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Investing in Real Estate at a young age requires a different approach, style, and skillset than investing at an older age. However, the principles behind sound investing do not change whether you are twenty or eighty.  This article is part one of a four part series on how to begin investing in real estate at a young age. If you only read one article – let it be this one.

My brother recently received his tax rebate check of over $1000 and asked me, “I want to invest this money – how should I start?”.

He expected me to tell him the secret to buying a house with a minimal down payment or a hot new tip on investing in gold (which I am adamantly opposed to, but that is topic for another post). Instead, I told him to use that $1000 to gain education.  No, I don’t mean college or a cheesy seminar with a so-called “guru”.  In fact, I suggested he use his money to take a week off work and spend a week at the beach reading books.

Education is the first step to any investment dream and congratulations, by reading this blog you have already taken that first step.

There are numerous ways to learn how to invest, most which are free.  The technique you use to learn greatly depends on your learning style.  The following is a list of just a few. I encourage you to check out as many as you can to determine your favorite way to learn.

  • Books – This learning method goes without saying, but I would like to emphasize the power of public libraries in gaining free education.  This technique resonates most with my personal learning style. During the first year after I decided to get into real estate investing at twenty-one years old, I checked out every book in my library’s regional collection dealing with real estate investing – well over a hundred – and read each one cover to cover.
  • Blogs – These are an amazing source of information, written by people living in the trenches of real estate. Websites such as http://www.BiggerPockets.com offer hundreds and hundreds of articles, forums, and blog posts teaching every conceivable aspect of real estate investing.
  • Mentors – If I were to go back and start over, I would have started earlier with this technique. People love to share what they know, and seasoned real estate investors are no difference.  Get to know who the major players in your town (ask any real estate agent or join your local real estate investment club) and offer to take them to coffee. It is amazing the number of pitfalls and regrets you will avoid by simply learning from those who have been there. In addition – these contacts you make will help you in more ways than one in developing you into a world class investor.
  • Podcasts – A recent innovation in the real estate investor world, there have been a number of great Podcasts that have emerged in the last few years. My current favorite is the Real Estate Guys Radio show. If you have an iPod or Iphone, you can listen to over a HUNDRED hour long shows covering a wide variety of real estate topics whenever you want – for free.

What are your favorite inexpensive or free ways to learn?

Leave me a comment below and then click here to read part two of “Getting Started Investing In Real Estate.”

 

Management of Tenants can be tough work if you don’t manage properly. Here are 5 of my favorite tips in minimizing the work it takes to manage your tenants.

 
1.) Do Proper Maintenance.

Don’t be a slumlord. When things are broken, fix them. Not just because it will make your tenant happy and paying (it will), but it will keep up the value of your investment and keep you from larger hassles. Real Life Example: A tenant called once about a slow draining toilet. Rather than fixing the issue, I proceeded to put that on the bottom of my priority list, right below “fix global warming” and “find my missing sock”.

Bad idea.

Tenants don’ think like us. We think “broken toilet, stop using”. What do tenants think? “Hmmm… the toilet stopped draining… so… um… lets smoke some week and continue using.”. Three weeks later, I get a second call. The toilet has not been draining since the first call, but the tenants CONTINUED TOUSE THE TOILET EVERYDAY. They only called the second time because it began to overflow.

You cannot imagine the smell.

That day I learned three significant lessons:

1.) I will never fix another toilet again (perhaps the best choice I’d ever made)

2.) I will always address maintenance issues promptly and

3.) A toilet filled with human feces weighs too much to successfully dump upside down in the bathtub without losing 90% down the front of my body.

 

2.) Have A Policy To Refer To.

Just as the above tip involves having a “higher authority” to refer to, it is also wise to have a “policy” to refer to. That late fee that can’t be waived? Sorry, it’s our policy. You want a maintenance guy to come fix your  at 8:30 on a friday night? Sorry, our policy states that non-emergencies are only dealt with monday through friday, 9-5. Customer Service departments have used this technique for years, and with good reason. People will tend to argue with anything you say, but if its part of a policy, arguments tend to end there.

 

3.) Never Give In (if You Give A Mouse A Cookie).

One of my favorite books growing up was called “If You Give a Mouse a Cookie”, which teaches kids not to give change to the poor because they will only want your Playstation next (or something to that effect). Tenants are that mouse. If you waive that late fee one time, they will be late again. If you allow them to park one car on blocks in their front yard, soon you will be the proud owner of the towns new scrap yard. Tenants will take what they can get. Set a line, stick to it, and don’t give in.

 

4.)You Are Not The Owner (Higher Authority).

This is one of my favorite tip in dealing with tenants. You are not the owner. You simply work for “him”. This tip revolutionized the way we manage tenants and our own time. The landlord is always, and will always be, the “bad guy”. He’s the money grubbing guy who tries to steal christmas presents from kids and bathes in the torment of good, hardworking people. By introducing yourself as simple “the property manager,” you are given a “higher authority” by which to refer to.

Additionally, it also allows you time to think when a question is asked of you that you don’t know the answer to. “I’m sorry Mrs. Johnson, we asked the owners about you keeping that new litter of pitbulls (you moved in secretly,) but they just won’t allow it in your studio apartment”. Notice who the bad guy is? The owner. The real fun begins when the tenant begins trash talking the owner. Go ahead, join in.

5.) Get a Resident Manager.

Tip number 5 is indispensable if you are looking to hack real estate and use it as your ticket to wealth and freedom.

You need to let go.

A resident manager is someone who manages the day-to-day operations of your empire (i.e. toilet repair, complaining tenants, renting units) in exchange for reduced or free rent. Obviously, there is an economy of scale issue when dealing with this, as you would not need a manager to manage just one single family house. However, perhaps offering $50 a month to a tenant to answer phones and show units at any of your properties or $100 to get a unit prepped and filled would tickle a tenant pink and keep you lying on the beach in Maui. The point is: look for ways to outsource all the mundane, boring, filthy, and cumbersome tasks so you can focus on building your empire and saving the world.

I’m in love with Logan.

Logan is a miniature chihuahua, weighing in at less than 2.5 lbs. Full grown, his entire body can fit in the palm of my hand. He belongs to a good friend and business partner of mine, and never ceases to cause every head in the room to turn when he jumps in the air, rolls over, “speaks”, or does any of his other special tricks. Thats the fun advantage dogs have over cats – their trainability.

Tenants, like Logan, need to also be trained.

Yeah, I said it. And honestly, it felt good to say. It may sound demeaning, but it is the difference between being successful in Real Estate and being miserable. Tenants are like wild animals but with cell phones, facebook, and lawyers. They need to be poked and prodded into submitting to will of the landlord.

How do you train a tenant? Despite the urge, not with a big stick. Tenants are trained the same way as Logan was: Show what good behavior is, reward good behavior, and apply punishment when it is not followed.

The easiest punishment for tenants are found in fees. Late fees, non-compliance fees, etc. Now, many landlords struggle with applying fee’s – especially when the tenant calls and says they can’t pay rent because “so-and-so” has this sickness or their vehicle broke down or they lost hours at work.

However, it is not the landlord’s job to be Santa.

You will find that when you’re policy is to not budge when it comes to rent, suddenly all those excuses disappear immediately. When I first started in Real Estate, I went through exactly this. Trying to be the nice guy screwed me over time and time again. As soon as I made the decision to enforce every fee, late payments dropped from almost a dozen a month down to none. Late fee’s are rare now, and when they occur, tenants don’t call and complain. They know the rules.

They are properly trained.

 

Real Estate is my muse.

 

In Tim Ferris’ book “The 4-hour Workweek” he discusses the need for a “muse” in which to satisfy that little craving in our life called “money” without needing to fight rush hour, punch the time clock, or suck up to your sexist boss. (If you haven’t read my review yet or want to buy the book for yourself, click here). To quote The 4-hour Workweek:

 

Our goal is simple: to create an automated vehicle for generating
cash without consuming time. That’s it. I will call this vehicle a
“muse” whenever possible to separate it from the ambiguous term
“business,” which can refer to a lemonade stand or a Fortune 10 oil
conglomerate—our objective is more limited and thus requires a
more precise label.

 

For Ferris, it was an online business that sold nutritional supplements for weight lifters. For me, my muse is real estate.

 

A muse is simply a tool you use to generate income, that is not dependent on you working a 9-5 job to make it happen. In the investment world, we call that “passive income”, which comes to you passively (as opposed to “active income”, which – shocker – comes to you through active work). Stocks are passive income, but require large amounts of cash to begin with weak returns.

 

Real Estate, for most, is not a passive activity. Many investors are (literally) knee deep in crap half the time and saturated with headaches the other half. Buildings require work, tenants require training, and toilets will always need to be plunged.

 

But that won’t be you.

 

Hacking Real Estate is about using shortcuts, tips, techniques, and systems to turn a normally “active” investment into a “passive” muse. Its about making the choice to automate your investments. Its about making the choice to control your investments, not have them control you. Its about making the choice of how you want to live, rather than simply following the herd.

 

Your muse can be real estate, a supplement company, stocks, or an infinite number of other sources of income. The important thing is making your muse passive. This doesn’t mean you will never do any work to maintain it. It takes time, patience, and work to create a muse. But it does mean you make the continual and conscience choice to fine-tune your muse into a well oiled cashflow machine that will allow you to live the life you want.

 

“Maximizer.”

 

It was the result of a five hour test I had taken to determine my greatest personality strength, so my boss could better “guide me into paths of increasingly productive work behavior”. Out of 50 or so strengths, I scored highest in being what the test described as “Maximizer”. My first thought involved spandex, a damsel in distress, and a ray-gun to fight crime. I can handle that. The truth, however, was not so glamorous.

As it turns out, a “maximizer” is simply a person who’s goal in life is to find the shortest distance between starting and ending, thus “maximizing” results with minimal work. In other words, I seek to be get as much as I can for as little effort as possible.

Accurate? You bet.

Flash back to 4th grade. My punishment from my parents for the crime I had committed was to “write sentences”. I’m sure most of you are familiar with this cruel and unusual form of punishment, but for those of you brought up by more civilized forms of punishments like beatings and public humiliation, “writing sentences” was inflicted to brainwash a simple phrase or sentence into the heads of children by writing the words over and over and over.

Like Bart Simpson on the chalkboard, I was forced to write thousands of sentences in a notebook, stating important promises like “I will not take off my pants in public” or “I will not shave a mohawk into my sister’s hair”. That is until my maximizer strength kicked in.

In a moment of genius and inspiration(or endless boredom), I took two pencils, taped them together side-by-side, and began writing two lines at a time. This worked so well I decided to see how many pencils I could tape together and still write. The answer?

24.

My “thousand” sentences turned into just over forty, and within minutes I was finished. I was on my way to maximizing my way through life. Throughout high school, college, and my beginning years in the corporate world, I instinctively found every shortcut, trick, and tip to get things done faster and with less effort. That’s when I discovered Real Estate, and began plotting the shortest path between the life I had and the life of freedom I wanted.

I am not rich by the worlds standards, I don’t drive a million dollar car, live in a million dollar house, or have a million in the bank (yet). But four years later, I now sleep-in in the morning when I desire. I vacation when I want and where I want. I spend my days working to better my life and the life of those around me, rather than a multinational corporation that exists for the benefit of the shareholders. I am living the life that I want to live. This blog, my friends, is dedicated to teaching you how to do the same, using real estate to fire your boss, fund your adventures, and secure your future.

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