How to Deal With Contractors

Contractors. Hate 'em. Can't live without 'em.

Well, most of them. I can count on one hand the number of contractors that I've ever liked to do business with. But they're the life blood of any renovation project, so you're gonna have to learn how to deal with them - sooner or later.

You may have a background in construction or have super-amazing God-given Do-It-Yourself talents. You might be able to do framing, masonry, drywall and roofing with equal skill and ease.

You're still going to have to deal with contractors from time to time, for four inescapable reasons:

1. You don't possess all the skills needed to do every task in a renovation job
2. Some tasks require licenses, permits and inspections
3. Some tasks require specialized knowledge and equipment
4. You don't have enough time in the day to do every task all by yourself

Even a light renovation can include flooring, paint, cabinetry, and upgrades to mechanical systems. Heavy "full-gut" renovations require the skills of every type of contractor involved in new home construction - and perhaps even more.

Contractors will make or break your project. Dealing with a good contractor can make your project a joy. A walk in the park. Like going through a revolving door on someone else's push.

A bad contractor will have you fantasizing about scenes from Criminal Minds.

Part of the problem is that novice investors just don't know how to find, hire, and work with contractors. They hire the wrong people, don't provide specific requirements, don't manage the work properly, and then wring their hands when the project schedule and budget fall to pieces.

The next several  posts are going to show you how to find, qualify, hire and manage contractors. We'll also talk about finances and contracts.

Remember, you can post comments and ask questions below. If there's something you really want to know, post a comment and I'll either answer it, or cover it in a future post.

Potholes #6 & #7 - Business Expenses & Taxes

The last two categories of expenses can suck a big chunk of your rehabbing profits. But they can be difficult to plan for and control, because they're not tied to any specific project. Rather, they're both governed by your annual profits and expenses.

When you're rehabbing, all your profits are considered by the I.R.S. to be ordinary income, just the same as a paycheck that you receive from a regular job.  There are two big differences when you get a paycheck though:

1. Somebody else (the company accountant) is responsible for figuring out their income, expenses, profits, and filing all the appropriate paperwork.
2. The company has already taken taxes out of your check for you - the only thing you have to do is file your personal income tax return each year.

But now, you have money coming in and going out through your rehabbing "business". Like it or not, that means you're now a company and have to do the bookkeeping and deal with the I.R.S.

To start with, your profits from rehabbing are considered ordinary income. How much tax you end up paying depends on your business organization structure and your allowable expenses.

There are three basic business structures for tax purposes. You need to have a long, quality discussion with a qualified tax accountant about the pros and cons of each. You can also Google a lot of info for free, but remember that some things are worth what you pay for them.

The three business structures are:

• Sole Proprietor - this means that you're just a regular Joe (or Jane) and everything is taxed at your regular income tax rate, just like the paycheck from your day job.
• "C" Corporation - this is the form used by big companies, who get all the cool tax breaks and end up paying less in taxes.  This probably isn't you, unless you're renovating dozens of properties and employing lots of people.
• "S" Corporation - this is a combination structure that has less accounting and some better treatment of expenses, but still ends up taxing things at your normal tax rate.  That's why you need an accountant to help you figure things out.

In any event, you need to keep track of every dollar that you spend. Is that Starbucks latte you bought this morning a valid business expense? Depends on several things. But, you can't use it as an expense if you don't have a record of it. Even if it's not a deduction, you need to keep track of your cash flow.

A good accountant can give you a list of dozens, or even hundreds, of items that might be usable as tax deductions - based on your own situation. Use that list and keep track of everything that you spend.

Remember, if you're in the 30% tax bracket, every dollar of deductible expenses that you keep track of is thirty cents you don't pay to Uncle Sam.

Speaking of Uncle Sam, here are a couple of inescapable land mines that will blow you up, if you're caught unaware.

1. Self-Employment Taxes - In a normal paycheck, you'll find deductions for unemployment insurance and social security. That's only half of what gets paid, though. Your employer pays the other half. When you're self-employed, you get to pay both halves. To be fair, though, the government used to want people to be self-reliant, and they gave you a break - the self-employment ends up being somewhat less than twice the deduction on your paycheck.
2. Quarterly Estimated Taxes - An individual files their tax return once a year, paying or getting back the difference between what they owe and what was deducted throughout the year.  But, the company actually has to file a form and pay taxes they withheld from your paycheck four times each year. If they don't, the I.R.S. will hit them with huge fines, seize their bank accounts, and even shut down the business. When you're self-employed, you are the business.

Welcome to the big leagues, Slugger.

So there you have it - a whole boatload of reasons to be worried if you're still bound and determined to jump into renovating distressed properties for fun and profit.  Education and due diligence are required if you intend to end up with anything other than an expense education.

I think we'll jump into dealing with contractors next. I could go on about contractors for weeks and months - they're one of those groups I love to hate.

Right now, I'm dealing with a failed water well at my own residence. I'm a week into trying to get a licensed plumber out here to deal with it, and getting tired of hauling in potable water.

Damned plumbers.

But that's a topic for another day.

Potholes #4 & # 5 - Holding & Selling the Property

Please pay attention, dear reader. This is critically important. These expenses can suck all the profit right out of your project, and if you're a beginner you'll never see it coming.

Sometimes, the real problem isn't in the getting, it's in the having.

In other words, you can do a bang-up job renovating your project property.  But, if you don't sell it quickly, those holding costs will eat up all your profit.

Let's say, for the sake of argument, that you bought your property for $100,000 and put $60,000 into it with the expectation that it would sell for $200,000.  You'll probably have to put about $50,000 of your own money into the deal by the time it's ready to sell.

You're thinking $40k / $50k = 80% return on investment (ROI), right?  Uh...nope.  Not even close.

You're probably going to pay somewhere between 8%-10% of the selling price for closing costs, sales commissions, etc.  So half of your profit disappears at the closing table.

So that means $20k / $50k = 40% ROI, right? Nah, sorry.

Every month that you don't sell it, you're going to pay another month's interest, plus other holding costs like insurance and utilities.

A typical renovation loan will run 4%-6% over Prime, interest only, with a 12-month balloon.  If you've used hard money instead, you may be paying 12% or more.  At 6%, a month's interest on $170,000 = $850.  At 12%, a month's interest is $1,700.

And don't forget those other pesky holding costs. We'll budget $500/month for those - making $1,350/month at 6% interest, and $2,200/month at 12%.

It takes a while to find a buyer and get to the closing table.  It'll take 2 months, if you're lucky. Maybe as much as 6 months if you're not. So, your holding costs might be as little as $2,700 or as much as $10,200.  That means your profit would be...

$17,300 / $50,000 = 34.6% ROI

- or -

$9,800 / $50,000 = 19.6% ROI

Now, don't get me wrong - 19.6% ROI is a pretty darn good rate of return in today's world. It beats the heck out of the 1% certificates of deposit being offered by banks.

But, think about the big picture. What if your project ran into unexpected problems, and you had to spend an additional $10,000?  Suddenly, your numbers change DRASTICALLY.

$7.300 / $60,000 = $12.2% ROI, if you have a 6% loan and close in 2 months.

Or, you lose $200 if you have a 12% loan and close in 6 months.

Okay, class - here's your pop quiz.  What lessons can we take from this?

1) ALWAYS know and take into account ALL your deal costs
2) Be really conservative because things will probably go wrong somewhere
3) Be fast because every month chews up your profit due to your holding costs

That's it for today's blog posting.  Stay tuned for Pothole #7 - Taxes.

You didn't forget about your uncle, did you...?

Pothole #3 - Fixing the Property

Now we're getting to the good stuff.  Fixing the property is what rehabbing is all about. And it's the part that we understand the best.  Drywall, paint, carpet - easy, peasy, right?

Not really.

This is the heart and soul of any rehabbing project.  It's often where you're going to spend the most money.  And mistakes here will absolutely decimate your profit on the project.

You start spending money right off the bat, with buying insurance.

Insurance?

Yep.  Most lenders aren't going to loan you the money to buy and fix a property unless it's insured. That insurance is only to pay the lender off if the property is destroyed. You'll also need to insure the improvements you're making, and you'll need liability insurance in case someone gets hurt on the property.

Before you can start doing much of anything - you or your contractor(s) have to pull the needed permits.  You'll have to pay when the permits are issued.

Next comes cleanout and demolition. You'll pay to have trash removed and anything torn out that you're not keeping. This will probably involve renting dumpsters and paying for hauling and dump fees.

Don't be surprised if you run into nasty surprises during demolition and cleanout. Asbestos, mold, and lead paint can be realbudget-busters if you're not expecting them.

Now you can start to fix stuff, beginning with the structure - foundation, framing and roof. When you get these in pretty good shape, everything may come to a halt until you pass your rough-in inspection.

After you fix the things the inspector pointed out, you can get the mechanicals done - heating and air conditioning (HVAC), plumbing, electrical.  Then, you'll get your mechanical inspections, which will probably require multiple inspectors.

After you pass the inspections, it's time for the finish work - drywall, cabinets, doors, counters, paint, flooring, etc. Don't forget the outside - landscaping, deck, gutters, paving, etc.

Assuming you pass your final inspection, the renovation work is complete and you can enter the next pothole, er, phase of your project.  That's a matter for the next blog entry - so stay tuned.

Or better yet, sign up to receive future blog updates via email.

Next entry - Potholes #4 and #5 - Holding and Selling the Property

Potholes #1 & #2 - Finding & Buying the Property

Before you can renovate a property, you have to buy it. And before you buy it, you have to find it. Finding the right property can be frustrating. Get used to it. Just about every part of this business can drive you crazy -- if you let it. It's the nature of the beast.

The basic game goes like this:

1. Find a property that has potential
2. Figure out the numbers to find your maximum offer price
3. Make the offer - if the seller doesn't accept, go back to #1
4. Buy the property

Most of your expenses involved with finding the property will be deductible. That means they reduce the amount of taxes that you'll have to pay. If you're in the 25% tax bracket, every buck you spend on these expenses will save you a quarter at tax time.

So, yeah, it's worth keeping track of them. And this is really, really important. You can't just guess at expenses when you're doing your tax return. You need proof.

Keep an Expenses Journal. Write all your expenses down in the journal, and you'll know exactly what you spent at the end of the year. Then, when your Uncle Sam and the Infernal Revenue Service demand that you prove your deductions - you can.

The first part of this dance is to find a property that has potential. We'll get into property hunting in future posts. Right now, we're only worried about expenses.

The most obvious expense is mileage while you're driving around looking at properties. But, stop and think about all the other things you pay for. If you use them for real estate, some portion of those items may be deductible.

Phone, utilities, insurance, advertising, computer, Internet service.

Get the idea?

Just make sure you write everything down and run the expenses past your accountant at tax time. What? You don't have an accountant?  Don't worry - you will.

Before you can make an offer, you have to know your numbers. These will include ALL of your project costs (Potholes #3, #4 and #5) and your selling price (probably based on an after-repaired appraisal).  Remember the basic business formula:

Resale (Income) - Expenses = Profit

Be sure to understand that your offer price is an expense.  To refresh your memory, these are the seven major categories of expenses:

1. Finding the Property
2. Buying the Property
3. Fixing the Property
4. Holding the Property
5. Selling the Property
6. Business Costs
7. Taxes

The expenses related to a specific project include categories #2, #3, #4 and #5.  The other three categories - #1, #6 and #7 are general expenses, not usually tied to any specific project.

The basic formula for finding your offer price is:

Offer = Resale - (Expenses + Profit + Contingency)

Your project's expenses will include all the costs of Buying, Fixing, Holding and Selling the property.  For this formula ONLY, Buying Expense won't include your offer price - just your closing costs.

Profit is pretty self-explanatory.  You need enough profit to pay your Finding Expenses, Business Expenses and Taxes.  Anything left over is NET PROFIT. Finally, something you can spend.

But what is Contingency?

No matter how good and detail-oriented you are, you're going to miss something or get surprised. That's Contingency. I always budgeted an extra 10% of all my Fixing and Holding costs, as a Contingency Fund.  By the way, bankers loved it.

I need to direct your attention to the Buying Expenses category.  Your offer price will have two pieces - the Earnest Money Deposit that you give to the seller when you make an offer, and the balance which is payable at closing.

In addition to the purchase price, there will be several costs that get added at closing time.  I usually budget about 2% of the purchase price to cover these additional expenses.

When you're buying distressed properties, you'll discover that sellers sometimes don't have the ability or willingness to pay their part of the closing costs.  The seller's closing costs can run from 3% to 10% of the purchase price - or more.

You might have to agree to pay the seller's closing costs in order to get the property. If so, don't forget to add them to the Buying Expenses.

That's enough for today's posting - but there's a lot to think about here. 

Feel free to ask me questions or suggest topics for future posts. You can post comments or send me email below. If you want blog postings delivered to you automatically, enter your email in the box to the right.

For more in-depth conversations and questions, check out our LinkedIn discussion group by clicking on the DISCUSSIONS tab at the top of this blog. Also check out the RESOURCES tab.

And stay tuned for the next posting when we'll dig into expense related to Fixing the Property.

7 Potholes In Your Road to Rehabbing Success

For which of you, intending to build a tower, sitteth not down first,

and counteth the cost, whether he have sufficient to finish it?

- Luke 14:28 (KJV)

Rehabbing is another name for renovating older residential properties.  It's the way that most of us get started in real estate investing.  This kind of deal sounds pretty simple, at least at first.

Well, I hate to bust your bubble, but it's not simple.  Rehab deals are complicated, and there are a LOT of moving parts.  Mistakes will cost you money, reducing your profit.  And most novice investors under-estimate the costs, thereby over-estimating the profit they'll make.

There are seven (7) major categories of expense in any rehab project.  Remember our business formula from earlier posts?

INCOME - EXPENSES = PROFIT

These seven categories added together make up your Expenses.  If you under-estimate any of the costs in these seven categories, you won't make as much profit as you had planned.

You might want to think of these seven categories as potholes in your road to success.  You're going to hit all seven, so you might as well plan the best you can.  But if any pothole is bigger than you planned, it'l knock the front-end (profit) right out from under your project.

These seven categories of expenses are:

1. Finding the property
2. Buying the property
3. Fixing the property
4. Holding the property
5. Selling the property
6. General business costs
7. Taxes

I'll be drilling down into each of these categories in the next seven blog posts. 

As an investor (and businessperson whose goal is to actually make a profit), you must, MUST, MUST understand and carefully calculate each and every one of the costs in each category.

Here's an example of the impact unexpected expenses will cause.  Let's say you bought a property for $120,000, plan to sell it for $200,000, and expect to make a profit of $15,000.

$15,000 is an 8.1% Return On Investment (ROI), based on the total investment of $185,000.

Assuming that you put 25% of your own money into the deal and financed the rest, your actual ROI would be 32.43%.  That beats just about any other type of investment - savings accounts, certificates of deposit, the stock market, etc.

So, in the back of your mind, you're anticipating this 32% return on your money and feeling pretty darn good about life in general.  Unfortunately, the project doesn't go as well as planned.  The costs run over for roofing and drywall.  Some unexpected problems in the basement have to be dealt with.  In the end, you don't make $15,000 profit.  You make $5,000.

That takes your ROI down to 10.3% ($5,000 / $48,750).  If you end up paying 30% in taxes, it actually means your after-tax ROI is about 7.2%.  And you will have spent every waking minute for months and months working and sweating over the deal.

Suddenly it doesn't seem like such a cake walk, does it?

A $10,000 mistake doesn't sound that big on a $200,000 deal.  But it knocked your profits down from $15,000 (32.43%) to $5,000 (10.3%). 

It's a numbers game.  You have to count the cost, and then manage EVERYTHING to make sure that the project doesn't spin out of control.

So stay tuned, and we'll take a deeper look into each of the seven expense categories in the next few blog posts.

In the meantime, feel free to post comments or send me suggestions for future blogs.

If you know anyone who's interested in real estate investing, be sure to tell them about this blog.

And, I'm going to set up an open discussion group on LinkedIn.com where folks can post and discuss real estate questions and issues.

Be sure to keep watching for the next update of this blog (or subscribe with the box on the right if you'd like to receive updates via email).

How YOU Can Turn $1000 into A Million Dollars

Real estate investing has been around since before Columbus convinced Queen Isabella to hock the crown jewels to fund his first voyage.  But it never really struck the fancy of John Q. Public until 1959, when William E. Nickerson published his seminal book on real estate investing, How I Turned $1,000 Into a Million in Real Estate -- in My Spare Time.

Actually, in today's dollars, the title should probably be How I Turned $50,000 into Fifty Million in Real Estate -- in My Spare Time.  A grand just doesn't go as far as it used to -- inflation and all.

It's a good read, and it's been updated a few times over the years.  You should get a copy from Amazon. It's a great place to start because it's based on plain old common sense, not some self-annointed guru's "magic secrets" to "untold real estate fortunes".

In this book, Nickerson lays out a simple, step-by-step plan that should inevitably lead the investor to success, ending up with a really respectable nest egg.  It only requires:

• Money -- you'd need about $50,000 to get started in today's dollars
• Credit -- you would need leverage (bank financing) to purchase properties
• Time -- this plan takes years to accomplish, but you get to retire rich

Let's face facts.  In today's world, most people don't have the initial investment and they're not willing to work diligently for decades in order to realize their dreams.  That's why shady ne'er-do-wells make millions of dollars hawking courses on how to Buy Properties With No Money Down or Make Your Fortune Flipping Properties.

Everyone wants something for nothing and they want it yesterday.  There are just too many people looking for a free ride.  Our generation is cursed by a general feeling of "entitlement".

Reality check -- nobody "owes" you anything.  If you're not willing to earn it for yourself, get used to going without.  Fortune favors the prepared and the hard working, not the whining wannabe.

Nickerson's plan is pure simplicity.  Here is the gist of it:

1. Find a house that needs some work but is basically livable.
2. Put 25% down on the property and get a bank loan for the rest.
3. Fix up the property while you're living in it
4. After a few years, sell the property, realizing a profit
5. Repeat

I knew a woman who used this formula.  When she and her husband finally retired, they owned ten rental properties free-and-clear.  They had no mortgage payments, just ten rental checks coming in every month.

Talk about a comfortable retirement...

After her husband died, she got tired of managing rentals and sold them all.  I bought one of them.  She took all the cash and bought herself a very, very comfortable home to live in - and paid cash for it.

That'a what discipline and time will do for you.  And it's within the grasp of anyone who's willing to do the work and give it the required time.

There are a lot of related topics that I'll get into in future blogs - leverage, banks, inflation, equity, rehabbing, home improvement, gurus, etc.

For now, try to find a copy of Nickerson's book (HINT -- they still have these big buildings where you can borrow books FOR FREE -- I think they call them "Libraries").

And here's a freebie.  If you like Nickerson's book, try to get copy of The Millionaire Next Door.  It's not the most exciting book in the world but I consider it to be mandatory reading.  It's another book that will probably open your eyes to new possibilities,

THE BUSINESS OF INVESTING

Investing means to put your money to work with the anticipation of making a profit.  If you're not in it for the money, then it's just a hobby - not a business.

The basic rule of business is pretty simple:

INCOME - EXPENSES = PROFIT

In other words, what you make (income) minus what you pay (expenses) equals what you keep (profit).  Simple, right?

Yeah...not really.

Novice investors think it's simple and overlook important details.  They make mistakes.  It doesn't take much of a mistake to wipe out all the profit in a real estate deal.

Many new investors don't realize that there are two primary types of real estate investing - and these two types of investing are very, very different.

Most investors get started buying, renovating and selling single family homes.  This has come to be known as "flipping" a house.  In reality, this buying and selling isn't that far removed from many other types of business - from car dealerships to grocery stores.  I call it Merchandising.

In merchandising, you buy something then sell it for more money than you paid.  In real estate, an investor almost always changes something to increase the value.  There are many different ways to increase the value of real estate.  None are free, and therefore they eat into your profit.

In addition to the cost of buying and improving the property, you'll have closing costs when you buy and sell, business costs like insurance and accounting, and taxes.  At the end of the day, it can seem almost impossible to end up with anything resembling a profit

Let me be blunt here.  During the real estate craze, there were several "reality" television shows about improving, renovating and "flipping" houses.  Other than Hometime and This Old House, most of these shows were crap.  They built up false hopes and unreasonable expectations in the minds of untold numbers of well-intentioned, hard working novice investors.

And that's the reason I decided to start this blog - to try my dead-level best to cut through the crap and tell you the way things really work.  My goal is always to give you the plain, unvarnished truth (as I see it).  If you disagree, feel free to call me on it.

Sorry for the rant.  Now back to our scheduled programming -- 

The other kind of real estate that everyone knows about is rental properties.  I'll refer these kinds of deals as Landlording.  You own a piece of property and someone pays you to use it.

Obviously, rental properties like single family homes and apartments fall into this category.  So do parking lots, campgrounds, office buildings, shopping malls and self-storage units.

There is a huge difference between Merchandising and Landlording.  Merchandising is always speculation - you're hoping to turn a profit.  But Landlording is a business.  It's all about cash flow - money in and money out, month after month after month.

Merchandising can crush you all at once, in one fell swoop.  But Landlording can seem like death by a thousand cuts when it goes wrong. 

Even though Merchandising and Landlording are vastly different types of investing, the basic rule of business still applies to both.

Income - Expenses = Profit

If you're not in it for the money, you should save yourself a world of pain and frustration. Do something fun with your money instead of messing around with real estate.

Buy a boat or a motorcycle.  Take a European vacation.  Invest in old coins or antique musical instruments.  You'll have more fun, and will probably end  up with more money.

However, if you're still with me - then stay tuned for future postings.  The key to making profit is to really, truly, deeply understand your business - whether you're a Merchandiser or Landlord.

We're going to jump into the deep end of the pool for both types of investing.  Stay with me until the end and I promise you'll be able to structure your real estate deals with a better-than-average chance of turning a profit.

And that's why you're in this game, after all.

NOTE: If there's anything you'd like to see discussed in this blog, please use the contact form below to send me a message.

AIM FOR THE BEST...

...but plan for the worst.

Things don't always work out the way you want them to.  And to be brutally honest - when it comes to real estate, things RARELY work out the way you planned.

If I were putting my own money into a real estate project today, I would do things differently. Most importantly, I would prepare two plans - a Best Case Scenario and a Worst Case Scenario. My goal would be simply to survive the Worst Case Scenario.  Anything better would mean profit.

When planning a deal, we would prepare an in-depth analysis, project plan and cost breakdown. We had to give this information to our lenders before they would underwrite the project. And, we'd use the information to track how we doing throughout the job.

Usually the money we needed was escrowed (held by the bank) and would be released as we needed it. This means we'd usually pay the bills or put them on credit, and write a weekly draw request for the bank to release needed funds.  Then we'd  pay the bills or reimburse ourselves for items we had paid.

When a project was on schedule with no surprises, this worked out pretty well.  The banks liked us, and they liked the way we did business.  Finding the money wasn't a problem.

But, when things went sideways, it could get a bit dicey.  Banks get nervous when you're spending their money faster than planned, or you're not making progress as fast as you planned.  But, bring the project back into line, and you're golden again.

Our crisis hit when our renovated properties stopped selling.  Over the course of six months the market just completely dried up.  You couldn't sell residential real estate for fifty cents on the dollar.

One of the dirty secrets about renovating properties is that the end of the project is the most expensive part.  You've spent all the money and you're paying interest on it each month.  Plus, you're paying other costs like insurance and utilities.  All the expense of owning a home with none of the benefits.

Those holding costs eat up your profit FAST.  To top it off, most of our renovation loans were one-year interest-only loans.  When the year was up, we were obligated to pay the original amount of the loan in full - whether we had sold the property or not.

The only way to handle the bank "calling the loan" would be to refinance.  We had a couple of banks who were willing to consider doing that, because of our history of working with them.  And we had one bank who didn't care - they just wanted out.

They foreclosed.

And that foreclosure was the straw that broke the camel's back.

You see, we only had a Best Case Scenario plan.  That plan was:

1. Buy a distressed property with a one-year, interest only bank loan
2. Fix the property
3. Sell the property
4. Pay the bank, taxes, etc.
5. Rinse and repeat

When step 3 broke, the rest of the plan fell apart.  We didn't have a parachute in case the plane decided to go down in flames.  We didn't have a Worst Case Scenario plan.

For a residential single-family home, your Worst Case Scenario probably would include keeping the house, converting it into a rental property, and converting to long-term financing.

If we had developed Worst Case Scenario plans, we might have been able to ride out the storm and come out the other side holding a stable of residential rental properties.

Let's be honest.  I DESPISE rental property.  I HATE  having to fix the plumbing or heating system in the middle of the night.  And government has pretty much decided that landlords are evil and should be ground into powder, all for the benefit of endless deadbeat tenants.

But - and I can tell you this from hard-won experience - managing rental properties beats the HELL out of filing for bankruptcy.

So - when you start lusting after those untold profits from investing in residential real estate, the best thing that you could do is to sit down with a blank sheet of paper and write down EVERYTHING that could possibly go wrong.

Then make a plan to handle everything going wrong - all at once.  The goal is simply to survive.

Anything better than that, and you win the game.

A NEW BEGINNING

May, 2009.  Bankruptcy court.  The end of my real estate investing career.

I stood there, waiting for my final discharge, feeling crushed under the weight of failure.  My retirement plans were decimated.  I'd be working my regular day job for many more years, just to replace the half million dollars or more that evaporated when the real estate bubble burst.

Don't get me wrong.  We weren't writing bad mortgages and we weren't involved in predatory lending.  We were doing solid, honest, GOOD work.  We specialized in neglected, trashed, vacant properties.  We bought them, fixed them, and sold them.  We took unloved, unwanted, empty pieces of trash and turned them back into clean, safe, modern homes that anyone would be proud to own.

We even won two awards for our renovation work in historical districts - in Mercersburg, Pennsylvania, and Hagerstown, Maryland.

In other words, we thought we were doing everything right.  And we would have been fine, except for that damned real estate bubble.

By summer of 2008, I knew something was wrong.  Our properties weren't selling.  The Days On Market grew and grew - 90, 120, 180 days.  And the streets were literally blanketed with For Sale signs.  Nothing was selling, anywhere.

The barn was on fire, and everyone was running for the exits.  Everyone trying to sell and nobody wanting to buy.  We tried everything we knew, and even sold a couple of properties at a loss just to get out from under them.

We were robbing from Peter to pay Paul.  Financed to the hilt, with the river rising, and just managing to keep one nostril above the flood - until one of the banks who held our loans was sold.  The new bank wasn't interested in working with us to restructure the debt.  They just wanted completely out of any real estate loans and didn't care if they had to take a loss in the meantime.

Like a house made of dominoes - the first fell, then the second, and the third.  The end was inevitable and inescapable.  When it all went to Hell in a handbasket, we had three single family houses and a 3-unit multifamily building on the market.  We lost them all.

I had robbed my 401k and the equity in my home to ride out the storm.  And, I took a loan against a 4-unit apartment building that I owned. When it all came crashing down, I kept my home but nothing else.  I lost the money I had taken from my 401k and my apartment building.  I'm still paying the second mortgage I took out on my home.

And then, I went back to my old life.  Working 40 hours a week for someone else, watching the days crawl by.  And never, ever giving real estate a second thought.  It was a closed chapter of my life, buried under the sand of time.

But I never, really got over it.  Deep down inside, I still love real estate.  There's nothing quite like taking a busted down, ramshackle pile of crap and bringing it back to life.

Life's a circle.  What goes around comes around.  After several long years, the real estate market is starting to heat back up.  And just like seeds sprouting in the summer sun, I've already seen the inevitable new crop of self-appointed real estate gurus starting to hawk their "secrets".

If someone wants to sell you his "secrets", the best thing to do is plant your foot firmly in the area of his family jewels, grab your wallet with both hands, and run like hell.

That's the main reason I decided to crawl out from under my rock and start this blog.  I don't have a course to sell you.  I'm going to try to help anyone I can, for free.

Actually, in the interest of full disclosure, I did write a course called, "How to Find All the Money You'll Ever Need".  It was a course on real estate financing for the investor, and it was pretty well received.  In the end, my techniques were one of the main reasons we crashed and burned.

So - I'm not going to tell you I'm some exalted guru with magical secrets.  There are a thousand ways to make mistakes, and I've made some doozies.  But here's the deal.  If you learn from MY mistakes, you won't have to make those mistakes yourself.  Trust me, learning from me is going to be a lot less painful than stumbling around in the dark, making your own mistakes.

Experience is that wonderful ability to recognize

a mistake when you're making it again.

Learn from my experience.

Here's how this is going to work.  Every few days, I'll write about something that I think is important or strikes my fancy.  Trust me, I have plenty of material.

If you have a special interest or question, use the box below to email it to me.  I'll try to answer all the questions I get from you guys - at least those that deal with real estate.

If you'd like to receive an email notice of new blog posts, leave your email address in the box to the right.  If you know of anyone else who'd be interested, please tell them about this free resource.

And here are the rules:

1. I'm not going to give or sell your contact information to anyone for any reason.

2. I'm not selling anything.  In the future, I might write a book or something.  We'll have to see how this all works out.  If I do write something in the future, I'll probably tell you about it and give you a discount or something for putting up with my nonsense.

3. I don't care if you disagree with me.  If you think I'm wrong, call me on it.  You might just be right.

4. Be nice.  I'm the only one allowed to be a jerk here.  If you try it, I'll kick you to the curb so fast it'll make your head spin.

Anyway - if you've found this blog, good reading.  I hope it helps you out a little bit.

Either that, or you'll give up on your fevered dreams of untold fortunes from investing in real estate.

And that ain't too bad, either.