuable to you. Have a wonderful day and ask yourself this question as you go throughout the day. “What’s my song?” You’re going to put down the lyrics and these are things that you believe. If you say “I believe that” well then, say it. I believe this. I really, really do. I believe this. What do you believe? That’s your song. These are the things you believe. Talk about it, share it. Don’t worry about what other people think. They don’t resonate with you, somebody will and when they do, there’s your audience. Pull them together and have a wonderful life spreading that message. Thank you, good luck. See you next week. Bye!
Good morning everyone. Welcome to Creating Wealth. We certainly hope that you’re going to be able to learn a few of the techniques or strategies that have helped me to create a lot of wealth in my life, making it and creating it and doing whatever it takes to keep it, just part of that process. Welcome everyone. Get some pieces of paper out and a pad for notes and specially let your heart get touched as you hear some of the thoughts I’m going to share with you about what I called the concept of “Capital W Wealth” and “Small w Wealth.” All right? So I’ll be with you in just one second.
Creating wealth and what does that mean? This is the copy of the cover of the original book. This is what it used to look like back in the very earliest days and when it came out. And actually it came out in 1982. Let’s see. I hope that you can see this in the right way. Can you read it this way? Camera’s flipped around backwards for me so this is the book that sold over a million copies. It came out in paperback. A few years later, it sold over half a million copies in the hard copy, in the hard version. Well over a half a million copies of the paperback. And there have been all kinds of the copies of the book that’d been – this is a book that somebody created. I think somebody sent me this book from Taiwan. It’s in English. All kinds of notes somebody has made. I don’t think this is an authorized version of Creating Wealth. Somebody bought it in Taiwan and I think it had gotten ripped off. Then the book was re-released in the 2000s and so we call it Retire in 10 Years Using Allen’s 7 Principles of Wealth. We’ll refer to some of those principles here today.
We’ve been discussing this book for the last several months, I’m sorry just the last several weeks. Today we’re going to complete our conversation about Creating Wealth and then we’ll be moving on to the very next book which is called The Road to Wealth. That’s the new edition of a book that was previously called The Challenge. Next week we’ll be going deep into The Challenge. This is the 7th of November just for historical purposes. Last week we were scheduled into your call just like this one. And the company Livestream that we used for these calls was shut down because a lot of the servers that were located in New York City were not able to carry the signal. I’m sure there were tens of thousands of clients all around the world of this company called Livestream they couldn’t do it because of this massive Hurricane Sandy that come through and really caused some major devastation all along the coast of New Jersey and New York. And they’re still digging out. It’s been a little over ten days but in the middle of that same process we’ve had a national election. My friend and candidate Mitt Romney lost last night so I’m just settling in on the loss this morning and really thinking about the process of Creating Wealth.
And how do you create wealth? Regardless of what happens, you have your vision and what you want to accomplish. And you can pursue it with all your mind and your heart and your soul. This morning as I get up, a little bit grumpy about the way things went down last night. That’s politics. That’s just the way it goes. Whoever is the president now we follow that leadership and yet we also follow our dreams. Just when we talk about Creating Wealth it’s: what is your dream? What do you want to accomplish in your life and what kinds of freedom that you want. That’s what wealth does for you. It gives you financial freedom –the freedom to do what you love to do, to be able to follow the passions of your own heart. In this book, Creating Wealth, we talk about – I don’t know if I go into the detail similar to this – but I talk about “capital W Wealth” and “small W wealth.”
Capital W wealth is the wealth which is the source of all small w wealth. Small w wealth are the things you see here. The beautiful office and a beautiful home and whatever cars you drive and whatever other things you own. Whether it’s jewelry or paintings or whatever else you want physically manifest in your life is part of the process of creating small w wealth. That’s wealth that is material, wealth that you can’t take with you. And so capital W wealth is wealth that you can take with you. Matter of fact wherever you go, you take your capital W wealth. You take the attitudes and the desires and the passions and the dreams and the persistence and the confidence and the clarity and the commitment and all the other things that are internal, that you carry with you wherever you go. And regardless of what happens, even though yesterday my political candidate didn’t happen to win, 49% of Americans – America’s political candidate didn’t happen to win last night. And 50% of the other folks, our other brothers and sisters, if you will, citizens in the country, they are very, very happy this morning. And yet regardless of what happens inside yourself, you cannot get discouraged, despondent, overwhelmed. You have to literally keep in front of you constantly the dream that you have for yourself regardless of what happens immediately because your dreams are always off in the future. And you’re going to be always diverted one way or another, by some kind of diversions, matter of fact. That’s what it is. It’s just all kind of diversions.
Other shiny opportunities that are shining in the distance. People throwing at you different ways for you to create small w wealth and you have to say to yourself, “Wait a second. Is that my purpose here on this planet? Is that what I’m supposed to be doing with my life? Am I supposed to be pursuing the talents and the gifts that God gave me?” Well if that’s the case then I got to be careful about being distracted. Even I got to be careful about being distracted by my small w wealth. I’ve got to be not distracted with my ultimate goal which is beyond the dates of my existence on this planet and your existence on this planet doesn’t happen – for some people it’s 30-40 years. Some people it’s 50-60, 70-80, 90. I read yesterday about a famous gentleman who died at 103, scrolling along the bottom of the TV screen. Somebody passed away at age 93 – I’m sorry 103. You got a hundred years on this planet. Beyond that hundred years what kind of capital W wealth are you going to be creating? You don’t want to be diverted from the ultimate, ultimate, ultimate goal by a lifetime goal that is beneath you. Creating small w wealth and having assets and businesses and things that you control, material things that surround you that they can’t be a distraction from your ultimate, ultimate, ultimate goal of capital W wealth.
Today we’re going to be talking a lot about small w wealth, and some of that, in my opinion, some of that is directly into the path of your ultimate, ultimate goal. You do improve your financial circumstances. In my opinion, Higher Power, who is the source of all wealth, small w and capital W wealth, blesses people who keep focused on their ultimate, ultimate goal, who protects them from the dangers and the distractions that could keep them moving forward in an ultimate path. Sometimes material things are really kind of rewards for you being focused and dedicated and consistently moving forward in being a good person and creating internal wealth for yourself. Being honest and ethical, being spiritual if you will, being enlightened is another way that I began to call in the 2000s. Creating Wealth was written in 1982. It wasn’t until the book The One Minute Millionaire came out, which was 20 years later, that I began to use the words enlightened wealth, which means when you create some material wealth in your life, you immediately give away portions of it to help people who are less fortunate immediately. And by doing so, your wealth, your small w wealth becomes a source of flowing through you to help people who are around you, people you were destined to help, people you were destined to bless and to encourage and to love and to inspire and help.
And therefore this process of creating money is not the ultimate goal. I think the first goal is to give away some of the wealth that you create immediately. You become what I call, just my own way of describing it an enlightened entrepreneur. And the money that flows into your life has now been enlightened. If it comes through you and you give it, portions of it not all of it, a little bit at least the first 10%, if you give it away, it kind of inoculates the money on your behalf. And the money now becomes just more wholesome, if you will. But money in itself can be rather unwholesome. It can go to your head and go to your heart and canker your soul, frankly. This process of creating wealth, that is my understanding of it, is the way I like to teach it. It may not be your understanding of it but that’s my job to teach you the way I understand it, and if it’s been helpful for you then I certainly hope it helps. When this money flows through you and you give certain portions of it away. There’s a famous scripture that talks about that when a person does give, that the windows of heaven will be opened up and poured upon you.
The windows to heaven that can be one of the reasons why you might be able to acquire certain financial assets and certain small w wealth? Yes and no. Windows of heaven, as one writer talked about it, when you become the source of giving to the people around you because of your desire to be a giver and as the money flows through you, you are immediately dispersing parts of it and helping in various causes and churches and charities and philanthropies that you believe are important for you to help, that you might be inspired to help. Then as you do so, as this one writer Eric Butterworth said in one of his books, Spiritual Economics or something like that his basically says, that when you become a giver, you become the windows of heaven. It’s not as if the windows of heaven open up and pour on you. It’s as if you become a source of giving. That makes the world a better place because where else does the money come through anyway. The money’s always going to come through people. People are going to discover or create it. And they will always be the source of giving, always. You don’t just walk down the highway and find pots of gold on the street. It’s usually because somebody dug it out. And as they dug it out, what happened with that wealth? It bought things and it created jobs and it also created philanthropy. And if you look at some of the greatest givers, they’re usually some of the richest people.
You look at Rockefeller. He was a 10% tither right from the very early, early ages of his young, young lifetime. And then eventually he stumbled into, stumbled into or maybe was blessed with – might hear you say yes or no but I’m just saying today, this day, the Rockefeller Foundation has hundreds of millions, maybe billions, of dollars that have been building and growing in the foundation. And they give away moneys to this day. This day, more than likely, you have been blessed by the largess and the philanthropy of a guy that you may not respect or admire. You might think that he was one of those robber baron guys that he was certainly vilified, and who knows, maybe part of it was true. Regardless of whether it was true or not, certainly he set it up so that his wealth could continue to be given.
And the same thing with all great foundations. You got Warren Buffet now who’s put up a foundation with Bill Gates and now they’re giving away great amounts of money. They’re going to Africa and eradicating malaria and all kinds of other diseases. And they’re doing it because of the wealth that had been poured on them. And now they become one of the windows of heaven. In this giving that you’re going to do, as you create wealth, following paths that are natural for you, that are effortless for you, where your talents and gifts lie, where your passions are funneled towards, if you pursue that, because I believe it’s a God-given gift, if you pursue that what happens? And if you don’t let the money cause you to go into this pride-mode where you think you did it and how smart how are you or me – it happened to me in the 80s. It definitely happened. My head got bigger and I ended up losing it all because I just got very prideful and kind of stupid. And money can make you stupid. I know what that’s like. And after having lost it all and literally learned that very, very deep, personal lesson in my own case I had to come back out of it and say, “Okay, I realize that money comes by pursuing your passions. But if you think it’s you that created all of it, you’ll be disabused of that notion very soon.” If you keep humble about it and if you constantly be a giver and refuse to be distracted from the things that are most important, such as your ultimate, ultimate, ultimate goals and the capital W wealth you’re trying to create for yourself, if you’ll do that, things will be good. You become a window of heaven.
And now if there are a million of us or 2 or 3 or 10 or a hundred million, all of whom believe that wealth with the small w can be given and it creates capital W when you do so, when you give away, it makes you a deeper, better, whiter, honest person. It just does. I’m not saying that I’m that way. I’m not trying to brag it anyway because that’s the last thing I want to do. I want to give total and complete credit to my Heavenly Father, without whom I am nothing. Creating wealth. Let’s create some.
I’ll pull up my PowerPoint presentation and let’s focus in on that. This title popped into my head. I don’t know where it came from but it certainly did and very different from the first title of the book I wrote, Nothing Down, a program that shows you how to buy real estate with little or no money down, a big long subtitle. Creating Wealth. Two words. That’s it. I got a – if I’m not mistaken it was a $7500 advance for Nothing Down. Got a $200,000 advance for this book. Back in 1981 when I got that $200,000 advance that was big money, huge money. And as I’ve talked over the last couple of weeks about the various, different lessons I try to teach in this book, Creating Wealth, as we get into the last half of Creating Wealth there’s 2 chunks of what I’m going to talk about today. First chunk are the multiple ways of making money. This is the precursor of a book that I wrote later. A matter of fact I wrote that book 18 years later. And the book was called Multiple Streams of Income. The focus of Multiple Streams of Income was how to create income streams that go on for the rest of your life where you can make money while you sleep. This book talks about some of those streams but it was the first time in my mind that I was beginning to say, “Well gee real estate’s good but is there another way to make money besides real estate?”
We go into one of the chapters which is the Coming Enormous Profits in Discounted Mortgages. Obviously it relates to real estate because when you buy a piece of real estate, there’s equity in that real estate. And sometimes the owner of a property who’s trying to get rid of the property will rather than taking cash can sometimes carry financing. They can be like the bank. For instance let’s take a $100,000 house just for ease of illustration. And suppose it’s free and clear. That means there’s no loan on it. And suppose the market is a little squirrely and you’re not quite sure if it’s worth a hundred. It might be worth 90. It might be worth 85. The market is kind of soft. And this owner wants to get rid of the property and he needs to get rid of it. Maybe he’s being transferred to another city and he just doesn’t want to leave this house vacant. And maybe it’s a house that his mother gave him when she’s passed away in her will. And he’s already sold the house that he lived in and he had this little, tiny other investment that’s worth a hundred thousand, just for ease of illustration and it’s free and clear. And he doesn’t want to rent it out. Just received it. He doesn’t know how to rent things out. He’s saying, “What am I going to do with this asset?” He puts it up to try to sell it. It looks like the market is slow. It might take 6 months. It might take a year.
Somebody comes along and offers him a creative deal and says, “Why don’t you be the bank? How much money are you making on your interest these days?” And he says, “Well it’s 1 or 2% or sometimes less.” And the new buyer says, “You could this property on the market and you can sell it.” You’re probably not going to get full price, a hundred thousand for it. You might get 90. You might get 85. Of course you get the cash and what do you do with it? You’re going to go put it in a bank somewhere, right? Then you get say 1% interest on your money at the bank. That’s not even enough to cover inflation. You’re losing money every single day with your money stuck in the bank. Why don’t I make a deal with you? Let me make you an offer. $100,000 will be the price and I won’t negotiate with you on price. I’ll give you your price. You want a hundred, I’ll give you a hundred.
Therefore immediately, let’s say you’re making $10,000 immediately because if you’d sold it and got 90,000 cash and then paid your commission and then everything – let’s say we sold it for 85 and had to pay commissions on it so you’re down to 80. You can take your 80,000. You think it’s worth a hundred but after negotiations and commissions and costs and everything else, you’re down to 80. You put that money in the bank. 80,000, you get 1% interest. 1% of $80,000 is $800 in the entire year. You can get 800 bucks. Next year you get another 800. Next year another 800 and it gets your $80,000 is slowly declining in value. Why don’t you just take my offer today of a hundred. And I’ll give you 4%, I’ll give you 5% interest. Yeah 5% interest. Obviously for you it’d be 5% interest on a hundred thousand dollars so that’s $5,000 in yearly interest divide it over 12 month period of time. That’s going to be about 400 and some odd dollars a month. And could you rent that house out for more than $400 a month? Probably, probably could.
In other words if you buy with nothing down you can probably try to immediately run and rent it out even if the interest rate is 5%. And now the person who just sold it to you made an immediate $20,000 in equity. They made a huge windfall. They got $20,000 of extra profit that’s just sitting immediately there rather than selling it and paying commissions and ending up with $80,000 in cash. See the difference? And then rather than 1% interest of the bank, you’re giving them 5% interest which is wow, this is 5 times. Instead of making $800 a year, they’re making $5,000. It’s 5% on a hundred thousand instead of 1% on 80,000. You see the difference? They’re making $5000 a year, 4 or 500 bucks a month versus only 800 in the entire year. Can you see how a creative investor can pitch to an owner that this might be in their best interest? If they receive that monthly payment over, what’s it going to be? It could be 10 years. It could be 15 years. It could be 20 years. If they get the monthly payment over that period of time it can be very good for them.
What happens though if they want cash? Say 5 years from then, they’ve received their monthly payments that they want, then got a note of a mortgage on this property that they carried as the bank. Now they don’t want it. You see these ads on the TV all the time about have you received a structured settlement? Were you receiving monthly payments? We’ll pay. We’ll cash you out of that structured monthly payment. I think you can receive maybe from some settlement or some lawsuit you are in. And they’ll look at that structured payment whether this a monthly mortgage you’re receiving from whatever. And they’ll pay you cash. Instead of getting that 4 500 bucks a month, you could walk away with $60,000 or $70,000 dollars in cash. That means yeah eventually there’ll be a discount. If somebody pays cash, there is a discount. And so for a while perhaps the monthly payments are really good for you. But eventually you might need the cash later on and somebody then cashes you out, and you buy that at a discount. That’s called a discounted mortgage. See that?
So today, as properties are having difficulty selling people who have properties where they got lots and lots of equity. Sometimes when they try to facilitate the sale, they’ll carry a mortgage back. And that we end up with a chunk of mortgage of paper. And if they want to sell it they have to sell it for discount. They have to sell it for 60 cents on the dollar. Why? Because the person who buys it for 60 cents on the dollar – suppose they bought a $50,000 mortgage. And they bought it for 60 cents on the dollar. So that’s $50,000 mortgage, 60 cents on that, that’s $30,000. They bought a $50,000 mortgage for 30,000 in cash. What was the interest rate on the mortgage? Maybe it was at 5% interest. 5% on $50,000, what’s that? 5% on $50,000 is $2,500 in one year. In a year, the mortgage was paying him $2,500 a year. They bought that for $30,000 then what’s the return on their investment? They got $2,500 a year with an amount where they invested 30,000 to get it. They’re making 8, 9% on their money. That’s really good rate of return. Sometimes if you buy those notes right, you can make 10, 15, 20% on your money from a discounted mortgage.
This chapter in Creating Wealth talks about that. And throughout the entire decade of the 2000s, since money became cheaper and cheaper and cheaper, and you know why it became cheaper. Because it was being created falsely by people selling mortgages backed by the American government, selling mortgages to unqualified people, so the mortgages were really worthless. The mortgage that the bank bought for $100,000 when the person will stop making the monthly payment and the value of that property dropped, the mortgage value dropped to $20,000 or less sometimes. Because the payment went bad and nobody wants them. So people were making huge – and they’re making it today. Huge amounts of money from these mortgages they’re buying from the government at 5 cents on the dollar. The value of the mortgage is a hundred percent. But since the mortgage has gone bad, the asset is still there to back the mortgage. And the government is selling these mortgages for pennies on the dollar literally, pennies on the dollar. I have people come to my house here a year ago I was talking about packaging money to go out and buy these mortgages and packages and buying them for, like I said, 4,5 cents on the dollar. And now he turned that around and some of that paper goes bad. It’s worthless and nobody can make any money from it but some of the paper is good, still good. And so they’re selling it for 50 cents on the dollar, 60 cents on the dollar and making a killing.
Discounted mortgages have been around for a long time and they’re going to be around for a long time. And they’re happening right now. Through the 2000s they kind of went away, why? Because people can go get cash from some mortgage really quickly because anybody can get money, mortgage money. Now nobody or a very few people can get mortgage money. It’s difficult to do these days. That’s one of the reasons the economy has slowed down so much. It’s because it’s hard for people to refinance and to get their mortgages. And therefore it just slowed everything done dramatically. Hopefully in the next 4 years, it’ll speed back up again. It’ll get better and better and better. But right now that’s why it’s sluggish. That’s why since it’s hard to get mortgage money from banks, these discounted mortgages created by owners who are trying to get rid of their property are willing to be the bank themselves. Those mortgages in the next 5 to 10 years are going to mature, meaning people they thought they wanted a monthly payment for a couple of years finally found out that they needed some cash. They had an emergency in the family or maybe a daughter is getting married or have a son who wants to go to college. And they said, “Well, we’ll sacrifice our mortgage that we kept when we sold the house back 5 years ago. Carrying the mortgage in the sale, now we’re going to take that mortgage which has been giving us monthly payments nicely. We’re going to discount it. Take the cash. Pay for your first year in college but that’s it. One year and that’s it. Then you’re on your own.”
The bottom line is mortgages and discounted mortgages are going to be huge again. They were huge in the 80s, huge. In the 90s, not so much. In the 2000s, it kind of went down to very little. There’s always mortgages but not the volume. Now that volume is going to in the last 5 years it’s going to start going back up and up again. And there’s still fortunes, enormous profits in discounted mortgages. That’s that chapter.
Then we start talking about numismatics. Hold on just one second. The slide that I thought you were seeing, was this [laughs] The Coming Enormous Profits in Discounted Mortgages. The slide I want you to see now is this which is Numismatics, The Secret of the Midas Touch. And Numismatics refers to precious gold coins, gold and silver coins. People have hoarded these coins where they can now. Sometimes they never left the mint. They were literally stockpiled and increased in value because a gold coin has certain different gradients of perfection. A coin that is perfect and has the highest, highest grade without any scratches or any kind of tiny, little blemishes on it at all. If it’s the highest quality coin, it has the highest value. That means that the silver or the gold content if you boiled it down it’s not the word I’m looking for but if you melted it down, the gold would be worth $1500 an ounce. The silver would be worth – what is it now 30? Something like that dollars an ounce. The coin might have an ounce of silver in it. So it’s worth 30-ish bucks. But because of the way it was minted maybe 50 years ago and it’s in perfect condition, the value of it because of its scarcity because there’s so few of those – now you have lots of coin collectors trying to compete with the shrinking supply of perfect coins that the values start pulling up. Instead of $30 it might be worth $300. Silver’s only worth 30 bucks but the coin itself might be worth 300 or more, 3,000 sometimes 30,000 sometimes. Whether it’s gold or silver, a person who’s into Numismatics is a person who loves to have high rates of return.
In this chapter, I did a lot of research. And if you look back in the year 1982 and look at the prices I was talking about there in an early edition of Creating Wealth, you will find that a person who did what I told them to do in 1982 now is 30 years later or more, they’re going to go well I wish I just bought $10,000 worth of gold coins when Bob told me to because that’d be probably worth a hundred thousand dollars or more today. Probably a lot more than that frankly. Especially since the price of gold and the price of silver has just skyrocketed. The value, the intrinsic value of the coin has gone up dramatically in the last 30 years but now it’s become more rare because 30 years ago, it was 30 years younger. Now it’s 30 years older and it’s gotten more rare and the value of the intrinsic gold’s gone up so what’s going to happen in Numismatics in the future? I honestly don’t know. All I know is that if you’re passionate about it, you want to dig in to the process of it, you read this chapter on Numismatics. It was written 30 years ago. And I updated it. It’s been updated to the book for the year 2000s but the question is, is that something that is interesting to you? Do you like to collect things? Do you like to hold your wealth in your hands? Do you like to be able to have portable gold and silver? Because of Numismatics if you have bullion in silver or gold, if you have bars of gold, it’s heavier. It’s bulkier. You’d have to put that in your minivan and get it out of the country. But if you are really trying to port your gold or silver, you can literally carry a million dollars worth of value in your hand. It might take a minivan to carry a million dollars worth of gold, but with Numismatics – this is one of the ways that people who are escaping Communist countries and even the Nazi countries they ported a lot of their valuable assets in very small sizes because of that. There are a lot of advantages to the Gold and Silver Numismatic Game. If you want to read more about that, you can read that in that particular chapter.
Liquid Money and Where to Pour It is where do you park your money if you’re trying to wait for it to be ready to pounce on a good deal. Because you always should be liquid. Liquidity is a very important process. Things get tough. Times get tough. You need to have some money put away for a rainy day. Well it’s been raining for the last 4 years, in my opinion. I’m certain it’s happened to my business. My businesses have gone down 95% over the last 4 years because real estate was my business. I was all around the country and so I had to have multiple streams of income. Other ways, places that I had parked money and it created streams of income that were not part of my seminar business or even part of my real estate investments. That’s why I believe in multiple streams of income. Thank heaven for this liquid money that we got to place in different places so that was safe.
But the bottom line is you need to have same things like that yourself. You need to force yourself. For every dollar that comes in the door, you give portions of it away. And the way I force myself to do that when money comes in the door, my wife is the saver of all time. She’s just incredible and I’m not. I’m just not. Thank heaven I’m married to an incredible woman who has that intense skill. She’s just is the best in the best in the best at it. We live in incredible surroundings. We also have liquid money and places to pour it. Now I’m going to challenge you to do the same thing. Put it in places that are outside of your name somehow. Those are entities. I talk a little bit about it in this book. An entity is where you get to control the money but it’s not money that really belongs to you. I know many, many wealthy people because we live in a dangerous world and because there is not only illegality going on but there is also rapacious law-suiting going on. People can sue you for the craziest things. So you need to be able to protect this wealth that you’ve created. Put it in places where nobody can find it and it’s all totally and completely legal. Nothing I’m saying here is illegal. Make sure that the assets get out of your name. I’m using a strange example but that’s before O. J. Simpson got thrown back into jail for another infraction. He won his lawsuit for the murder case he won but the civil suit he lost. It means he was sued by the family for millions and millions of dollars for supposedly killing his wife. The family said, “You might have got off by winning the court case. They didn’t put you in jail for that but we’re going to sue you and he lost with millions and millions and millions of dollars” where the judgment’s on him.
But one asset was in his pension plan. That is not attachable from a lawsuit so he was able to live fairly comfortably with the money he had put away. And could have been even living today if he hadn’t made another mistake and tried to kidnap somebody who’s – I don’t know much about the lawsuit but I just know he’s in jail today. And he still has his money. It’s still sitting in his pension plan. It’ll be there when he gets out. The bottom line is it was placed in an asset that was not attachable to a huge, huge lawsuit. There are lots and lots of millionaires and billionaires who literally have to play those kinds of strategies. You should too. The wealthier you can get, the more dangerous it is. You put your money in liquid places. There’s a chapter on that.
Limited Partnerships. Rather than you do buying a piece of real estate, I got an email from a friend the other day. Beautiful apartment building in Denver, Colorado. Substantially below the market. They bought it right. Probably bought it from one of these government pennies on the dollar sales. They’ve got in and fixed it up and increased its value dramatically by making, by fully renting it out again. And now they’re selling it and still way below the market. It’s unbelievable deal. I wish I had an extra million bucks to stick into it but it’s going to be a limited partnership meaning they’ll bring lots of people with lots of moneys together. And they’ll put their money into this apartment building and they’ll own it. And the rate of return will be certainly a lot better than one percent. It might be 8, 9, 10%. And then eventually when this property gets sold to somebody else 5 years, 10 years from now and it’s sold for a much, much higher price they’re going to get another windfall of cash when that gets sold. Their rate of return is going to be 10% or more. That’s a limited partnership. Somebody finds the deal. Organizes the money. There are the finder. They borrow the money from their other partnership and form another limited partnership. There are different ways and different legal entities. I’m not talking about the legality here I’m just saying that the concept of a limited partnership where you pool other peoples’ money.
Now one of my friends started off his whole investment career. He was an employee at a major accounting firm. And he found an 8 unit apartment building. It’s a real good deal. Of course he had some clients from his accounting practice that had lots and lots of money. He said to them, “Listen there’s kind of conflict of interest here. Let’s handle this arm’s length. But I know you’re looking for an investment. I just happened to find one. It’s an 8-unit apartment building. Would you like to buy a part of it? I’m selling share or pieces of it. I’m going to bring in 10 partners. We’re going to buy this 8-unit apartment building. You put up 10 grand, you put up 10 grand. You put up 10 grand. We’ll pay for the thing” and then off they go. That’s how he started off. He didn’t have any of his own money into that deal. Sometimes you do a limited partnership. Finding an incredible deal and then raise the money to buy it. You ended up with a piece of it plus the finder’s fee for putting it all together. People do that every day, in every city in this country. Today, limited partnership deals will be put together and closed today. There will be limited partnerships that will be sold today and the moneys will be dispersed to all the partners. That was another conversation.
Final thing I want to talk about today is taxes. And it is the greatest source of expense in your life. Just behind divorce. Divorce is the greatest destroyer of wealth because you create a hundred percent wealth and then you separate. It happens every day. Now you just took half your money and now where this equity of a hundred percent you now split it into 2, and now because of attorney’s fees and everything else, that amount that used to be a hundred percent is probably down to 20% each. Maybe even 10% each and so the wealth just gets destroyed. I had a good friend of mine here recently. His wife just went off the deep end and just completely destroyed their business, just wiped it out. I don’t know her side of the story. All I know is his side of the story. I’m sure she has her things too. With a lot of ideas, a very successful company doing incredible service to its clients is being destroyed. Nothing left. You heard about the ad in the newspaper. Brand-new Mercedes a thousand dollars. Everybody calls on the ad. What’s the deal? How come it’s a thousand dollars? Well it says in the divorce settlement that I get to sell the cars and then we split the proceeds. I’m not going to let that SOB have any money from the sale of that new Mercedes. She sells a brand-new Mercedes for a thousand dollars. Of course somebody gets an incredible deal. Then she gets the perverse satisfaction of making sure this spouse of hers gets nothing. This happens.
The same vein – the greatest destroyers of wealth is taxes. And we won’t get into the politics of it okay. I can go off on that for many, many weeks. The bottomline is whatever the game is that you’re playing when it comes to taxes, there are certain rules. There are certain moneys that you have to pay. Whatever the rules are then figure out how to pay the least you possibly can. There are certain rules with regards to capital gains taxes. That’s one of the reasons why Mitt Romney, the ex, as of yesterday, presidential candidate was paying a substantially lower percentage than most ordinary people. Because he took all of his assets and he put it into capital gains assets. Which is bonds and dividend-generating activities. Ways in which the percentage of taxes which is substantially lower. Than if you look at Ross Perot he did the same thing when he was running against Bush and Clinton in the early 90s. I think his tax rate was something like 6% because he took all of his money and he put it into vehicles that had dramatically lower tax-rates. Why? Because rich people are smart. They realize that if you take assets and have them into ordinary income, you’re going to pay as much as 50% of your money, in taxes of your net profits. If you can take and sell those assets, put them into [coughs] excuse me. Put them into investment vehicles that have lower tax-rates sometimes there are tax-free things. Municipal bonds that are tax-free. Where you can have money at 3 or 4, 5% and there are no taxes to be paid on it. Zero taxes. The rich pay lower taxes. No doubt about it. Take the total income and fill a hundred thousand dollars for the total income. You take a lot for some personal exemptions. Remember these numbers changed. And they constantly change. What do you get as a personal exemption? What is your wife or spouse? Do you have your dependents? Therefore you get to deduct off the $100,000. Certain deductions that the government gives you, the new taxable is less. Then you get to pay some federal income taxes and some social security taxes, some state taxes if you live in California, for instance. Or some tax. A child tax credits . Therefore your total taxes end up being $20,000 dollars and your nets after taxes is $80,000. Your tax rate is 20%.
My tax rate is about 30%. Although I’m talking about California taxes and all the taxes that I pay can be as high as 50%. But the bottom line is a lot of my income is ordinary income because I’m still making money like most of us are doing. Like most of you are doing. What I want to share with you is a chart that I created to try to teach you how to understand the tax game. Here is a picture of how the money flows in at the top. The one I just showed you earlier in the previous slide was left-brain thinking. Meaning lines in a spreadsheet. Lines of numbers usually glaze people over. Accountants love those lines of numbers but most people just cannot comprehend it. I try to make it visual you can see that money flows in at the top of your bucket here. You get to siphon off some of it into the personal tax exemptions which means it lowers your taxable income. Expect to spend a little cash but these personal exemptions pour out and make the taxable amount, at the bottom, low, a little bit less. Therefore adding to that let’s now siphon some more off and to put them into business expenses. All of you should have business. Therefore you could deduct things as a business owner, that you would not be able to deduct as just a personal citizen. Therefore you need to have a company. You need to be in business, a small business. Absolutely. It’s going to save you taxes.
If you put that business into a corporation you’re going to have lower taxes in the corporate entity. And as it pays out salaries to you then you run it through this pictured version of the way things work here. So it lets you siphon off business expenses. Therefore you have your spendable income and you have your personal income tax at the bottom of that. That make sense? Let’s go from there into now taking into taxable income at the top. Business deduction filters. Lowers your taxable income. Increases your spendable cash. Lowers your tax rate. Therefore just following through on some of these filters, lowers your tax rate in a visual way. When you go into putting money into an IRA or into any one of the various different government forms of saving money into a retirement account could be defined pension plan or some kind of a corporate plan where there’s IRA which ordinary people have or some high end entities, pension plans, etcetera. When you follow some of that money into your IRA, that money gets taken out of your spendable cash bucket and gets put into a place where it can grow tax-free until you retire. And so it takes the taxable income out of your life and lowers your personal taxes today. That make sense?
Finally, one final filter will be to pull money out and the one way of doing it and to kind of close this loophole recently where you could hire your children and since your children are in lower tax brackets then you get to be able to have your children siphon some of your money in the higher tax brackets to your children at lower tax brackets. And these kinds of – I’m just trying to give you an example of a game that the government lets us play. And then they open some of the loopholes like this and they close some. Sometimes I teach these principles – what I’m trying to say in that example that may not be exactly the way it is done today. It’s an example of a loophole that they create for rich people. To give an incentive, to lower their taxes. Obviously one of the big things in the last election was trying how [0:53:43.4] How do we make it so take away all those deductions. Doesn’t look like that passed so whatever game we have today we play that game up to its fullest. And we create as much spendable cash as we can with as lowest tax rates you can possibly pay.
Finally we up with the whole bucket showing how corporate income comes in at the top. You should have a corporation or some kind of legal entity that allows you to have ways of paying lower taxes. You end up with a defined benefit pension plan or an IRA. You end up with a corporate business expenses. These are faucets that turn off and take money away from your personal spendable income. Then you can end up taking loans to officers where you can borrow money from your corporation and not have to pay taxes on it until it’s eventually paid off and once again those loopholes are still changing there out there. But sometimes it used to be that you could borrow up to $50,000 as a corporate office officer therefore you can borrow it, spend it, have a loan to the corporation, pay interest to the corporation. Deduct that interest at the corporate level. Therefore end up with less taxable income because the interest is being paid to yourself. Does that make sense? Then you have your corporate salaries that get paid up to personal lower corporate taxes. And then when you finally add the big picture, it took me months to work with an artist to try and figure out how all this fits together. You have your corporate funnel. It pours over into your personal funnel, all the different siphoning off of it. And that’s why rich people, as I quote at the beginning of the chapter was, the rich are different from us. They pay less taxes. Do they?
Well they pay 80% of all the taxes. 70 or 80% of all the taxes are paid by these rich people that sometimes I think get maligned. They are misunderstood. Let’s just raise the tax a little bit. The rich can afford it. We were in France last summer and Sarkozy who was the president, I don’t know how good he was at all, no clue. But the person who beat him in that election came in and made the announcement that rich people are going to have an 80% tax rate. What’s that going to do to a person who is rich? There are no loopholes for them to get out. It means that they’re going to make – okay maybe they make a million dollars and how do I get to 80% of it. They get a little over 200,000. What are you going to do about that? I’ll tell you what I did. You had immediate people who are saying, “No we don’t want to be patriotic that way.” The new president was saying you need to be patriotic. You’ve got to take care of our country. But they’re just leaving in droves. The same thing happened in England. Whenever they make these kinds of onerous tax laws, rich people just go somewhere else. And they may still live in that country but the corporate entities aren’t found in that country anymore. They end up paying much because rich people are smart. They’re just not going to do that. I just don’t understand politicians who don’t seem to get that. But they don’t and that’s what we have to live with and therefore we go play the game wherever we have to play it. It has to be legal, cannot be illegal. Cannot be unethical. I don’t think it’s unethical to find another entity or another place or another way to use whatever the tax codes are. You hire whatever accounts you need to and you end up paying more taxes.
Sometimes the entities, the shady people put you into are not legitimate and they’re not good. I’ve never, myself, have that kind of thing happen but sometimes you find wealthy people trying to take their money away and putting it in places where people they trust and most people were not trustworthy. And therefore they lose a hundred percent of their money. All kinds of things in this game called wealth. You got to make it and you got to keep it. The fastest way to make it and the safest way to keep it is to give it away. Not all of it. Become an enlightened entrepreneur. Make the money. Give it away. At least the 1st 10%. Don’t wait until the end, when you find out how much money you got left because there’s usually no money left. If you give it first then you figure out how to live on the 90. You don’t live and then try to figure out how to give. You give and figure out how to live. Does that make sense? See the difference? Give figure out how to live versus live figure out how to give. If you give first, then in my opinion, it’s my deep, deep, deep personal opinion, this is my personal belief. No, it’s more than that for me. It’s truth. I know that where I give I have prospered and I’m protected. I just know that.
It’s been 20 years of learning that lesson. And I learned it. It doesn’t mean that things are easier now. Sometimes it’s still hard to make the money. But it’s easier than it would have been. And sometimes people steal from you and your money gets attacked. But it seems to be more prospered than if you didn’t have that protection. See what I’m saying? Be a giver. And I think you get more wealth. Why? Because if you have the habit of giving, your wealth starts to grow. And it just seems to magically grow bigger and bigger and bigger. Don’t let it go to your head. It’s not your money. As soon as you stop giving, higher power says, “We can’t trust that person with money anymore. Because as soon as we give them money, they go spend it on themselves. We gave them money so they can be the windows of heaven. And when they close the windows so that they can’t give, we close the window so they don’t get.” That make sense? Have a wonderful day. Have a wonderful life. And may your eternity be spectacular. On to the next book next week. Will see you. Bye-bye.
Good morning everyone. Welcome to Multiple Streams of Millions.
As you join our conversation today, I’d appreciate it if you just go to the chat box. Hi Gus. Welcome. And Siguita, is that how you pronounce that? And Heidi, come on in. And I can see from the chats as people are joining online. This morning, our discussion will be on Creating Wealth. And let’s just bring up the PowerPoint that we’re going to be using today.
This is a very special picture for me. It’s the cover of my second book Creating Wealth and I wrote the book in 1982 and it was revised again in 1986 and then somewhere in the 90’s, and in the middle of the 2000’s. And more than likely, this will be revised again. In the publishing industry, they call this the backlist book, a book that is on their backlist so if they publish two or three hundred books a year, after fifty years, they have thousands of books on their backlist. And the ones that are really the big bestsellers will continue to be perennial bestsellers over and over and over, year and year and year in and year out. So in every five to ten years, Simon & Schuster gives me a call and they say, “You know, it’s time to update the book. We’re going to relaunch it again. We’re going to do another promotion to make sure the book stores have at the end.” That’s why this cover is different from the original cover of Nothing Down looks like this. That’s what the original cover look like. Oh, that was Nothing Down. That wasn’t Creating Wealth. Sorry, that’s Nothing Down. Creating Wealth looks like this. That’s what that look like. Simple book.
Look at this picture of the old Bob. So austere, young, vibrant, big, big glasses. How about those big, big glasses? Look at that. Little out of focus, those glasses. Those glasses were so big. Anyway, Creating Wealth is obviously near to my heart. I like the title. We talked about it in the previous session. We talked about Nothing Down, that Nothing Down was a different title and it was a huge, huge, huge bestseller to take in to my second book. I wasn’t sure exactly why I should use this as a subtitle. Nothing Down had a huge subtitle. A proven program that shows you how to buy real estate with little or no money down. The Creating Wealth book had no subtitle. It’s just simple. The new book looks like this. And this was the revised edition for 2005. I think it was the classic New York Times bestseller. Now, completely revised and updated, retire in ten years using Allen’s “Seven Principles of Wealth.”
So let’s continue on in our conversation today about how to create some wealth in your life because that’s what we’re talking about. So I just want to make sure that we do have all the online. So let’s just have a quick peek here. I’ll look at the chat box. All good. Heidi, I guess I’m assuming that you can hear me. So I want to make sure that I’m not recording this without sound. Allison, if you can’t hear, let me know.
Okay? Back to our PowerPoint, let’s look at that. All right, so in our previous conversation, we were talking about the principles of creating wealth. And what are the principles that make this work? The fundamental principle of all real estate investing is creativity, and we’ve gone kind of in the depth on that conversation. The principle kind of related to this particular chart that we talked about earlier, which is that a certain small percentage of people that become highly motivated to sell. And this is such a hard concept for the average person to understand. For instance, when I was doing my challenges over my entire career, people will rush up to me with an ad that circled on the newspaper or a lead they found for somebody who might be interested in selling, description of the property and they’ll say, “I found a great deal, Bob.” And I’ll look at the ad, the newspaper. There’s no flexibility at all. There’s just like, four bedroom house in beautiful neighborhood, excellent condition, gorgeous lawns, just been completely renovated and a special eye-catching gorgeous property for you. Well, what’s flexible about that? The more description you have in the ad, the more likely the seller is trying to find a property that, is trying to sell a property with a high price. And that’s just the last thing you want. You want to have a seller who is so needing to sell that property that they’ll literally put in the ad, I am desperate. And as a matter of fact, it’s a great way to sell a piece of real estate if you’re trying to get rid of it. You put in your ad. I’m down, kick me. I’m desperate. Help. This thing is dragging me down. I will give you a thousand dollars to take this albatross of my neck. You’re looking for somebody who’s not ashamed to put in any kind of description in their property whether it’s listed or in a real estate agency office, and when you go to the online, you go at the local listing service and there’s all kinds of descriptions about the property. If the seller is listening in there, has told the realtor to let him know that I’m trying to get rid of this thing, that’s good. And more clues you find like that, the better it is.
So when you look at this particular chart, the chart in creating wealth is finding and dealing with motivated sellers. And motivated seller is what I refer to as a don’t-wanter. They don’t want their real estate. They’re a don’t-wanter. And this term don’t-wanter actually comes from the throughout the late 70’s and early 80’s, even into the 90’s, there were a group of real estate investors that called themselves exchangers. And an exchanger is a person who finds creative sellers, sellers who really don’t want cash. What they want is just another piece of real estate. Maybe they’re trying to trade up in all their investor and they have a home that they’d be free and clear and they’re looking for a property that could trade up into. They want to find and trade that equity for maybe a small apartment building or a little mini-home park or maybe a commercial building of some sort. And so rather than selling the house, taking the tax consequences, taking what’s let over or paying the commissions on everything and then, taking that equity or that cash or going and buy another piece of real estate, sometimes it’s just easier to exchange properties with somebody, find somebody who has some small apartment, maybe a four-plex. And it has equity and it’s equal to the equity that’s in the house. And so they’re saying, “Really? I’m trying to get out of this four-plex. And maybe the market’s a little soft, so as a way to get out, maybe I’ll trade down in the equity of my property lined up with a single family home that has no mortgage on it. And that’ll be easier for me to sell out a period of time without having the mortgage cost while I’m trying to sell it.”
So there are reasons why people become flexible and if they’re flexible enough to exchange rather than sell and get cash, then there was a group back in the mid 80’s called exchangers and I ended up joining groups of exchangers. And we’d go to meetings with what they called the exchange groups. And you go to a meeting where people are sitting there in the room and they have properties that they represented and properties that they’re trying to buy and we’d get together and have and want sessions. A have session is I have a mobile home park, a person says I have this, and I have the commercial building, and I have some vacant land. And I have these storage units that I’m trying to get rid of and everybody would tell what they had and then, it’s kind of like laying down the table like a puzzle piece and saying, “Well, hmm, what if you take these two puzzle pieces and put them together? And what if you exchange it for that and I’ll exchange for this and then we’ll all be happy?” And so that’s what an exchange group did.
So these words that I used back then, such as a “dont-water,” that’s a very exchanging word. Then I made it more popular. I started talking around the country using my real estate set of markets. The year 1979 to 1986, we went around the country for seminar and literally taught over a hundred thousand people in a two day weekend seminar called Nothing Down. And as our speakers would stand in the stand, I taught very little of these seminars out of the total of 103,000 people that we taught during those six year time frame. I taught maybe three thousand of them right at the very, very beginning. And then we would train our teachers and they would go out and we’d have previous speakers. We’d go into the city and teach for five previews that are usually 90 minute sessions, and people would come to the 90 minute session. Here are some ideas and techniques and some strategies and getting excited about it and then sign up for the $500 weekend course. We did that a hundred thousand times in that period of time.
One of our previous speakers was Carlton Sheets, and six years later when our company kind of shrunk down, he took the ideas from Nothing Down and launched his program online called Nobody Down and would often sold hundreds of thousands of people using the concepts he learned from me teaching my previous sessions to all the people all around the country. And then he eventually became more famous than me, frankly. He took my ideas and took them up to the next level.
I got a guy sitting in my office just yesterday sitting right there in that chair, and he said, “You know when I got started, I was a young man in college and I went out and decide that I want to buy real estate. My dad had bought the Carlton Sheets course. So I bought my very first property. And that led to my next property, and that led to my next property, my next business, and my next business.” The young man was thirty years old. Ten years earlier, he bought the Carlton Sheets course and now he’s on his way to being a multi, multi, multimillionaire. A very, very, sharp young man. Am I upset that my ideas were copied and promoted in different ways all around the country? Well, yeah a little bit. I’m a little bit bugged about it, but I’m also thrilled that this young man sitting in my office right here, and he and I were doing some joint venture relationships and he has contacts with lots of other sharp speakers and trainers all around the country. And so, what goes around comes around.
If you put it that way. I write a book, hire some people, some of those people went off and started teaching seminars all around the country and that literally led to helping people all around the world. Help this gentleman right here. Yesterday morning, sitting in that conference table over there, a gentleman sat and he said, “There’s a brand new flip it infomercial. Well, it’s not an infomercial, it’s a TV show that one of your instructors is now gone to the level of having his own TV show.” Of course, this was back in the mid 80’s and all way through the 80’s and so obviously, hasn’t been my employee for many, many, years. Extremely loyal. The name is Chief Denning. So Chief, congratulations to you. I found out yesterday that you got your own little television show or big television show. I don’t have a television show.
But you see, you plant the seeds, and now seeds start to sprout all around the world. And I can look at it in a context like who’s stealing my ideas and taking advantage of my ideas, or you can go to much broader context which is these are not my ideas, somebody’s ideas has least possessed where she says she called it the downloaded. And I got the download. And the word was Creating Wealth, and Nothing Down, Multiple Streams of Income and other people are going to go around the world and they’re going to take these ideas and promote them.
Just yesterday, see, you’re talking to this, he talked about another course that another seminar he helped fill up in the Denver area and it was by the gentleman who took my ideas and wrote a book taking the combination of all my titles, all my titles — bestselling titles — and combining them all together. I’m not going to tell you the title because I don’t want to promote it, but the bottom line is he ripped off three of my titles, putting it all together in one big title and went around the country doing seminars and teachings and using the concepts literally the hot buttons in the titles that I created for him to launch seminars around the country and he’s still out there. He’s still doing other things and promoting things in other ways and the bottom line is, it’s about helping your brothers and sisters. And if the message that you have transferred to other people and they can change it slightly and make it their own and start to market their ideas out there, this is just like little tiny engines of opportunity and possibility.
Get launched with every book that gets created and every little group that grows bigger and bigger and bigger and bigger. That’s kind of like a splitting of a cell. And when a cell divides into two, now you have two complete cells. And now those cells that divide into four. Now you have four complete cells, and eights and sixteen, and thirty-two, sixty-four, hundred twenty-eight, two hundred and fifty-six, five hundred and twelve, thousand twenty-four, two thousand twenty-eight, all of them starts to grow. And so the message is for, if you’re going to be writing a book, it’s for you to become the kind of person who lets your ideas go out into the world and start to spread.
Now, somebody asked me. Now your book has been ripped off in Taiwan. Somebody took my book, wrote the entire thing down, put it into Chinese, put a cover on it, never paid me a dime, don’t give royalties. They sell my book all around the world. Just like that. In China, we talk about how upset we are about the people stealing intellectual property and yeah, we should be upset in the worldly context, yes. But in the other worldly context, don’t I want some of my ideas that were downloaded and refined and honed and perfected here by me, don’t I want those same ideas to be talked about in China?
Maybe my name will be taken off of it. And in China, at least the people who read those section of books will ever know there once was a guy who wrote a book called Creating Wealth was a young man at that time, with big, big, glasses who was here on the Earth for just a really short period of time. The time frame for a human being is just that quick. I’m just in the last parts of my snap. I’m just about right there. And then snap. And it’s done. And then what’s going to happen in the ideas that I created? In the books that I wrote? The seminars I created? Well, they sent the message out around the world and hopefully it’s going to do some good.
This show we’re recording right here, this episode of Creating Wealth will be put up online. And so five years, ten years, twenty years, hopefully, thirty years from now, when I’m still doggering along with my cane, I’ll be able to look online and see that thirty years ago, I recorded that in that house and Sante Fe, California. And then, when I’m no longer here, hopefully, my estate will still be able to put this concept up for younger folks to read and watch and learn about and off they go spreading the ideas of positivity and creating little engines of excitement and success wherever they go.
So one of the principles, as we were referring that little tension there, was talking about the concept of highly motivated sellers. Where did I learn that? I learned that sitting at the feet of these exchangers. They were very, very helpful in my career. A lot of great people. Even the seminar, even when I did the challenge in San Francisco, take away my wallet and give me hundred dollar bill and within seventy two hours I’ll buy an extra piece of real estate using not my own money in any city in the United States drop me anywhere. Well, I was trying to say from that concept is, you can drop me anywhere and if I don’t have any of the things the banker thinks that you need, such as, let’s see, I’m flipping through the, wouldn’t you know it’s somewhere in here, the PowerPoint presentation, that the 4 C’s that the banks want you to have. Hold on a second. The banker wants you to have cash, credit, cash flow, and collateral. He wants you to have those external wealthy things and you dropped me in this city and take away my wallet. I don’t have any of that cash, cash flow, collateral, or credit. I don’t have any of that stuff because I’ve been bankrupt. I talked to the general here who just recently who had declared bankruptcy and he now runs a multimillionaire business. He’s still under the cloak of the bankruptcy corps, but he’s still running his business and he’s still making millions of dollars. He had to start all over again from scratch and it was not pretty. But when they took away his cash into bankruptcy and his credit and his cash flow and his collateral, when he had nothing external with what people think wealth is, what he had left was, creativity and commitment and clarity and [0:22:51.1 inaudible]
And the other C’s that are internal C’s. Now I’m going to say that message over and over and over and over again. Through all the boos that I write, that wealth is always an internal thing. When you create capital, when you create small WL. Well, it’s external. It’s comes from capital WL. That’s what creating wealth is all about. You create wealth inside. And as you create your wealth inside, then you go create wealth externally. You have a spiritual creation. First, inside you. Your dreams, your visions, your plans, your ideas, those are all spiritual creations. And then you go out and have a physical creation. Outside. You will create things out of nothing. That’s what creating wealth is all about. This house that I’m sitting here, this desk that I’m sitting at, this chair that I’m sitting, this doesn’t even exist two years ago. The desk I had made, it’s a beautiful desk. It’s a little big. It’s a big desk. I have all my stuff and all my projects on, you know, that painting didn’t exist until somebody created it.
All wealth is about somebody pulling something out of nothing. And this book, Creating Wealth is about you putting some wealth out of nothing. Well, it’s not out of nothing, is it? No. the wealth is coming out of you. Your clarity, this is what I want. Your confidence, I’m going to get it no matter what. Your commitment, step by step by step, inexorably, persistingly, towards what it is you really want. All creation comes from you. You’re the child of the creator. The capital C.
We’re all children of the Heavenly Father. We have in us DNA , the creator’s DNA the reason we like to create things is because that’s who we are. That’s what we do. We make things happen. We pull them out of nothing. We manifest things. To manifest, is to take the word mani-, manifest, mani is a hand. And in Latin, to fest is to bring into existence. You take your hand and you reach through the curtain that separates you from the spiritual creation and the physical creation and you reach that veil that separates the nothing from the everything or at least the physical, you reach it through and you grab that thing in it spiritual state and you pull it into existence. That’s what happens to us as human beings — we came into this existence as spiritual beings created by our Heavenly Father brought through this veil into this veil of tears called Earth and now we are physical. We’re here. And now we are going to do the same thing. As creators, we are going to make things grow and we’re going to create things like we create the house that I’m sitting in right now before we bought this lot, I think 2006, it was nothing but a steep lot in canvass strange location, they have a good view of the ocean though, right out there. Wow, let’s make something happen. Let’s create the blueprints with some architects and let’s pull out of nothing.
So creating wealth is that exact process. So, ideally, we were talking about real estate creation and so you’re trying to create your ownership of real estate starting with some fundamental principles and the most fundamental principle of all is how to deal with highly motivated sellers. You deal with creative people.
In this chart right here, it’s called finding and dealing with motivated sellers. I’ll use that word throughout my books. Sometimes we’ll call them don’t-wanters. Some we’ll call highly motivated sellers, but there’s a chart in the book that talks about that. Here’s the chart. Types of motivated sellers, on the left hand side of that chart, needs some cash but not all, don’t care about cash, this is another part of that same chart, don’t need cash and don’t want cash. So there are four or five different kinds of people. And they have problems. That’s what makes people creative. That’s what makes them flexible. Flexible and creative are two very identical words. So what caused them to be flexible? Well, management problems and transfer out of state and behind in payment problems and fixer upper problems, time problems or too busy, sickness or health problems. There’s divorce, they’re retirees, they already bought another property, they’re investors and builders or wealthy owners, they have tax problems. In other words, we’re looking for people who have problems, and what do creators do? They solve problems creatively. They manifest the solutions to problems. So probably sources of motivated sellers, where we find those kinds of people and what are clues we look for and what are the key motivators to place emphasis on negotiation.
So for instance, the clues and the keywords I’m looking for if I’m finding flexible seller will be we’ll carry, second. We’ll carry a second mortgage is what that means. They’ll carry paper. Paper’s just another word for mortgage, OWC, means Owner Will Carry. Wrap around mortgage, owner will finance, consider a second contract sale, low qualifying, low loan, high equity, there’s a lot of flexibility there. A seller doesn’t need to have his money for several months, even longer, but wants to sell now, needs cash, small consumer items but that could be obtained with a credit card. Not our credit card, details or debts to be paid off. For example, let’s suppose in a conversation you find out this seller has this dental bill. And you got new dents or something. And they have maybe a ten thousand dollar bill because it was a lot of expensive dental work. And they’re having trouble paying the bill. And you say, “Well, I have this extra house my mother gave me when she died and we were living in another home and now we’ve been renting that out, we’re having problems with the tenants and I really want to have this dent off my shoulders. And I’ve got this ten thousand bill with my dentist and it just sends me bills all the time and I’m afraid my credit’s going to get ruined.” And so you’re talking with a seller, asking why are you selling? And sometime they’ll tell you, sometimes they won’t. In this case, the seller tells you, and well, I’m going to take the cash I get from this I’m going to go pay off the dentist. You go, “Well, as long as you get the bill resolved with the dentist, that’s what you really want, isn’t it?” “Well, yeah. That’s what I’m going to do, I’m going to sell the house and pay the debt.” “Well, what if I resolved that for you?” Whatever. Good. Supposed there was a ten thousand equity on the house, and therefore, you go over to the dentist and you say, “Hi, this person has a bill. They’ve been paying you in a spotty kind of a way. And you have two options, you have option with the dentist is, he owes you ten thousand, I’ll pay it off for you in cash, here’s five thousand cash. Will you be happy with that?” And maybe the dentists would take a discount which means you just bought your house for five thousand dollars cheaper. Or you’ll say to the dentist, “I’ll take over the bill, you put it in on to my credit. I’ll make you the monthly payments. I’ll do my best to pay it off more quickly. You can trust me. Just give me the bill. Let me be the one who pays it.”
Now, what you’ve done is you’ve transferred that bill that used to be in his shoulders, now on your shoulders. But what did it do for you? Well, you’re back to the seller and you say, “I’ve resolved your bill. The cash that you would normally receive I’ve already paid to the dentist. You’re done. All you need to do is to transfer the property to me now. And here’s a letter from the dentist saying that your bill’s been relinquished.” You wouldn’t do this without escrow, so you make sure that everything was closed and finished before you ended up with that obligation.
The bottom line is, if the seller says you can sell it, you get the cash, go pay somebody else. Why don’t you just take the debt? So now you end up with a building with a ten thousand equity in it and a loan of ten thousand dollars owed to somebody else but not to the real estate. So now you’ve got equity on that property. What if you sold that property? What if you fixed it up and fixed its value to thirty thousand dollars with equity, you had ten thousand and you increased it by twenty, so now you’ve got thirty thousand equity. Then you go sell that property. Hmm? Supposed you sell it and you get thirty thousand cash from it, you sell it by yourself and not a realtor involved. Sometimes that works, sometimes it doesn’t. But now you’ve got thirty thousand in cash. Remember, ten thousand of that cash, where did it come from?
It was actually the equity that the owner had and the obligation was being paid towards the dentist. So there’s still a loan of ten thousand, but you’ve got ten thousand in cash. What are you going to do about it? You take ten thousand cash and go look for a great real estate deal. Look for someone you put all the thirty thousand dollars down, you now have, you buy below the market so you have equity the day you buy it, maybe double your equity. So now you’ve got sixty thousand in equity, going to fix it up, add some value to it somehow, increase its value, become creative by making more value, sell it for a hundred thousand. Now, in just a couple of exchanges or a couple of steps, you’re taking your zero money and a ten thousand bill to the dentist and monthly payments to her, you now turn that into a hundred thousand in equity and you sell at a hundred thousand dollar in cash. What are you going to do that? See? Well, maybe you go find another person who has a hundred thousand dollar bill, that they’re trying to pay off and then you can use your hundred thousand in cash to go pay their bills off in discounts, adding up their equities in full value and you just keep expanding and making your equities go bigger and bigger and bigger. Usually, this is what I said, “You’re going to be ten properties into this. And if you do what I’m describing to you, finding, buy low, fixing up high, take cash, buy a bargain price, fix it up higher above its value into its stratospheric price, then you end up buying low, fix up high, sell.” Or exchange. By exchange, I mean, you’ll take that property to exchange it for somebody else’s who has equity in their property and they’re trying to get rid of it and they’d rather have your property down theirs. And then you buy low, exchange low, fix up high, now you’re just multiplying your equity, did you see that?
Now, you take it to another property, buy low, fix up high, buy low, fix up high, do that ten times. You’re a multimillionaire. How will it take you? Well, the title of the book now, the subtitle is, ten years. In ten years, using real estate’s vehicle with ten basic steps, probably ten properties in ten years, you’re done, you can retire, take all that cash, pay whatever taxes you have to pay, put it in to your pension plan or put it in to your IRA and do all that stuff in your IRA. So that when you actually sell it, the cash is sitting in your IRA tax deferred.
So there are all kinds of ways of playing this creating wealth game. But, back to our chart here. I’ll read to you some of the clues and the keywords you’re looking for to find these kind of highly motivated sellers and reading down the list, you have management problems, negative cash flows, high loan, low equity deals, transfer on state moving, date for move is very close, behind in payments, motivated seller, fixer upper, handyman special, needs work, probably not rented out because it needs work, other interest, going on long vacation, promotion to new job, too much to handle, seller in the hospital, other family members handling the investment. See?
Every single step has clues and you’re a detective. You’re like Sherlock Holmes of real estate. You’re looking for these clues, a single owner, a divorce, time relapse, retirement near, needs cash, flow to supplement position, option to buy, buyer rent, rent to own, vacant, interested in a percent of return, will consider trade, needs to sell out subdivision to clear bank loans, slow moving projects, don’t need cash, willing to accept cash chunks in different years or exchanging. See the difference there? It’s learning how to take the clues that you’re seeing and parlay that into the real estate deal that you want.
Now, this chart here in the front side, a little darker space, I’m going to zoom that up and turn that side. So, this is what that looks like. Probable sources of motivated sellers, if you’ll look at the left hand side of that graph, they’ll be newspaper, multiple listing services book. That’s either a book or an online listing. It used to be a book, used to be only a book. And you’d get the multiple listing service book. And every week, they’ll be a brand new book, they’d print it out and pass it out in every realtor in the city. So you’d end up looking through these old multiple listing service books. They would give them to you and you’d study them.
Realtors have access to finding highly motivated sellers. You’re going to the courthouse, and there’s a listing of people who are highly motivated to sell. Now, the courthouse. Who are these people? Well, it lists the people who have judgments against them. It lists the people who have divorces that they’re going through, bankruptcies and tax lean sales and all the courthouse for kinds of purposes, is just a repository of all the problems in your city. They are listed legally, names of all people are listed in that one repository.
So your courthouse is a place where you’re going to find highly motivated sellers. Why? Because they have big, big problems. And they’re all located in the Kelly courthouse. And there are listing of them. Yeah, people who live out of state. Well, what’s going to happen to that estate owner? Not every time but a lot of times especially if it’s a physical piece of real estate that they’re renting out to a tenant. They live in Arkansas, and they got the property in Idaho. And the tenant in Rexburg, Idaho kicks a hole in the wall and walks with doors with open and doesn’t pay the rent and the neighbors call you and says, you know the doors are kicked open here and they’ve moved out in the middle of the night and what are you going to do? You say, “Oh, I’ve got to get on the plane from Arkansas and fly to Idaho and go in there and make arrangements for someone to fix it up,” and it’s a hassle if you’re a out of state owner. And that’s why I’ve always said, from the very beginning, you should only buy a real estate within fifty mile radius of your own house until you know what you’re doing. Then you can go.
Unless you’ve got a management team that will support you and help you if you’re going to do investing. Some people buy real estate in Florida because the deal’s so incredible. And they’re in California. Well, that’s long ways away. It’s 3000 miles away. Just be careful. Make sure you have a team there that can support you if things don’t go well. Have a management team that can take care of those details. That’s why I think as a beginner you should buy properties within the fifty mile radius of your own home but out of state owners are a source of highly motivated sellers.
A guy wrote back in the 80’s, I can’t tell you the name of the book now, but he would go into the tax records and find vacant chunks of ground. Find out that the owners were out of state owners. Send them a letter to every single one of these out of state owners with vacant property and say, I’ll buy your real estate, what kind of price you want to put on it? And they would respond back with the price and many times, the price was a lot, lot lower. Because they were out of state owners, they haven’t seen what’s happened to values in properties. And they might say, “Oh, my brother and I did this a long time ago. I even forgot I had it, oh you know, we bought it for like twelve thousand. Give us fifteen and we’ll be out of there.” Well, the property value has increased to twenty or thirty or forty or fifty and if you know what properties’ are worth, the out of state owner doesn’t, that’s their responsibility, not yours. Now your responsibility is to teach the owner a problem with the properties worth, you’re a bargain finder. You’re trying to find the bargain. This is somebody you’d send up hundred of hundreds of hundreds these letters. And what percentage do you need? You need one or two percent that respond back and say, “Yeah, I’ve got this track of land and it’s twenty acres, and if you find that value, that the price they want for is dramatically lower than one’s value is. You have an offer? Here’s the offer, sign this offer. Here’s a thousand dollars of earnest money.” You send up a little escrow in your little city. They sign it. Now you have a piece of paper that controls a property that you know is worth much, much more than the price on that offer you just wrote.
Now you go flip that contract to somebody else. You’ve got thirty, sixty, ninety day time frame for you to close, and needs you have a short term option that where you control the price, the seller is obligated by law to sell to you for you to find another buy who would like to buy that property at a discount, and so since you’re buying such a great price, you sell it at a wholesale price, but you bought it super wholesale. And therefore, you get the mark-up, the wholesale, and you make a nice chunk of profit. The buyer gets the price which is still lower than the value, and off you go. You’re making money from highly motivated sellers.
So your courthouse is just filled with opportunities like that. It tells you where the foreclosure sales are going to happen. So go to the foreclosure sales. So you don’t have a dime. You’re just trying to learn how the system works. You’re just talking to people while they’re there. You say, “Listen, I’m not going to compete with you, draw the prices up. I’m just kind of curious. How often do you come for these foreclosure sales?” “Every week.” Oh, good. Do you buy something every week? No, you don’t. Oh, like how often do you go before you find a deal that you’re really excited about? Two months? So you’re here, eight times. You’re free to find one really incredible deal. Yeah, so you don’t buy everyone. No. So you’re learning. You’re picking brains. You’re learning where all these highly motivated sellers are in this main source of your city is the courthouse.
Think about it… all this stuff happens in courthouses. It’s all usually not fun stuff. And that’s going to be a very fun place for you because you’re looking for highly motivated sellers. You’re going to find them in property rental companies. People who own properties have management companies take care of the for them. The management company. See, go to management company. You deal with lots of owners of properties and you manage properties, do you know any of those owners who has ever hinted to you that they want to sell? Well, you do? Then, which one was it? You know, best property? Obviously, sometimes they’re not going to tell you, but if you still ask, and sometimes they’ll tell you that the sellers trying to sell and give you information of contact of that seller, and now that seller maybe highly motivated you. You’re asking those questions.
“Exchangers” was another word we talked about earlier. These are highly motivated people. And as I was saying as I did my challenge in my day in the city, where they take away my wallet, gave me a hundred dollar bill, dropped in the San Francisco, guess what I did? I went to the newspaper, encircled all the ads with the highly motivated clues in them. Well then, what? How am I going to find other highly motivated sellers? Well, actually, I didn’t have, I subscribed to a magazine called Creative Real Estate and started by a very great close friend of mine who’s no longer with us. He’s had a big full bushy beard, AD. I’ll think of his name, A Fortune at Your Feet. He wrote that book. I’ll think of his name. Anyway, he wrote this magazine called “Creative Real Estate” magazine, which no longer exists obviously. But in the back of that magazine had a listing of all the exchange groups and the telephone numbers of the presidents of those groups. So I had come to San Francisco with the “LA Times” reporter to find out how to make deals but I had not brought a copy of the “Creating Wealth” magazine with me. So, I called, one of the phone calls I did with my wife since I only have a hundred dollars. So I made a phone call — I think it was a collect phone call, I can’t remember how it did. Anyway, I called my wife, I said, “Darling, would you go into my office and look into this file and find a copy of the “Creating Wealth” magazine? Open it up into the back. Look under San Francisco or any of the major cities around San Francisco, Sacramento, etc. and tell me the names, and the telephone numbers of all the exchange presidents.” And so she gave it to me, I took down those notes and so I got off the phone that very next day.
I called those exchange presidents. And I said, “Gentlemen, I’m trying to find a piece of real estate.” And of course, I couldn’t tell them I was involved in challenge because my “LA Times” reporter was sitting right next to my side, and he must listen to everything I did. So, I had to tell him that I’m looking for a piece of real estate. I’m an exchanger. I know how the world works in exchanging. “Do you have any people who have ended up in exchange with properties that they don’t want, and they’re trying to get rid of?” And so exchanges were a repository of those kind of creative people because they, as exchangers, they were exchanger’s realtors; they got commissions but in different kinds of ways. So they had clients that they had coached to be more flexible.
And so, I went through the list of all exchanges and had found one exchanger who had been involved with exchange meeting recently and somebody had ended up with two properties in Sacramento, California. Two single family homes. These properties were small, lower end neighborhood, he showed me photos of them. I said, “I’ll buy them.” Nothing down, no cash. The properties were both free and clear. Then no loans. Why? Because somebody had traded from a property they didn’t want, they may be some mobile home park. And somebody had two single family homes. And they didn’t want that because they were trying to trade up. And the mobile home park owners trying to trade down. So, they exchanged.
They ended up with these two single family homes and the guy who had the homes now is up with another larger property that he could buy low, fix up high and move on with his trajectory of creation of wealth. See that? So now, these single family homes are now owned by somebody as an investor, who doesn’t really care. They don’t want to live in them. See most home owners, they need the money so they can go buy another house. This is an investor who just want to return on his investment or her investment. So now, I said to them, “I’ll give you a nice interest rate. And of course, it’ll be zero down. And I’ll make you monthly payments on both these houses.” So we wrote a contract and those contract terms that I didn’t get the mortgage, and I didn’t get the deed until I follow through, I’ll make in the monthly payments.
Each of these houses were — if I’m remembering it correctly — were at about forty, forty-five, fifty thousand dollars. It’s only even harder to imagine that there’s such a thing in Sacramento, California today. Thirty years later, that’s a fifty thousand dollar house, but thirty years ago, they were fifty-thousand-dollar houses, and I bought two of them, nothing down. Sight unseen, never have seen them to this very day. All of those houses put renters in them. All those houses for several years, I can’t remember now how long it was but you know, a couple year into it. I rented them out, got cash flows from them. They’re break even, a little positive cash flow. And then sold it. And how did I sell them? The same way. The value did increase. The mortgage were going down. I raised the price, and I sold them nothing down to somebody else. I ended up with a note just like the owners who sold to me ended up with a note. I ended up with a second mortgage note with monthly payments attached to the book which received monthly payments on those notes for another once again, ten years? Something like that. And finally, when that property was eventually sold by someone who refinanced, I was cashed out of my notes at full face value and I think I got a note for, if I remember, it was a five or ten thousand dollars. But when I bought the property was, it was not for me to make a profit of it, it was for me to make publicity out of it. And I did.
I bought those two houses absolutely nothing down. And I bought five other properties or I got offers to buy five other properties, and I eventually close on four of them. Two of them were on the Sacramento area, two others of my purchase were held for a period of time and then eventually one of the properties I bought on a contract and I flipped it a couple of guys living together, they moved into it. They fixed it up, and they flipped it and sold it. See? And then we had, I can’t remember I held for a period of time. Bottom line is, it was all about creating wealth. It was about finding highly motivated sellers. So it was about looking for the clue words in the ads, it’s about negotiating creatively and getting out their options like their houses in Sacramento. The owner wanted a higher interest rate then you could get in the ban. “I’ll give you that as long as you sell it to me for nothing down.” See?
You always want two or more options when you’re in real estate investing. You want a price discount, what year and price terms. So in this case, when I bought the house in Sacramento, I was like, “Yeah, I didn’t get price, I didn’t want to negotiate price. I wanted terms. And I want it for nothing down. Therefore, I’ll give you your price. I’ll give you your interest rate. Just sell me the property on my terms. The terms are nothing down. I’ll give you all the other things you want. But I only want one thing. I don’t want to put a lot of cash into this.”
So this chart here about how you find them, how you’re looking into properties. You’re looking into other successful investors who are trying to get rid of their properties. Sometimes you find that an investor has been doing this for thirty years. One of the gals I took on “The Neil Cavuto Show” — 2006 I think it was — she’s done exactly what I told her to do. She was a millionaire. She bought my book, Nothing Down, in probably, 1986, and now twenty years later, its 2006. We’re on the top-rated business show in America, “The Neil Cavuto Show.” We have 101 millionaires on that show with us. Myself and Mark Victor Hansen, who just recently release the book, Cracking the Millionaire Code, went into the show, and then everybody else in the country — that’s just impossible to do — and so the millionaires helped create the show with us and one of those gals, a very wonderful gal, what made her a millionaire (I’ll show you a photo), she bought one house every year, just like a plotting investor. Bought it right, kept it, fixed it up, increased its value, twenty houses into it. She had twenty free and clear houses. How she bought and sold and got them to be free and clear, I’m not a hundred percent certain about that, she did other investments to make sure that but she had twenty houses free and clear. Each one of those houses was just pumping cash flow. And talk about financially independent, suppose each house is pumping off a thousand bucks a month in positive cash flow because there’s no loans in them. And every year she gets to increase those rents. So the rents go up with inflation. So now she’s making twenty thousand dollars per month. That’s pretty good. And of course, she has a million dollars worth of equity. So at anytime she wants to get away from the twenty thousand dollars amounts, she can turn it into a million in cash. Probably much more than a million in cash.
So that’s what I’m trying to say, when I wrote the book in 1982, some people just buy one or two properties a year, hold on to them, fix them, buy low, fix them, buy low, fix up high, trade, exchange, grow value, get them into free and clear properties because at the end of the trajectory, you want to be free and clear. You want to have lots of loans on your properties. And so anyway, this is the conversation about creating wealth.
Now, next week we’re going to talk about the final chapters of Creating Wealth. We’ll be going in to multiple ways of making money. In addition to real estate, this is how I started thinking as young man having to really understand that there are other ways to make money other than real estate. I said, I wonder what other ways there should be if I wanted to write another book, I had to figure out a new way to think about it. And so we talk about other ways, eventually that led into the ultimate book which is Multiple Streams of Income but it started with Creating Wealth as I listed other ways of doing numismatics and limited partnerships and all kinds of things like that.
We’ll talk about that next week and then we’ll talk about taxes and how you go saving all your money through taxes. So if you have a copy of Creating Wealth, pull it out, we’ll be going through some of those graphs and chart s next week on our conversation of Creating Wealth.
I hope you’ve enjoyed our conversation today. Loved to hear your feedback. When you go online and you can show me what we’ve been talking about here. I’m just saving my PowerPoint. Anyway, Al and Heidi and all the rest, if you want to just share any comments, thoughts you had about our conversation today, just put them in there. I love the manifest idea, Al, yeah. That’s actually from the One Minute Millionaire. That’s a whole conversation about manifesting that I think about is really good. We’ll get to that, when we talk about it. Great. Glad you’re with us on the calls, and I hope you’re enjoying them. And you’re more than welcome to invite somebody else on the call with you because once you’re finished with these series of calls I’ll be done doing this kind of weekly conversations. So this is , we’ll end it sometimes next summer, in the next year. Well, this series will be completed. And you can go off in your way to create as much wealth as you want. God bless. Have a great day. See you next week, same time, same place.
Welcome. I see that Elle’s there. I see Heidi and Suguita, Leo. Welcome everyone. In your lifetime you get to create a few things and one of the things that I created is that I ask myself the question of how do you evaluate a piece of estate? Up to the time when I wrote Creating Wealth and really, when I wrote Nothing Down, that I really didn’t have a way to evaluate a piece of real estate. But as I starting teaching it more and more and more, and giving people the fundamentals of real estate investing, I said to myself, there’s got to be some simple system that teaches people how to evaluate a piece of real estate on the back of an envelope. There were all kinds of special forms that you could fill out. A lot of my real estate career, I’ve done a lot of classes called the CCIM, that’s Certified Commercial Investment. M, I don’t know what the M stands for, but it was a designation by the National Association of Realtors that people who were in the profession of teaching people commercial real estate could take this designation. And so, I went all across the country in going to these various different classes and studying under the smartest people and they will teach me all these complicated spreadsheets and very difficult ways of evaluating a piece of real estate. And of course, my mind works, “What’s the simplest way to teach people how to evaluate a piece of real estate?”
Then, this property investment grid was kind of like the beginning. I’m going to show it to you and then, even show you the form which I call the property selection grid and there’s a couple of pages of it. And it turns out that they’re really five steps to evaluate a piece of real estate. And everybody always tells you that the most important piece of information you can gather by the piece of a real estate is, what’s its location? And remember what they tell you that the three most important things about real estate are location, location and location? You know, on my chart there, it is actually number two. I don’t think it is the most important thing as a real estate investor. I think the most important characteristic is what I call the seller’s motivation and flexibility. So, I said to myself, “What are the five areas of analysis?” Frankly, I wasn’t sure as I started to create this simple form, how many areas that you need to. I just went through my mind simply step by step by step. I need to know why is the person selling this real estate. Why is that important? Because, if the seller is not flexible, if the seller’s price and terms are rigid, if there’s no creativity possible, then you’re going to have to follow through on the normal way of buying real estate, which is sellers names the price, seller tells you what he wants or what she wants and turn in terms and you have to pay it. There’s a little bit negotiation but if the seller is rigid and says, “Listen, this property is priced at a million and that’s it. You know, I will not negotiate. And I want all cash.” Well, if you’re nothing down investor, you don’t like all cash. You want to use other people’s cash if you can, but you want to have some flexibility. You’re a flexibility detective. And as a flexibility detective, your goal is to find in some way, somewhere in that deal, the flexibility. It is the flexibility and the way I usually teach it, I don’t think it’s incredibly well for the way I teach it now, is that you walk into a property, you’re going to be looking for nine different kinds of flexibility.
All right, so let’s walk in the front door. What I mean by flexibility? Well, the realtor meets me there to show me the property. Most of the time the realtor’s involved. Sometimes it’s only the seller. But many times the realtor’s involved. The realtor is going to negotiate for you. Remember, the realtor’s a part of the deal. If the realtor is getting a commission, then that’s flexibility. If the realtor needs to get all cash from that commission then there’s no flexibility? But what if the realtor could be shown ways that can be better for them to be creative and be a little more flexible with their commission. If that’s a million dollar property you’re buying, and it’s usually around 6 percent commission, some say it’s at 7 percent, but $60,000 worth of money that’s involved. And that could be very substantial. If you go to a realtor and the realtor’s one who listed that property, that means that when they listed on the multiple listing service, they said, “Any other realtor in the city, you can make an offer on this property and if you sell this property to one of your clients, then I’ll split the commission with you. You know, for $60,000, I’ll give you $30,000 for your agents and your brokers. And we’ll just keep the thirty thousand dollars for the listing part.” But if you’re listing as a selling agent, that $60,000 all comes to you. What’s powerful is that you’ve already decided that you’re the broker. You have already decided that you’re going to give half of it away. So in your mind, it’s half gone. So what if you found the listing broker and talk to the listing broker and not the agent? That’s the selling agent. What if you looked for pieces of property that seemed to be the great deals and found out who the broker was? Now, when you negotiate with that broker, there is a large commission and sometimes the broker who’s willing to give away 30 percent away can maybe even more flexible with the other, sorry, was willing to give the other 50 percent away. Maybe you can say to that broker, “You know, you’re the listing broker, and of course, if you close on this situation, you’re going to get, you can talk straight up with your broker, yeah. You’re going to get the full commission. And I may need parts of that commission to be able to put this deal together. I’m not trying to cut you out of the commission but I’m just saying that I need you to be more flexible with it. Is that possible?” And sometimes, even before you actually start the negotiation with the seller or sometimes before you even look at the property that the listing broker is showing you, you might ask that listing broker if they might have been a little more flexible on the front end. If it comes down to it, then all the final negotiations, the $60,000 commission you’re going to receive, what would you be willing to take? Fifty thousand dollars in cash instead of sixty. And lower the commission that you end up paying anyway. The seller says they pay the commission because it’s been split into your price. So if the commission can give you a little bit lower, then that comes off of your price. And so it makes it possible. And then you’ll say, “Well, no, no, we’re not going to cut our commission.” And of course, I’ve been involved in deals like that where I was the commissioned agent and we put together a big property investment and we got to the final closing table and the owner and the seller and the buyer were in the room and I’m there helping to close the deal and they’re still finalizing their final negotiations and they look at me. And they say, “You’ve got to give up a little. He’s got to give a little. You got give up a little. And Mr. Allen, we want you to give a little of your commission in the industry upon us that’s called a commission-dactomy.” So, when you were expecting to get full commission and when they got down to the bottom line, a little bit of it snipped away.
So yes, it happens all the time. Is it fun for the real estate industry? No. They want to get their full commission because they feel like they’ve earned the full commission. They brought the buyers in themselves together. They’re doing all the work that’s necessary but sometimes, they can be more flexible. You can say to them, you would have normally only gotten $30,000 from this deal if it’s been sold by some other broker. What if you get the $30,000 you will normally get but carry a note for the other $30,000? In other words, I give you the full commission but just not all in cash. I give you $30,000 in cash, this is not a million dollar deal, and the other will be paid in monthly payments over a period of time. So you build that into the situation and so now, rather than you have to come up with$30,000 in cash, and remember we’re nothing down investors so, we’re looking for flexibility everywhere. Now the realtor might get that full commission but in a different way that they expected. Remember, they were willing to give half of it away and get nothing. Just end up with half of the broker’s listing commission. Now you can say, “Instead of you getting me nothing by going with somebody else.” You see, that’s always your prerogative. You could always say to the broker, “Thank you for showing me the property. I appreciate it. I happen to be working with another broker. I think I’m going to them and let them sell me the property.” See, it’s not what you always call, is it unethical? Maybe it’s borderline. It’s kind of the gray area but you’re always able. If you don’t like that broker you’re dealing with, you can always say to that broker who’s the listing broker, you call and say, “You know, I don’t like you. You’re not very creative. You’re not treating me like the kind of customer that I want to be treated like. I’m going to go to somebody else.” And you go to another realtor across town and there are hundreds of them in your city, hundreds. And you say to that broker, by the way, “Would you mind showing me this property? I looked at it but, frankly I don’t like the broker over there so I want to deal with you.”
And now, you have this agent that you’re talking, you say to this agent, “By the way, I’ve done all the work, I’ve done all the research. Your commission’s only $30,000 on this million dollar deal. Would you do it for $20,000?” You should negotiate right up front. In other words, you normally would be paid the half of the $60,000 commission which would be $30,000 and if in this particular case. Would you mind? I already found it, I already like it. You’re going to get less commission. Is that okay with you? And the realtor goes, “Well no. That’s not okay with me. I get paid full commissions because I work hard.” And I say, “Well, I’ve done all the work. I found the deal. I’ll just ask you at the very last minute to come in and be the representing agent of the final closing.” And the agent goes, “Oh, if you put it that way,” or they rigidly say, “No, I don’t do that.” Well, you say, “Thank you very much. Your commission now will be zero.” Then you go to another agent in your city and you go, “I found a deal. I’ve negotiated it. I’ve have it literally good for me. I want you to be my representing agent and it’s just. Instead of getting $30,000 commission, you’re going to get a $20,000 commission. Is that okay with you? And then go, yes or no? And if they say no, you say, “Thank you very much. Your commission is now zero.” You go to another agent until you find one who will negotiate with you so that you can a small commission. The reason that I’m teaching you this, your agents don’t like me to teach this kind of stuff but it happens every day in every city. What a smart investor realizes that if they’ve done most of the work, and they are smart enough to find the deals on their own, they can look through the multiple listing service, they can see how properties are on sale, they can do some research like that without having the selling broker do lots of work, that many selling brokers, sometimes will do it on an hourly basis, on a fee basis. But certainly, this is a smaller commission and therefore when you bring that agent in to the deal, they get their small commission, let’s say, 2 percent and the listing broker gets the full 3 percent because they were flexible and you walk away with a small deduction in your cost. But the money you wish means it doesn’t come out of your pockets. So, literally looking for flexibility in every single player on this field called the real estate game. You’re playing a game. And the secret to this game is to find flexibility. That make sense?
So one of the people that you meet when you walk in the door to look at the properties is the realtor, Thank you. You’ll be number one on the list of looking for flexibility people. Number two obviously is the owner of the property, and that owner’s got to be flexible somehow. They got to be flexible in their price or terms. If they’re not flexible in one or two in those areas, you’re not going to do business. Unless, under one circumstance that they’ve already listed the property as substantially below market price. I had somebody come to my house yesterday, a neighbor, yesterday. And he says to me, “We need to get rid of our house. We had some challenges.” “Really?” “Yeah. We might even want to do a short sale. It’s listed for $3 million but the loan on it is about $2 million and we’d probably walk away from it so I’m just going to be taken away from it without having the obligation of that mortgage.” “Really? How flexible are you? You’re willing to walk away but, forgive me, I’m not interested in buying your property. I might find a friend of mine who might want it, but just in case,” If I remember he hasn’t got listed, so, there’s no realtors involved, there’s no commissions involved. So I say, I didn’t say this but, I’m thinking to myself, if I find you a buyer, if somebody, some friend of mine wants a house like yours. I’ve been to your house, I like it. It’s a nice house. Is there a finder’s fee involved for me? Could we work out a deal somehow? See we talk about flexibility and so the story goes. Gee, if I sell it and don’t get money out of it. Yeah, but remember you’re getting out of the deal. Somebody else is making the monthly payments now. They’re taking your name off of the mortgage, maybe refinancing or whatever. Is that worth any money to you? What’s your mortgage payment right now? The monthly payment might be in this case, I don’t know, $10,000 a month. Well, if your mortgage payment’s $10,000 a month, you know, you miss , you wipe away, you alleviate yourself for one mortgage payment, that’s ten thousand bucks. That’s savings you’re paying now. So, if I find you a buyer, how about a $20,000 finder fee? See the flexibility there? You find somebody who has some self motivation on flexibility is really high? Find somebody who wants to get rid of their real estate, who is really, really, really motivated? Yeah, they’d probably write you a twenty thousand dollar finder’s fee. Is that illegal in certain states? Obviously you need to check it, whether getting a finder’s fee is legal. But one of the ways you could make it legal is by actually writing an offer to buy that person’s property and saying to your friend, “Okay I’ll write you an offer to buy your property subject to me finding a partner to help me close this deal.” And now, you work out the price where it’s $2 million and there’s a contingency for $20,000 worth of fees fixed up property. So, now you built it in to the offer and now you take the offer which is sign by the seller and now you find your partner, somebody who wants to buy it and bring it to them and you say, “Here’s the deal. You pay me the finder’s fee. And when you buy the property, the finder’s fee is going to be in the deal because the seller’s going to pay a $20,000 for the fix up money to refurnish the property when you buy it.” So you see, with all kinds of ways, and I’m teaching you this kind of creativity. You’re trying to say, is the seller flexible? Is the second person in this game we call the real estate game and there are nine of them. You go through each area and you say, if I find a flexible salary, if I find a flexible realtor, if I find a flexible bank who has the mortgage on that property, perhaps he’d be willing to do a short sale. Instead of the $2 million loan in this property, maybe the bank, since the payments have been really spotty and maybe even behind the bank would knot the mortgage down to 1.8 million in a lower price. Maybe it’s a $5 million house that has a $400,000 mortgage, maybe the bank would write it down to $380,000 mortgage. In other words, banks will become a much, much, much flexible these days. They’ve had to get away from their very rigid ways of doing the mortgage business.
So I’ve got a bank that might participate. I’ve got the renter. Perhaps this property has been rented out. Maybe it’s duplex or a fourplex or a smaller apartment building. I’m talking about a deal with you a couple of weeks ago when we talked about nothing down, where I was able to buy the twelve unit apartment building that had seventy two single women going to college at Brigham Young University, and they had deposits and rents. So therefore me, as a buyer, when I bought that property on the day of the closing, if I close on the day the rent was due, then all that rent comes to me and all their deposits coming to me at the time we were closing. But the girls still haven’t moved out yet. Their deposit is just money for me to hold. When they move out, I give them their deposits back. But I end up with this chunk of deposit money that becomes mine the day I become the owner. And in some states, not all states will do this, they let you co-mingle your deposit money, not put it in a separate escrow, escrow where you can’t touch that deposit money. They let you take that money and put it in your bank account. Co-mingling it in your personal account and therefore then you use that money that was for deposits and you give it back to the seller that’s part of the cash. So you see, the renters become part of the creative solution to getting you into that property with little or no money downs.
So we talked agents. We talked about owners. We talked about bankers, mortgage holders. We’ve talked about the renters. Now, the investors that come in and help you to buy that property. People that they could be flexible. And the flexibility for them is okay, “Mr. Investor, you buy this property. I either flip it to you and you give me some cash, thank you very much, or I’ll be a partner with you and give me some equity, I’ll keep equity on this property. In this case I talked about the last couple of weeks ago, the twelve unity apartment building, I got fifty percent equity on that property and left within zero cash, zero credit, zero anything, zero creativity. I’m sorry, a hundred percent creativity. And so I was able to negotiate with all these people. And so we have five sources. What about the people who help as service providers such as, our own property managers, and people who do the title company work, and people who might do some fix-up for you, and maybe a contractor, somebody who might do some major fix-up for you. Because your contractor’s looking for you. So what if you found that contractor and you said, “Listen Mr. Contractor, you did the work to fix this property up. I don’t want to invest money into this. But you’re the contractor. You’re the builder. You’re a person who fixes up pieces of property. Why don’t you put your money into this deal?” “Well, that’s not the way we normally operate. We want you to pay for all the labor, and all the materials” and he says, “Well, do you want help to be part of this real estate deal? You provide all of the fix up work, and it’s going to increase its value by 20 percent, maybe 30 percent. Why don’t you put all the money in to fix it up and then after all this price increase that I’m going to buy at a certain price. Then it increases in value, we are back on the market. I’m going to get you half of that increased profit plus the money that you put into it. It’s all part of the negotiation. So, another service provider could be part of the solution for your creative deal. Does that make sense to you?”
Other people who can lend money, not mortgage holder but maybe a second mortgage hold, maybe somebody who puts on a private loan on that property, they could be flexible. So you’ve got first mortgage people. That’s one group of mortgage holders. You’ve got second mortgage people that put a loan on it and you take that loan you create as maybe a little technical this morning, but you can get someone to create a loan on the equity that you just bought and discount that mortgage for cash and walk away with a huge rate or return in their investments. I guess this is a little complicated, but the bottom line is I’m looking for people who would like to create notes and sell them at a discount and after bringing them in and have part of the cash they provide to be able to buy the property in the first place. So they’re just so many different ways of thinking about this real estate game. It’s just that your goal is to be the flexibility detective, looking for flexibility with every particular person that might be playing in that game. Does that make sense?
Now, another person who might participate is not only the first mortgage holder or not only an investor who creates a second mortgage that you sell on discount but a person who holds the second mortgage. You see, if you’re on the second mortgage position, well, let me put it this way, a private mortgage holder. See, today, a bank institutional mortgage holder, they’re a little less flexible. There are more flexibility than there’s ever been but they’re still very inflexible on a lot of ways of moving that mortgage. But if suppose this property, you’re doing some analysis on a piece of real estate, you’re doing your property selection grid, and you find that, in your research that the mortgage has, that the property has two more mortgages on them. One is the first mortgage, televised institutional bank. But the second mortgage was the pretty disowner, who sold or they sold it. It was a difficult market, and they carried it back the second mortgage with monthly payments attached to over the next ten to fifteen years. Would they rather have all cash? Well, they would have liked it all cash but they took a second mortgage instead with monthly payments attached. In the last seventy years have been less people carrying back mortgages on their properties from 2000 and 2008 when the mortgage was just so prevalent and just like water, you can get mortgages on a mirror under your nose when it’s fogged up, you qualified. Now, it’s hard to get loans. And so, if a person wants to sell, guess what happens? Sometimes they have to flexible. And sometimes they have to carry to find that signal. There’s a maybe 20 percent of the properties in America that are free and clear. Did you get that? Twenty percent of the properties in this country don’t have mortgages on them. So somebody owns that property, they could be the mortgage holder. They could sell the property and you’re going to a bank, you can say to them, why don’t you take the money and receive it on interest payments. See, you don’t just take this supposed, two thousand dollar property and they own it free and clear. You say, what are you going to do with the money? You’re going to take the two hundred thousand that I might give you? And put it in a bank? At what percent interest? One percent? Half a percent? How can that be? So, if you’re going to just take the money and put it in a bank, why don’t you just leave it right where you’ve already known, you know your house. I’m going to move in. I’m going to buy it and I’ll be the person who makes sure the monthly payments. Instead of half percent of the ban, I can make you monthly payments on a 4 percent of loan. That’s even higher than the market. I heard yesterday on the phone, I was listening to the radio and there was a 2.75 percent loan for a ten year mortgage. I mean, that’s just unheard of. It’s just wow. Incredible. 2.75 percent. I’ll make it four. So now we’re at the make it half a percent at the bank, that 8 times more money? By just making you the mortgagee and that letting you make that monthly payments? See, there’s always a way to negotiate. If you understand that flexibility is the key to it. That’s why we’re starting off our conversation today is flexibility. If you can understand the concept of flexibility, then you start to look for opportunities that most ordinary people don’t see. Does that make sense to you?
So, if flexibility is the most important characteristic, that’s why we’re going to put on the property selection grid list number one. Now there’s actually a chart that I’m going to flip to you very quickly. This is the chart that shows you that most real estate situations are not flexible. See this chart says that in this case, this book was written in 1982 and revised in probably, 1986 and everybody’s beginning the year 2006 so it’s been revised many times. But bottom line is in this case, if you’re to newspapers, this is the reason why we used to buy real estate because all the eyes were listening to the papers. Now we find the listing, the realtors that threw out their sources online etc. But 84.3% would be normal sellers, no indication of flexibility. They don’t want price. They want their terms. 11.7 percent is open to create a financing. Their ads were the seller indicates the ad to market the property whether let’s see, multiple listing information or whether it’s the property listed online. They’ll give you clues and hints then they might be flexible. Seller might consider a trade. Seller, they’ll say something like, seller flexible. You’re looking for clues. And about 2 percent of the properties in the normal market are highly motivated. 1.4% are motivated, and 0.6 are anxious to sell. So what I’m trying to teach you is that most 98 percent of all the properties that are available for sale in the normal market are not flexible. And there’s whether some can be open to a little bit of creativity but two percent of them are extremely flexible, highly motivated. That’s what you’re looking for, which means you’re willing to go and look for twenty or thirty properties and maybe find one. The fifty properties to find one. So that’s why your looking has to be very simplified. You don’t have time to get in the car with the realtor and go look for properties all day long. You don’t have time to do that. The only thing you have time to do is get on the telephone and call owners of properties or call realtors and look at properties quickly and this property selection grid that I’m teaching you right here is how you do it. So, the property selection grid has five areas of analysis. The properties, salaries, motivational flexibility, the location of the property, the financing of the property, the price of the property and the property condition.
Now the form here kinds of look complicated but literally you can draw one out right now on a blank piece of paper. I want you to draw out this form and on the left-hand side on the blank piece of paper right now. I’m going to challenge you to write five areas of flexibility on the left hand side of your paper. Flexibility, location, financing, price, condition. Got that? Now, each of these five areas are going to be evaluated on a score of one to three. One is poor as you can see on the chart there, two is average and three is excellent. So when you’re considering the buyer’s motivational flexibility, what would poor mean? I’ll read it. It says, don’t price your terms, take it or leave it, don’t need to sell, not anxious at all in the driver’s seat, yada-yada-yada. You don’t want to sell. They want to sell. But they want it their way. Now, so if you’re talking to the seller on the phone calling on some ads that you might have found, going through the list of properties for sale, you’re going to literally, as you talk in this salary, you say, how flexible are you? That’s a pretty blunt question but you could be asked in a nice way, and they go, well, no I need my price, I need my terms, what are you selling? Well, yeah this is the property we bought across the country and we need all the money from this property to that one over there, why are you selling? Well, you actually own another property in another city and we’re making mortgage payments on both properties. So, this property is vacant and I just flowed in from Kansas to meet you today to hopefully you’re going to buy this property from because I’m going to go back to Kansas tonight, fact to the other home that I live in. see, what I’m saying? See how flexible that can be? In other words, they have reason to be flexible. They have a reason. They’ve already bought their house. They don’t need the money or need less of it. And therefore we have some flexibility. That’s good, right?
Now it comes to the number two. It says it might consider small discount in price needs cash for new house or property, needs cash for bills etc, may carry small secondary contract but a little of unusual deals. Well, that’s kind of average you know? That scores a two. Three would be needs cash for pressing items, i.e, behind in payments etc, or doesn’t need cash at all, here’s tax management, transfer, time problems, or divorce, retiree or investor looking for a solution without a major need for cash. Flexible in price, or terms, that’s a three. So, sometime during the conversation when you’re talking to that seller or the realtor who might be involved, you need to find out the seller’s flexibility. If the realtor’s involved, then they can tell you. Remember the realtor’s responsibility is to represent both of you which is kind of strange. How would you like to an attorney in a lawsuit that you have filed and you realized that that attorney was actually being paid by the person that you were suing. And that they were supposedly representing both of you. You can see how problem would work very well in lawsuit, would it? Now you want to have somebody who knows your interest and has your interest best at heart. But in this case, the realtor, represents both of you, and gets the commission from the seller. Guess where the cash comes from? When you buy it, it’s your cash. That you gave to the seller, that seller’s given to the realtor so, kind of squirly in there. So, the bottom line is, when you’re talking to the seller, or this realtor, how flexible is the seller? Why are they flexible? You can be really blunt with your questions. You might be a little less blunt or a little less pushy, that’s not the right word but when you’re talking with the owner and the owner is selling the property and doesn’t have a realtor involved, that’s when you need to be a little more careful in your languaging. I know this is a very personal question. You may not, you don’t have to answer it if you don’t want to, but would you mind if it might help, as a matter of fact, if I could understand why you’re selling your property. What is it that you’re going to do to the money that comes from it? Well, if you ask it in a nice way, after having built a little bit of rapport with the seller, the seller will many times answer your question, just straight out. If they don’t answer your question, if they say, well that’s just none of your business, buddy. What does that let you know how flexible they are? If they’re not going to answer that kind of question, where you’re trying to help them get rid of the property, then maybe you shouldn’t be negotiating with this person, or at the very least you can give them a score of at least one. See, what I’m saying? So, every analysis is you go through this process in your mind. Flexibility, one, two, three. Location, what is a great location if it’s a location that, when you notice that in this case, when I say that it is a bad location, then you give it a score of zero. And you can just go properties in that location until you are an excellent investor. By the way, I’ve seen no chats going on so I want to make sure that they’re actually recording this. So why don’t someone send me a little chat message so that I can see that we’re actually online here. Ah, good. There we go. Thank you, Michelle. So, zero in the area of the location is no pride at all, shoot junk and the rate industry’s high crime, no appealing shopping close by, declining neighborhoods, abandoned buildings and boarded out properties, close to major streets, industrial areas or commercial zones, across the streets, far employment centers or commuter accessibility. In other words, bad location, just don’t have properties there. That would blow the deal. But if it’s a number two. You’ve got two points, maybe clean, older neighborhood’s close to shopping, churches, schools etc but not very appealing. Working class tenants, need establishment, maybe poor location on the upswing with proper fixer uppers, nicer inner city neighborhoods that would be what you call an average score or two. The score of a three is, easy accessibility to all necessary amenities and transportation, middle class suburban neighborhood, not on busy streets, cul de sacs ideal, properties nearby very similar price, good foliage and landscaping, brand new subdivisions, only high class intercity locations. See that? On a scale of one to ten what was the score? And you literally write down the score.
So as you’re preparing working on this little sheet that I had you write down the five areas of analysis, first one was flexibility, second one was location, you think about the property that you want to look at, you literally just think these five areas and give it a score of one to three. And you do it with this limited information that you have. So if you’re calling somebody n the telephone and you’re going through a list of say, thirty properties that you’re making thirty telephone calls on. Hi, Mr. Owner? I can buy your property. Can I ask you a few questions please? And so, you know the process of going through. You fill out what I call a bargain finder and the wealthy called it, property selection grid. Now that’s one of those high fluent words so, we changed it and the next we called it a bargain finder. So this bargain finder, you just say, I’d like to ask you five kinds of questions and therefore at the end of it, as you were going through, and asking me these questions, you literally give it a score. So, location, well, what’s the neighborhood like, Mr. Seller, Mrs. Seller? Well, and they describe what is and you can find out pretty quickly based on their conversation whether it’s a zero or two or three. Then let’s go to the next area of questioning. We’re going to talk about financing. What about financing? Well, financing is, generally speaking, the people when you think about real estate, they think about going to a mortgage broker, in getting a big loan, putting down the down payment, qualifying for the loan, that’s a hard loan to get. And it’s hard today, harder than ever. Isn’t that amazing five years ago, anybody can get a mortgage. Today nobody can get a mortgage. Very, very few. Let’s put it this way, it’s much, much, much more difficult today. But on financing, if it’s low, it means difficult. It’s that the more than 15 percent down, seller needs lots of cash and wants all his equity or property will have, negative cash flows from more than two years, or there will be a large balloon payment due and less than three years from date of purchase, consider only if the price is excellent. And that’s if you score it a one. If the seller comes up with this kind of information. Financing required from an institution without an opt to 15 percent on buyer’s money, all buyer’s money, credit checks, institutional security loans for a part of the down payment, high interest, high monthly payments, salary carry small amounts, cash required for buyer, balloons due in less than five years. In other words, there’s a little bit of flexibility. It’s not the traditional give me all the cash, make a large down payment, get a loan, I’m out of here. That’s a one.
A two says a little bit of flexibility and three, the less of the five percent of the buyer’s cash involved, seller carries most of the financing at lower than market rates with no balloons in less than seven years. No negative cash flows, rejected beyond the first year, contract sales, no credit checks. When the seller, like this person who came over to my house yesterday, when he came over here yesterday, he was highly motivated. He was, how do you get me out of this thing, my business is falling apart. And that’s a three. More people today than there ever had been, in this highly motivated arena. Banks are highly motivated to sell. All the people, realtors are much more motivated with the commissions that they have to be more flexible. Their flexibility is everywhere. Why? Because, the market fell apart. Is it coming back? Yes. Will it be fully back within this time next year? No. The year after that? No. Some cities yes? San Francisco, it’s already coming back right now. So the answer is, as I’m recording this in the year 2012, you may be watching this in the year 2050. So, if that’s the case, the market’s different. But this formula here that I’m teaching today going to still be the same. These five areas of analysis will still be with us forever because they are the way in which you find a deal, the bargains are found by evaluating these five areas. So, financing, you give a score, one, two or three.
Now the price. What about the price? What’s the price worth? What’s the property worth? I did a challenge once. I showed up for a show in Washington DC. I’ll never forget this. I can even see myself getting out of the taxi from the airport, getting out and going in to the hotel. The reason I could remember that is because I got in a taxi few hours later and went out of the suburbs of Washington DC. I went to my room and the major show is going to be on the next day. I had the whole hour and had an audience to talk to. And it was a major show. These days, because of the proliferation of cable networks, they’re not allowed on local shows like they used to be. They would advertise to their local community, when in that case, in Washington DC, they had a whole audience full of people, kind of like a mini-Oprah situation. So, every day they had another audience. And I was the guest for that day. So I just popped it into my head, why don’t we see if we could buy a piece of real estate? Tonight, so I got a newspaper, and I started circling all the ads just like I’m suggesting that you do, you circle the ones that have flexible clues in them. And then I got on the phone from my hotel from, and this was, early, it was late afternoon, early evening, I started calling until I found one. One owner who is home and I said, what’s with this area and these questions about price. What’s the value of this property? What’s your price? See how I asked that question? What’s the value of your property? In other words, what are people paying for deals like this? Why do you think it’s valued? And what is your price? In order words, your price can be lower of higher than value, and most, of course, I’d probably like to say, the property’s worth two hundred and my price is two hundred. Well, just, by the way the answer to that question lets you know and not you know, it’s them know. That you’re an investor and you want a price that’s lower. You know, and you need someone to tell them now. I’m a real estate investor. I’m looking for a good price. So, we’re going to ask those questions about price that gives us an opportunity to give a one or two or three. Point one, if I get one point, it’s ten percent or more, above reasonable market price. Consider only if financing is excellent. In other words, you can’t play higher than the price that they are listing. You can pay more especially if you find out that their price is actually lower than the actual market. And you pay them more than what their price is in order to get great flexibility. What kind of flexibility would I be talking about? I’m talking about a zero percent mortgage. Zero? Is it possible on a zero percent mortgage? Well, there are some tax consequences but the answer is yes, there are ways to do zero percent mortgages but we’ll save that for another day. Number two, with plus or minus, five percent of the market price. And frankly, in later versions of creating well I would’ve made this plus or minus ten percent. And actually, you want your price to be ten percent less than the market price to be able to get a good deal. And finally, three, if it gets three points, it’s at least ten percent or more below the market price. For me now, three is twenty percent more. In the market place today, there’s much more flexibility. So you want to get a better deal, so you want to score better. So, in the case of me talking to this person in Washington DC on the telephone. I’m going through all the areas of analysis, why are you selling? I have another property that I purchased. Good. Score number three. What’s its location? He describes the location and it seemed to be like a three to me.
What about its financing? Is there any flexibility in financing? Would you carry some of the financing? Yes. I would. Good. What about its price? Well, our price is a little bit better so that I could sell it. Three. Good. So, what’s the last area of analysis? And we go to our next chart here. It’s the condition of the property. I’m asking him, what’s the property condition? So, if it scores a one, then it’ says consider only if price is excellent. If the property condition is bad. Needs major cosmetic and structural improvements. At least ten percent of the price will be needed to be immediately to make the unit rentable. Improvements do not significantly improve the rent role because of the quality of tenants or the location and location improvements. Improvements do not increase value more than ten percent above purchase price. Usually it’s associated with poor locations. Possible to find the property in excellent location where prices are so high then improvements do not increase value, they’ll just make units acceptable to renters. You’d be making as larger down payment for improvements and receiving an average price property. So in other words, it’s going to take a lot of money to fix this thing up. It’s another way of saying it. If your score is two then this is the true fixer upper. Cosmetic improvements would be nice but not indeed necessary. Cost not to exceed five percent of the purchase price, cosmetic improvements immediately affect the value upwards and make the property more desirable, salable and attractive, not much structural work, if any is necessary, only paint, landscaping, drapes and other inexpensive improvements. This type of property should not be bought if the buyer does not have the time or the mental capacity to undertake supervision of improvements. This property can prove to be the most profitable in the short run. The worst house in the best neighborhood s what you’re looking for. The worst house that can be fixed up with the least amount of money. And the scores are three then, newer property or older property with recent renovations, no problems, clean inside and out, good landscaping, new components to replace major items, may have been a recent fixer or upper project which is being sold by [0:54:58.3] at an excellent price. No work necessary before renter moves in, solid property with a hassle actor of zero, quick closing, quick rent up, quick cash flow, that would be a three. So this instance I talked to the selling in Washington DC suburb, I said, would you mind if I come up to look at it? And he said, “Sure come along.” So, I walked right back into the lobby of the hotel, get in a cab, then I drive out to the neighborhood was thirty-five, forty dollars a cab ride. Then I get there, I’ve done an analysis in my head like, I am excited to look at this property , seller flexibility, three. Location, three. Financing, two. Two. The price, two. And the condition of the property like I discussed it with him what’s it like and, three. So, I got a three, a three, a two, that’s eight, plus a two is ten. Plus a three is thirteen. If this property scores eleven or more, eleven is the cut. If it’s eleven, it’s borderline. If it’s less than eleven don’t buy it, you better negotiate a whole lot better. It was a twelve or thirteen or fourteen or fifteen, that’s a good deal. You need to go look at that, that’s a bargain. You better go look at it. That’s a way that you can find this property available for you as a nothing down investor to buy. So, I’m now done with the analysis on the telephone, I go out and look at it, it is a big deal. It is in a good neighborhood. How do I know that? I stop at other properties for sale in the neighborhood, there’s a for sale sign here. I stop at here and I ring the doorbell. What’s your property’s selling for? Why did you pick that price? I do, two or three different stops along the way to find out that the property’s in that neighborhood are priced X and his was minus five percent maybe more. And so, I sit down and negotiate with him and I make the nothing down deal. I buy and sign in the contract. To buy that property that night, and now I have a signed contract. I’m a pretty happy camper. As I’m leaving, I said, “By the way I’m the author of a best-selling book, and I’m going to be on television tomorrow. And I won’t mention your name, but I think you need to watch the show tomorrow.” And so I told him what time I was going to be on and the next day I had his phone number. I was on the show, and I showed the audience the contract of the property that I had bought the night before using the principles that I just discussed with you. I said to the owner on television, “Mr. Owner, if you were me, I would keep that property. You could rent that out. You really don’t need the cash.” See, this course, this could’ve been middle 80’s, so, can you imagine what that property could be worth? Even of he’d held it for the next twenty years from 80, to 95 to 2005, more than likely the property would’ve been free and clear by 2005. He just needed a property that would’ve dramatically increased the value, probably three or four times, a property that value that time probably would’ve been around, like two hundred thousand. And I’d say the house today’s going to sell for eight hundred thousand. And, he should just should’ve kept it. That’s what I said to him. Mr. Owner, I hereby cancel the contract. I ripped it up. I said, “It’s in my opinion that you should keep it. If you keep it in and hold on to it and rent it out, you’ll get cash my friend.” Eventually that value will probably increase, you could refinance, as you refinance that property’s increases in value, you refinance all ash you pull out in refinance is tax free. So you keep refinancing the property and you can spent that money tax free. That only way to have tax consequences is when you sell it, don’t sell it. So, bottom line is, I called him when I got off the show. I said to him, did you watch? He said, oh yes. I watched. And I said, “I hope that it’s okay with you that I recommend that you keep it.” He said, “I will do what you told me to do.” Did he actually though? I don’t know. I’ve never met him since and I’ve never had any contact with him since. But if he would’ve done what I told him to do, it will be very, very good for him.
Now, what I’m telling you to do is this little form can be filled out on the back of an envelope. You just write down the five words, you give the score, next to each one of those, based on the levels of one, two or three. If it scores eleven, or less, don’t buy it. Negotiate better. The eleven is kind of scary. If it scores twelve, thirteen, fourteen, fifteen, you need to go look at it. You do your evaluation on the phone. Never look at a property until you know what it scores before you seed it. Because you can evaluate hundreds of property’s without having ever leaving your house. Then when you find one that scores well, that’s when you go look at the property. That’s when you really verify whether the seller or the realtor was telling you the real truth. Is it really in a good location or is it really kind of ordinary? Maybe you’ll knock if it points on your score. Maybe the property value is actually better than what they were telling you and you’ve got to push it a little higher. You’re going to do your final evaluation and if it scores well, you can make an offer. If they like your offer then you find yourself a deal. If they reject your offer, take that offer. Tell them Mr. Seller, you may not sell this property perhaps, there might come a time. I mean, hope many people have you met who wished they had taken the offer that was presented to them? And then, never got another offer even close to that? There are so many people who’d wish they’d taken that offer. So Mr. Seller, you may one day wish you had taken this offer. So, file this offer with my card here in your files. And if the deals fall through, that the realtor eventually brings to you or if you other deals that are falling through your own time and sell it, remember, use my card. And, if you ever know anybody who might have a property for sale, where the flexibility is higher than your circumstances, then you take your business card and around the back, a thousand dollars. Finder fee. You say, I’m a real estate investor. I like great deals. Remember, he just turned you down on your offer to them so, tell them what you want to say. I like good deals. And if I kind a great deal, then I buy it. I’m happy. And if you ever find a property that’s for sale, for somebody who’s not realtor if it’s by owner, friend of yours, who is getting thinking about relisting it with a realtor, you haven’t called me first. And if I buy it, I’ll give you a thousand dollar check. So, just keep this card. And now you’re planting seeds. So, every deal, every negotiation, even though it might be a bad negotiation because you didn’t buy it, plants the seeds for other deals. And I can’t tell you how many stories of people who had friends come back or sellers come back saying, I think I’ll reconsider your offer now. It’s been several months. Now they’re more flexible, this is even better. See? Well, an hour ago is pretty quickly, the bottom line is, this property selection grid is something you should use every property you look at. Never do a deal, never sign by anything without using this as a kind of a simple way for you to analyze a piece of real estate. Simple, fun, fast, one of my crazy creations that I came up with in the early 80’s, I hope, hopefully it will be valuable o you. I’ll see you next week. We continue our conversations about creating wealth. Have a wonderful day and if you have aha’s or things you want to share with me before the conversations, just come on over here and tell me some of the thoughts you’ve had and I can read what you’re writing. And, tell me what you thought. What are some of the aha’s that you had, any questions that you might have had, you can go ask if you want. Wasn’t a whole lot of chitchatting today. Well, have a wonderful day. Love you. And we’ll talk to you next week. Same time, same place. Bye bye.