Ten Commandments
for
Real Estate Success

Dear Friend,
 

   No, I haven't suffered another head injury. And no, I'm not on a one man mission to intentionally make everyone mad at me because of my seemingly unholy Biblical reference in the headline of this article. I've got my reasons. Maybe it was a vision. Well... maybe it was.

   I'm not claiming to be a saint or even suggesting psychological testing might not be in order. The point is... regardless of my good intentions or mental stability... don't you think it would be nice to have a set of rules, chiseled in stone, to guide you in your pursuit of Real Estate success?

   These would be the parameters in which you could operate and know with certainty you're on the right track. Straying from these guidelines may not be immediately destructive to your investment program but should serve as a warning of impending danger. If you find yourself off course, you could repent and take corrective action. Now, wouldn't that be helpful to you? Yes! Great! With that in mind... let's bring them down off the mountain...

   This is numeral uno for a reason. To be successful in real estate, you must learn to do business with motivated people. It starts with motivated sellers. If you are not buying from motivated sellers, you simply aren't getting the good deals, period. You have to seek out motivated sellers in order to take advantage of the best buys in your market.

   The same holds true for buyers. Do business with people who want what you're selling. Don't waste you time on the looky-loos and the brick kickers. When somebody wants to start picking your property apart by pointing out all of the negatives, you're dealing with the wrong buyer... or should I say non-buyer. It's just too difficult to make a good deal with this type of person. They will always be nibbling on you... always. Seek out the buyers who appreciate what you can do for them. They will increase your profits and are a delight to work with.

   This commandment could just as easily been Thou Shalt Qualify Your Prospects because it really is a qualification process, isn't it? Qualify people before you agree to transact business with them. Make sure you're dealing with the right folks.

   One last comment here. Remember... you can't do business with everyone. Don't waste you time on difficult, obnoxious or unscrupulous people. Move on to those who deserve your attention. Your profits and your attitude will benefit as a result.

   There's an old saying... "Don't Steal in Slow Motion!". Be prepared to do business. Keep your contracts with you at all times. Learn how to modify other people's contracts. Design two addendums... one for buying and one for selling. Stock a Buyer's Briefcase with everything you need to transact business. It's like the Boy Scouts say: BE PREPARED!

   Have your sources of financing lined up so you can take advantage of "All Cash" purchases, as well as, any rehab financing. Lay the groundwork with your banker or financial partner so the money is available for you to move fast. How fast is fast? One day isn't bad. One hour is better!

   What about title work and closings? Are you doing business with an Attorney who can give you quick turn around times? Do you know one or more title people who hang around in the county records and can run title for you on short notice? Do you understand the paperwork and what's necessary to close a real estate transaction?

   Establish your buying criteria. Learn to recognize profitable opportunities. Increase your options by uncovering new profit centers. Don't just walk around and pretend you're in business. You're wasting your time. The best deals in real estate go to those who are prepared to act. Become that person. Set yourself up with the necessary tools. Be ready, willing and able to transact business anytime... anyplace!

   This is big! I mean really big! Good deals don't fall out of the sky often enough. You have to be proactive. You have to make written offers. Written offers force you to determine what something is worth to you... and the number of ways you would be willing to buy.

   Written offers also test the motivation of the other party. Remember commandment #1. Making offers is the absolute best and fastest way to flush out motivated sellers. You can afford to make 20, 50 or 100 written offers in order to find one motivated seller.

   Writing offers is the home study course for buying right. It forces you to discover new and different ways you can structure a transaction so it will be acceptable and have a high probability of closing. Writing offers will help you ascertain the seller's needs. Often times, a written offer can open up negotiations. It gets the ball rolling. It puts your name in the hat. It establishes your credibility in the marketplace. It leads to referrals and future business. Make written offers.

   Leverage is a two edge sword. It can make a poor boy richÖ and it can make a rich boy poor. Don't borrow more on a property than is absolutely necessary. If you're living out of your loan proceeds, do something to change your situation immediately. There are many different consequences to borrowing more than you pay for a piece of property... none of them good.

   The same holds true for "Nothing Down" deals. Don't become enamored with a transaction just because it can be bought without any of your own money. You can literally do that every day in every city in the country. Buy property for profit. Use leverage wisely. And remember... borrowed money is not profit... it's a liability. Which leads us to...

   Liability is risk, plain and simple. The best way to determine your liability is by asking yourself this question: "What would happen in the worse case scenario?" Now, obviously, it would be impossible to avoid liability altogether and still be alive and in business. A certain amount is inevitable. The key is to constantly work to limit your liability and avoid unnecessary risk.

   Start with your financing. You never want to be in a position where one bad deal can blow down your house of cards. When you negotiate owner-financing, always try to limit your liability to the property you're purchasing. Make the property the sole security for the debt without personal recourse. This means you could lose the property... but none of your other assets.

   When taking title to property with existing debt, take title "subject to" the existing financing instead of "assuming and agreeing to pay". You still have an obligation to pay the debt to protect your interest in the property, but you haven't assumed legal liability. You're limiting your liability to the property.

   Read all contracts to determine where you are assuming excess liability. When buying, limit your liability to your earnest money only or utilize a "weasel clause". Negate specific performance and actual damages. When selling, be very careful with warranties of any kind. Use Quit Claim or Special Warranty Deeds. Avoid giving a Warranty Deed even if you have title insurance. Warranty Deeds were designed for conveyances of long time family property. Leave warranties to the experts... Attorneys and Title Insurance Companies. That's their job.

   Avoid personal guarantees... avoid co-signing and... avoid selling notes and mortgages with recourse (unless you have designed a way to go back into title for additional profit). When selling, obtain a release of liability on any existing financing to avoid contingent liability.

   Limiting liability is avoiding unnecessary risk. Look down the road, imagine the worse case, then defuse as many of the potential problems as possible. It's not only a survival tactic... it's the smart way to transact business.

   Prospecting is the life blood of a successful Real Estate Entrepreneur. Without a constant flow of good deals coming your way, you'll stagnate and your world will become very small. The good news is... prospecting is a skill, not an art. Although there is plenty of room for creative license, prospecting is something you can learn.

   There are a lot of different ways to attract buyers, sellers and tenants of property. The telephone is probably the best and cheapest of them all. After all, isn't your goal to get people to call you... so you can begin the process of qualifying them as someone you want to do business with? Sure it is!

   You can run classified ads, use door hangers, utilize yard signs, hang flyers, mail postcards, post messages on computer systems, broadcast faxes, hand out business cards, call Realtors, contact For Sale by Owners, cruise for dogs, write offers, stage a media event, etc. The list goes on and on. The methods of prospecting are limited only by your imagination.

   The experts agree, to be successful, you need 3 to 5 prospecting methods working for you at all times. Which means, if you're only using one or two methods (or heaven forbid, none at all), you're not as successful as you could be.

   When you find something that works, stick with it. Keep using a method until it's no longer effective. Continually test new or different methods of prospecting so you can add to your system. Prospecting is an ongoing process you'll need to continually improve upon.

   Prospect every day. Work to automate your prospecting as much as possible. Develop a system. Set up a schedule to keep you on track. Make writing offers part of your prospecting system. Test different approaches. Set yourself apart from the pack. Just like the Prospectors from the Gold Rush days, this is where you mine your gold.

   This commandment is designed to allow you to prosper. Here's why... while it can take quite some time to build up a cash flow of several thousand dollars a month, you can generate a lump sum of several thousand dollars in far less time. These lump sums of cash have the effect of creating financial options. You can use this cash to improve your lifestyle, reduce your debt, improve your properties, buy at huge discounts, fund a new venture, take a vacation, bail yourself out of a jam, beef up your savings... the list goes on and on. This is what cash can do for you.

   Selling is the engine for generating cash. Take advantage of the two main avenues for selling. The first is Retailing. Retailing is the process of selling a property for full price on the retail market. With single family houses, this process generally involves selling to an owner-occupant utilizing new financing. Although this process can be completed in as little as 30 days, the norm is between 90 and 180 days. Retailing yields the most cash per property but requires a larger investment of time and resources.

   Wholesaling, on the other hand, can be accomplished very quickly, often times with little or none of your own money invested. Wholesaling is the process of selling to other investors at a price which allows the other investor room to profit. The profit margins are generally lower, but these transactions can literally be done in a matter of hours or days.

   Both of these methods presuppose your prospecting system is generating a constant flow of profitable deals for you. In fact, wholesaling and retailing are businesses which compliment any real estate investment program quite nicely. We all need cash from time to time... buying and selling offers the perfect solution to this problem by leveraging the excess transactions your prospecting system generates.

   Don't become an equity rich, cash poor investor. It's not necessary. Devote some time to learning the ins and outs of buying and selling. Learn to generate cash.

   The only way to establish a reliable cash flow from you properties is by becoming a good manager. Don't be fooled into thinking management is something you can afford to piece meal together. You need to establish a comprehensive management program from the very start.

   To be a good manager you need to understand how to prospect for tenants, qualify potential tenants, negotiate tenants expectations, provide incentives to tenants, collect rents, collect late charges, survey market rents, raise rents, evict bad tenants, maintain your rental properties, and keep accurate records. It's a business in itself.

   Poor management can cost you thousands of dollars a year or worse yet... drive you out of the business completely. Learn good management skills. Develop a good rental application. Put together a detailed Rental Agreement. Learn to identify responsible tenants. Fill vacancies fast.

   Use technology to your advantage. Subscribe to a credit bureau. Access credit reports via computer and modem from your desk. Utilize a good word processing program to build your own applications, forms and agreements. Change these documents as the need arises. Consider adding one of the many management software programs to your computer arsenal. These programs can help you with the complete process including keeping accurate records on repairs and maintenance. They will spit out accounting information anytime you desire with the touch of a button. HeyÖ I'm getting ahead of myself.

   The better manager you are... the more property you can acquire... the higher your cash flow. It's as simple as that. Manage for Cash Flow.

   Technology can eliminate high overhead. You no longer need a fancy office or expensive employees. By utilizing technology, real estate becomes the perfect home based business. You can leverage your existing overhead by using your home as your office. The commute time and dress code are an added bonus.

   The technology available today wasn't affordable or practical just a few years ago. This technology can provide you with the horsepower to create any image your desire and operate like the big boys. Plus you no longer have to sell your soul to access this power.

   The personal computer is the center point of this new technology. Not only have PC's become easier to use, they can automate almost any office routine. They can act as a complete communications center. Answer your phone, store and/or forward messages, page you, send and receive faxes, broadcast faxes while you sleep... and so much more. You can literally access the world from your kitchen table while drinking coffee in your underwear via the Internet. Credit reports, tax assessor roles, comparable market information... all at your fingertips. This is valuable information, baby!

   A PC with high speed access internet access and a good printer will allow you to compete with anyone. Adding Cellular phones, beepers, and voice mail will round out your high-tech communications center... allowing you, at your discretion, to stay in touch even while mobile.

   Software gives life to this hardware... and there are many great software programs available. They have become easier to use and best of all, affordable. Many of the really good programs come bundled with computers when you buy them. It's possible today to buy a $2,000.00 computer and have it bundled with over $2,000.00 of software, loaded and ready to use. It's almost as if they're willing to give you the razor... if you'll buy the blades.

   Technology allows you to outperform your competition... and increase your production... all at an affordable price. It leverages your time and talents in a way never before possible.

   Last... but not least... Record Keeping. Tedious and boring. And usually the last thing to get done - if in fact - it gets done at all. Listen to me closely on this one brothers and sisters... if you don't keep accurate records, you never will be successful. Nor will you ever have an accurate gauge to measure the profitability of your efforts. You won't be able to tell where you're going... where you've been... or even where you are right now. You're lost!

   Get straightened out on this right away. This is one area you'll see the immediate benefits of technology. There are some great accounting programs on the market today. I like the features QuickBooks has to offer. If you're just getting started and maybe a little intimidated by all of this, try one of the Quicken products. They're easy to use right out of the box.

   If you're not current on filing your Federal Income Taxes, make it top priority. Consider investing in TurboTax software. It's inexpensive, loaded with tax advice, easy to use and best of all it's absolutely the best product on the market. They even have a module for State returns.

   The management software packages are becoming more and more sophisticated. Most now offer accounting features. These can be invaluable in helping you become a good manager.

   If you refuse to enter the computer age, at the very least, set up manual systems. You have to keep accurate records to be successful. Do not ignore this commandment.

   Just kidding!

   Well, that about wraps it up. I hope these commandments will help clarify some of the misconceptions about Real Estate Investing. This business offers outstanding rewards to those who are willing to wear many different hats.

   You can successfully run your business by these commandments. They are tried and true. I know...It takes effort, but what in the world worth having doesn't?

Shalom