How to Make A Million Bucks and Get Set for Life Part II

This is Part II of a Series – Please check out Part I here first if you haven’t already.

How 9/11 Ruined My Career and Forced Me to Build Again

It was 2001. I just spent four years of my life working towards a job on Wall Street as an investment banker.  Working for a local hedge fund Washington, DC trading bonds and currencies while I went to grad school full time, I was prepared to make the big jump to NYC as soon as I graduated.

I interviewed with Goldman Sachs, Lehman Brothers, Citigroup and other big names. Everything was looking good. I had verbal offers from Goldman Sachs, and I thought I had it made. Then 9/11 happened, and everything fell apart.  After years of working towards this one goal, forces outside of my control changed everything.  No one was hiring while the city smoldered. My dream went up in smoke with the twin towers.

(Ironically, I did finally get my dream job on Wall Street..only it was a year later, and I had already built my real estate business. I turned the job down.)

The drive and urge to succeed I had marshaled into getting to Wall Street still pushed me forward. I was in my mid 20’s, hungry and wanted to get rich. I wanted to be powerful. I wanted to be a big swinging dick.  So I reoriented my focus back to Washington, DC.  What could I do?  How could I make the money I wanted from Wall Street?

From Finance to Real Estate in a Flash

Around that time the real estate market in DC was starting to take off. I learned a little about it as I shopped for my first house. People were acquiring shitty old houses and turning them into luxury homes. And the people doing it seemed like absolute idiots. I saw them making hundred’s of thousands of dollars and thought if they can do it, so can I.

In the blink of an eye, I went from being in finance to being in real estate. I quit the replacement job I had secured after grad school as Wall Street went into a hiring freeze, and plunged myself head first into a new market. Being the meticulous guy that I am, knowing that a plan is essential to any endeavor, I started with a business plan.

And a Plan is exactly what I’m going to give you. By the end of this series you will have a basic understanding of real estate development, a plan on how to get started doing the same thing I did, and a few tips and tricks I learned along the way.  This way you can learn from my writing the things I learned the hard way. As you know, the hard way can include losses, fights, and even lawsuits.  But I’m going to give you the goods so you can succeed without making the same mistakes I did. All for free. 

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My Real Estate Development Plan

My plan focused on two main concepts.

1. Earn Income
2. Build Assets

I wanted to be a real estate developer, not just a house flipper.  House flippers buy “dirty” or “tired” homes, update them quickly, and then resell fast. They are only earning income with each project, taxed as income, and they are dependent on finding the next deal. Not only that, they are entirely dependent on buying houses “wholesale.” 

Wholesale houses are properties which are not ready for retail (top of the line) sales. These are often purchased from distressed sellers or someone who is experiencing a crisis which forces them to sell and sell quickly. Death in the family, sickness, foreclosure – things like this lead people to sell to wholesalers.  Ever seen a sign that said, “We Buy Ugly Houses”?  Call those guys, and they’ll show up in an hour offering to buy your house at a major discount, but often for cash with a very quick turnaround. What you get in speed you pay for in a discounted sales price. It’s a messy business. Unsavory to me. Taking advantage of people in their moment of crisis is not something I enjoy.

I wanted something different. I wanted to create value where the was none and build a sustainable portfolio that would grow over time. Instead of depending on a deeply discounted purchase price, the wealth comes from adding value to complicated situations, bringing capital and expertise, or simply having the patience (pockets) to play the long game.

See, the big money in real estate comes over time as the rents you charge pay down your debt. Eventually, you’re left with a real estate asset that has no mortgage. That’s when things start to get really interesting.

As you build assets, you still have to feed yourself and your family, however. Thus, earning income along the way is essential. How could I build assets through development plus make living money at the same time?

We will return to this question later, as it is the key component to my plan: build income generating businesses which provide cash flow and at the same time, give me an advantage when developing properties.

First, let’s define a few key concepts.

What is a real estate developer?

Real estate is an asset class just like any other.  It has a value. It has an “as-is” value and a “highest and best use” value. A run down house, an empty lot, or an abandoned commercial building is undervalued relative to its highest and best use. Maybe a building could be renovated, expanded, or improved in some way – this is how you “add value” to real estate: bringing it closer to the highest and best use as determined by the market.

Often, the best real estate opportunities are the most complicated projects. Sometimes that means asking the local government to make an exception from the law for your plans (zoning variance), or it means solving an environmental problem (cleaning up an old dry cleaning site) or working in tight, awkward spaces (urban in-fill).

The bigger the problem, the bigger the rewards. If it were easy, everyone would be doing it, and there would be no margins.  Bringing expertise, capital, and patience is where the long-term real estate developer makes the most money.  But it takes baby steps to get there, especially when you’re new to the game, and that’s what this series is about:  the plan to go from zero to $1,000,000 in real estate, the right way.

What does it take to develop real estate?

Solving big problems, building buildings, and selling/leasing (disposing of) them requires a team with a deep bench. Think of the developer as the owner and manager guiding a team to victory.  This team can have many essential members.

An incomplete list:

• • • • Architect / Designer
      • Real Estate Broker
      • General Contractor
      • Specialty Subcontractors
      • Lawyers
      • Engineers
      • Lenders
      • Equity Partners

A developer’s job is to find the deal, hire the team, get the money, and make it happen.

This is also known as being the “Promoter.” 

As projects get bigger and more complex, the promoter may even hire a separate developer to manage the project on their behalf.

If there is one person you want to be in a real estate deal, it’s the promoter.  The promoter makes the best returns, guides the project according to their vision, and is in complete control. Being the promoter is where it’s at. But, it takes knowledge and experience to promote big life-changing projects. They don’t teach the real way to do that in school.  The only way to learn is through experience, starting small and growing.

I started out by doing little projects and eventually grew into being the promoter, developer, designer, builder, and broker – wisely getting paid income while growing assets at the same time.

That’s what this series is about.  How to start small and expand your toolbox into something which can build a secure retirement-ready portfolio of income generating assets sending you mailbox money every single month…forever.

I want to share this with you because I think this is a realistic way to become an independent man in today’s world.  My wisdom is your wisdom.  I’m here to share, to build my crew up, and give you guys a leg up on everyone else.  Whether it’s making money, taking care of your relationships, or navigating the new political environment – Jack Murphy Live is here to show you the way.