Personal Finance

6 Easy-to-Acquire Habits That Will Help You Build Wealth

“We are what we repeatedly do. Excellence, then, is not an act, but a habit,”Aristotle said. And that’s good advice. Yet some habits are hard to start or stop. Like, smoking, for one. Or . . . complaining about your boss.

Other habits, however, are fairly easy to adopt, if you are 100 percent committed to changing. Those are the habits I want to address here.

If you are looking to build wealth, you’ve got to begin with your habits. After all, your habits, like the rudder on a ship, will guide and direct your life with relative ease — once they are set in place. So, let’s look at six habits you can start implementing today to immediately begin acquiring greater wealth.

1. Wake up early.

Life is probably a bit crazy for you. However, it’s likely significantly less crazy before everyone else in your home wakes up! This is why it’s important to wake up early in your quest for greater success.

In my favorite business book, The One Thing, authors Gary Keller and Jay Papasan use the analogy of a car running out of gas each day. Thus, the earlier you do your most important tasks, the easier it will be to move your business consistently forward.

As I have talked about in Entrepreneur, the secret to waking up early is not allowing your brain to make decisions. In other words, create morning routines and habits that force you to wake up! Then, get to work!

2. Define goals and benchmarks.

If you don’t know where you are headed, how do you know when you’ll get there? Or, how do you know you are on the right track? Defining goals and setting benchmarks is an easy habit to acquire, as you can make this part of your morning routing.

Related: 3 Habits of Incredibly Lucky People (For Better Fortune in Business & Life!)

Each morning, I sit down and review my goals and the progress I’ve made on them. This helps me keep the main thing the main thing and helps me make sure I don’t deviate too much toward the “shiny new things” that are all around.

3. Read more.

Reading may not seem like a habit, but ask any heavy reader, and he or she will tell you it is! When these people go a day without reading, it’s as if something is wrong. Reading is a powerful way to grow your wealth because it enables you to test-drive the mind of an author, learn what he or she knows and gain insight into how to improve your life.

Aim to make reading a habit in your life — both for business and pleasure. It doesn’t take hours a day, either. Just 15 minutes a day can help you burn through dozens of books a year, and it only takes one idea to turn you into a multimillionaire.

(click to continue reading on BiggerPockets)

[This post originally appeared on Entrepreneur.com.]

Why do the rich keep getting richer? Most of the time, it’s not because of luck. It’s not because of the family they were born into. It’s not because they won the lottery.

Wealthy people simply do things differently.

It may not seem fair, but the fact is the “income gap” is increasing and most financial expertsonly see this trend continuing with no end in sight.

In preparation for this column, I sat down with someone who knows far more wealthy people than I will likely ever meet: Jeff Rose. Rose is a certified financial planner, author and blogger at GoodFinancialCents.com, as well as a millionaire himself, who dedicates a good portion of his time to helping people become, and stay, wealthy.

I asked Rose why he thought the income gap was growing. He mentioned five primary things that wealthy people simply do differently than the rest of the world. Here are those five, in no particular order.

(Click to read on BiggerPockets…)

 

$1000 can buy a lot of cool things. A round trip ticket to Italy, new tires for my truck, or even a brand new 52” flat-screen television. $1000 also could have bought me half of my granite counters or a new garage door on my new house. However, instead I decided to “donate” my $1000 to HSBC Bank because I didn’t read my contract.

Buying From A Bank

Let me start at the beginning. I recently purchased Click to continue…

I’ve been busy. Very busy.

And no, not just writing this 2300 word post (my longest to date!)

You might remember several weeks ago when I mentioned I had a new property I was excited to be closing on soon. I finally closed last week and can finally devote some time to telling you all about it. Ironically, if you have been following my blog posts from the beginning – you probably already know a bit about it.

Over two months ago I wrote an article here titled, “You Killed My Father – Prepare To Die: And Other Lessons In Finding Good Deals” which I chronicled my mistakes in not pursuing a property quick enough. The house, I mentioned, was perfect – but not just for a flip or a rental – but perfect for ME. I wanted this house for my new home, something for my wife and I to move into, decorate exactly the way we wanted, paint the walls any color we wanted, and really spend the time making it perfect for us. However, I was too slow in pursing this home and it was taken before I could get to it. Or so I thought- because this perfect home that I missed out on is going to be my new home.

For the past five years, every home we have lived in has had an agenda attached. We have moved five times in five years (yikes!) in an effort to jumpstart our investments. We would generally move into a home we had remodeled while it sat on the market to sell (to minimize our holding costs) or simply buy a home planning on turning it into rental soon. Either way, with each home we designed the home to fit either a flip or rental – but not for us. This is why I am so excited to finally have a place to call home. I might even paint a wall red- just because I can.

The rest of this post is dedicated to teaching you exactly how I purchased this home – I’ll call it “Church Street” (because, surprise – it’s on Church Street) – and how I did it with no money out of pocket (and even received a check for almost $9,000 at closing!)

The Home:

Living Room

Living room with natural gas fireplace and hardwood floors

 

Church Street is a three-bedroom, one bath home located just a few blocks from where I currently live. I was first attracted to the home because of the large yard. My wife dreams of having a large garden and this home will allow for that. It also has:

  • Three bedrooms, one bathroom
  • A one car garage
  • A new roof
  • Newer kitchen cabinets
  • Hardwood floors throughout the living room.
  • Primarily cosmetic fixes (paint, carpet, etc).

As I mentioned in the previous article, after missing my chance on this perfect home I re-dedicated myself to moving quickly when opportunities arise. The home had sat on the market for several weeks before I even noticed it, and it took me almost a week to get inside to see it after that. By this time, the home had received another offer and the bank (this was a bank repossession) had accepted it.

However, if there is one thing I’ve learned about bank repos in the past several years is that 50% of the deals that go “pending” (there is a signed deal) do not actually close. Usually something goes wrong – from difficulty financing, a scary inspection report, or one of a hundred other possibilities. This is why I believe it is imperative to put in a “back-up offer” on any property that I am interested in that goes into a pending status.

So, I submitted my back-up offer and waited.

My Offer

My offer was as follows:

  • Purchase Price $65,000.00 – The listing price was $75,000.00, so I offered $65,000.00. Other homes (non-REO’s) sell for a minimum of $130,000 in this town, going up to $200,000 in some neighborhoods. To learn more of how I determined my purchase price, check out my article How to Quickly Analyze a Single Family Home for Investment
  • $1000.00 earnest money – Earnest money is money paid at the time you submit an offer. It is a way of telling the seller “I am serious about buying this home, and I am pledging this money to prove it.” Should I back out of the deal for no good reason, the seller is able to keep my earnest money as payment for their trouble in dealing with me.
  • 10-Day Inspection Period – I included in my offer a ten-day inspection contingency. What this means is that I have ten days to inspect the house and determine of the condition is good enough for me to purchase. If I find anything with the house I don’t like, I am able to back out of the deal and get my earnest money back within ten days. This is a standard part of most deals.
  • Financing Contingency- Just as I could back out of the deal if I found something in the inspection, I also included a contingency that allows me to back out of the deal if I cannot obtain financing.
  • 45 Day Closing (or sooner) – I wanted to give myself plenty of time to get this deal closed because I was not 100% sure of how I was going to do it. I knew I wanted the house and that it was an amazing deal, so I gave myself plenty of time to work out the details.

Normally when I purchase a home, I offer differently. I like to do a preliminary inspection and line up my financing first so I don’t need to use those contingencies. Why? A seller is much more willing to accept a lower price when the offer is “cleaner.” The fewer contingencies, shorter closing date, and more earnest money offered the more apt the seller will say “yes.”  However, this home is different.  Funding a flip is easy. Funding a long term buy-and-hold is easy. Funding a home for myself to live in is not so easy.  I have too many mortgages in my name and not enough “real” income to get another mortgage, so trying to get a long term mortgage is next to impossible.

Bathroom

Bathroom - complete with green bathtub

However, I knew the deal was good.

I have always believed that if you find a good deal, the money will find you. So I gave myself the ten-day inspection, financing contingency, and a long close date so I could have adequate time to put the deal together and find the money. More on that in a little bit. First, I needed to inspect the property.

The Inspection

Back to the story.  After I offered on this home two months ago, and was rejected, I placed my back-up offer in and had to wait.  I actually forgot about the home and moved on. Then, nearly a month later, I received a call from the agent. The other deal had fallen through. The prospective buyers paid for a full inspection and became nervous when the report came back. The selling agent received a copy of the inspection report, which I dissected with extreme care. Besides the obvious cosmetic flaws this home has, the report also listed two other important items:

  • Foundation Problems
  • Electrical Problems.

These are what scared off the other buyers – and rightly so. Foundations and electrical work can be the most costly items to repair on a home. They are also issues that must be dealt with by professionals, so homeowners do not know what a bad problem is from an easy-to-fix problem. These problems don’t scare me, though, but instead simply offer less competition and, in this case, led me to a killer deal.

I immediately scheduled an inspection with both a local electrical contractor and a foundation expert. Both these inspections cost me nothing – as I called contractors I use often and simply asked for a “bid.”  It is important to keep good relationships with your contractors. Furthermore, they know I will probably use them to do the work, so estimates are usually free.  I am not suggesting using contractor’s bids as your inspection, but when you have a good working relationship with your contractors, you can use their knowledge to fill in the pieces on unforeseen problems.

As I was hoping, the electrical issues were fairly common and fixable – wire splices in the attic without junction boxes, incorrect circuit breakers in the main panel, and non-grounded outlets using 3-prong plugs. Don’t worry if you don’t understand this stuff – just know that it is fairly easy to remediate.

As for the foundation, we determined that there was rot in a couple of the main support beams, but the joists looked fine. Homes in my area, including this one, often sit on a cement perimeter foundation with a crawlspace below the home. This allows for fairly easy access and repair. The foundation would cost no more than $500 to repair.

I now knew the house was exactly what I wanted. It was time for the hardest part (or so I thought) – finding the money.

Kitchen

Nice Cabinets, Terrible Everything Else

Putting Together The Financing

Now that I had a signed deal with the bank and had thoroughly examined the property for major issues, it was time to move forward and find money to buy the home. With this home, I had three goals for myself:

  • Buy the home with no money out of pocket
  • Get repair money given to me at closing
  • I needed at least five years on the loan (I need time to pay off the loan or refinance)

When I submitted the offer originally, I included a pre-approval letter from a hard money lender. I did not know if I was going to use this lender or not, but it didn’t matter. Bank REO’s only required that a buyer submit a pre-approval with the offer – you are not obligated to use that pre-approval for the purchase. I knew that I could fall back on this hard money lender if needed, but I wanted longer terms than he would give me.

I began to tell everyone I knew about the deal. Within two weeks, I had two different people offer the money to me. The first was a hard money lender I had used in the past. The second was the father-in-law of an investor friend of mine. This friend mentioned to his father-in-law that I was looking to finance a home for me and my wife and he agreed it would be mutually beneficial to fund the deal. Both agreed to fund the entire deal, plus an extra $9,000, on a five year note.

Now, before you think that this was super easy to do: both these offers for financing were based on years of building relationships. I had done several other deals with the hard money lender and had never been late on a single payment nor given him cause to worry. I’ve said it many times before – this is a business of trust. As for my friend’s father-in-law, I have spent the last four years helping both my friend and his father-in-law with maintenance and other jobs for their own homes and their rentals. I have built a good reputation as someone trustworthy and capable.

If you are just starting out, you may not yet have built these relationships. It is important that you start immediately. I have found that there are several key ways to develop your reputation, and it is important that you do all of them:

  • Be knowledgeable in what you are talking about.
  • Always do what you say you are going to do.
  • Work hard, always.
  • Help others whenever you can, even if you might not get something out of it.
  • Be above reproach in every situation.

It can take years to build a good reputation but only one incident to destroy it. Guard your honor and reputation with care and continue to build relationships with those around you.

I ended up choosing to work with my friend’s father-in-law as a private lender and submitted his information to the closing title company.

Backyard

I Think I'll Get a Riding Lawnmower

Closing The Deal:

Two weeks after completing my inspection, I purchased the house. Yes, I had 45 days to do so, but I was eager to get working on it. After paying closing costs and fees, I received a check at closing for just under $9,000.00 for repairs on the home. Next time someone tells you that no-money down deals just don’t happen anymore – don’t listen. They do happen, and they happen every day.

There is another long story I would like to tell you about how I lost $1000.00 by not reading my contract, but I’ll save that for another day.

I will be updating you all in the coming weeks as the home is tore apart and put back together into my own dream home. I will be doing some of the work myself over the coming week but hiring a crew to do a significant portion. I am working on the tightest budget I ever have, but am doing so on purpose. Being my own home, I want to keep the costs down as low as possible so I can pay off the entire mortgage quickly. My goal is to pay the entire home off before the end of my five year loan is up. If not, I could always refinance the note – but having a debt free life is my ultimate goal.

Thanks for taking time to read this post! If you know someone who would benefit from reading this, please share it on your Facebook!

Also, if you have any question or suggestions, please comment below!

 

 

“The tenants won’t pay the rent, you’ll go into foreclosure, lose the house, destroy your credit, and ruin your entire future. What you need to do is go to law school, get a job at a nice law firm, work eighty hours per week for ten years to become a partner, then after forty years you can retire as a millionaire.”

This was the advice I got from my Dad when I told him I wanted to go into real estate investing.  Not exactly the encouragement I was hoping for.

At the time, I had just graduated from college and was working a minimum wage job. I had heard all my life “you WILL go to college and land a great job.”

Only, the job didn’t come. I may have graduated summa cum laude from college, but each interview I took I was told I had:

  • not enough experience
  • not enough schooling
  • or just not “right for the job.”  (Sound familiar? You aren’t alone!)

Thus, the only job I could get was an overnight shift at a group home for the developmentally disabled while I studied for the Law School Admissions Test.  I had accepted my fate of working overtime for the rest of my life in a career I had no interest in, simply because it was “the way things are done.”  I honestly believed my life had peaked in college and I was on the slow decline toward slavery and eventual death (old, fat, miserable, but probably rich).

This is when my interest in real estate began to develop. I had begun watching the “flipping” shows where entrepreneurs bought, remodeled, and sold homes to make large sums of profit.  I had no construction ability, but I began to devour every piece of information I could about this “flipping” of homes. I slowly learned that investing was more than just flipping, and that true wealth was in the collection of rentals.

I called my Dad to tell him of my new career in real estate investing- thus the, “you will ruin your entire future” speech I began this story with.

With that, I was back to studying for Law School.

TV is just TV, and in real life – people ruin their lives with real estate.  My dad was not the only one advising against it. Everyone has a story of an uncle who invested in real estate and lost money to deadbeat tenants.  It was fact, or so I thought.

Brandon, Meet BiggerPockets.

 

I decided to Google my concern. “What to do when a tenant doesn’t pay.”

My search brought me to a website known as BiggerPockets, and it changed, and I would even say “saved,” my life.

For those of you not familiar with BiggerPockets.com, it is a social network for real estate investors. The site is home to (currently) nearly 100,000 members, thousands of blog posts, hundreds of articles, and enough forum discussions to keep you reading for years.

For the first time, I realized there were answers to the “you’ll ruin your life” objections. There were people actually investing in real estate, and making a killing off it.

I can still remember the feeling of knowing there was hope.

I didn’t have to suffer through forty years of a job I hated. I could actually craft a career around something I enjoyed. The income I could make was unlimited and I could be excited to wake up each morning.

Since that day, hardly a week has gone by that I have not been on the site reading articles, asking questions, connecting with others, and learning everything I could.

I love reading books on real estate, but interacting on the forums is like reading a living book. I could ask a question, and often immediately I would receive back suggestions, ideas, and other help from seasoned real estate investors who have been there, done that.

A New Life

 

When I say “BiggerPockets” saved my life, I truly believe it. It saved me from a life that had been chosen for me, but I did not want. It saved me from the “slave-save-retire-die model” that nearly every American believes is the only way.

Not only did BiggerPockets save my life, it also gave me a life. It helped me on my journey to become a real estate investor, which I now do full-time. I wake up each day excited for the work that I do – because it’s mine. I don’t report to any others (except “the Mrs.”) and have a free reign to express my creativity.

BiggerPockets continues to help me out, even today. There is a good chance that you are reading this blog after finding me through BiggerPockets.  The majority of all my traffic on my site comes from BiggerPockets. Last month I was asked to become a regular contributor on the BiggerPockets Blog which has been an awesome experience and I hope I can give back to the community that has helped me so much.

If you are not currently a member of BiggerPockets or don’t regularly get involved, I highly suggest you get connected. Follow me on BiggerPockets by visiting my profile here. Get involved in the forums, read and comment on blog posts (especially mine, currently on Sundays), like them on Facebook, and start to grow. You never know, BiggerPockets might just save your life as well.

P.S. – My Dad has since come around and is now my biggest private investor.  We own several properties together and are continually talking about “the next property.”   Thanks Dad for all your support! I think you’d agree I make a much better investor than I would have a lawyer!

If you enjoyed this article, I hope you’ll take a minute and share it on Facebook, Twitter, or any other social networks you have! If you want to receive each post from “Real Estate In Your Twenties” delivered free to your email inbox, please sign up in the bar on the top of this page. 

Also – be sure to download my free e-book “7 Years to 7 Figure Wealth.” It’s totally free, no up-sell, no affiliate nonsense.

Just a good ‘ol fashion plan.

 

 

In a recent article I wrote on BiggerPockets.com concerning partnerships, I mentioned knowing the difference between “front-end” and “back-end” debt-to-income.  Today I want to briefly discuss what that is, and why it is important for a real estate investor, or just a casual homeowner, to know.

What is Debt-to-Income?

“Debt-to-Income” is a ratio, used by banks and other financial institutions, to determine how much credit you are using compared to how much income you make.

Why does this matter?

Because income is deceptive.

Let’s say you make $10,000 per month in income (we’re just pretending…).  Could you afford a car payment that is going to cost you $500 per month? You probably want to quickly respond with “yes, of course” but like I said, income is deceptive. If your $10,000 income is eaten up with a $9600 house payment – you couldn’t do it.  Banks are smart (okay, that’s debatable) and they understand this.  This is where the debt-to-income ratio comes into play.

Your debt-to-income is the total amount of minimum payments you make on your debt divided by the total income you make in a month.

For those who love math (guilty!) here is how the equation looks:

Debt to Income = Debt Payments / Monthly Gross Income.

So, if your gross income (before deductions) is $10,000 each month and your minimum debt payments are $3500 per month, then your debt-to-income ratio is 35%.

A bank does not want you to be “over leveraged,” because it increases your risk of not paying back the loan. The more debt you have, the higher chance the bank has of losing money.

What is “Front-End” and “Back-End” Debt-T0-Income?

“Front-end” debt-to-income uses the formula above and simply looks at the debt related to the mortgage – including property taxes and insurance. For example, if your mortgage payment (with taxes and insurance) is $1500 per month and your income is $10,000 per month, your front-end debt-to-income ratio is 15%.

“Back-end” debt-to-income, on the other hand, uses the above formula to determine your ratio, but includes the minimum monthly payment on all your debt, including credit cards, student loans, mortgage (with property taxes and insurance), auto loans, and any other debt that might show up on your credit report (including loans you might have co-signed for that are not even yours). So, if your credit report shows that you have $3000 per month in minimum monthly payments plus your $1500 mortgage payment all on your $10,000 monthly income, your back-end debt-to-income will be 45% ($3000+$1500 / $10,000).

Why Does Debt-to-Income Even Matter?

Debt-to-income is important because you want to qualify for a mortgage.  

You cannot qualify for a mortgage with a bad debt-to-income ratio.  Lenders will require you to fit below their maximum standard for debt-to-income in order to qualify. If your debt to income is too high – your application won’t even be looked at. You will be shot down automatically by the computers who first process your loan.

Even if right now you aren’t looking around for a loan, you will eventually. At that point, you need to make sure you debt-to-income is in good standing.

What is a Good Debt-to-Income Ratio?

While every bank has their own standards (and can often slightly bend them if you qualify in every other way), generally a bank would prefer:

  • Your front-end ratio be less than 30%.   AND
  • Your back-end ratio be less than 40%.

This is often written with a hyphen, such as 30/40.

Keep in mind, a bank will usually want BOTH ratios to be correct in order to qualify.

So, going back to our story of you earning a $10,000 income – your front-end debt-to-income ratio would allow you to purchase a home that cost you $3000 per month (including property taxes and insurance).  Your back-end debt-to-income would allow all of your total monthly debt payments – including the loan you are trying to get – to be less than $4,000 per month.
Obviously, if you are trying to get a mortgage you may have other qualifications to pass before getting a loan,  but by making sure you at least fit within the debt-to-income ratio you are one step closer to hearing the banker say “Yes!”

Photo from s_falkow

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