Welcome to Part III of my series, “How to Make a Million Bucks and Get Set for Life.” If you haven’t read them yet, start with Part I and Part II first. Then sign up for my mailing list and come back for Part III.
Your First Real Estate Project – How to Make A Million Bucks Part III
Making it today seems harder than ever. The economy is in transition, the old ways don’t work, and the new ways to make it haven’t become common knowledge. We face outdated advice and even outright misinformation. Not only do the powers-that-be not want you to succeed, but they also want you neatly wrapped into their machine to serve their needs. College is a great example.
A college degree these days doesn’t mean much beyond debt and a shattered dream. A ton of people are finding college degrees to be void of useful information, full of debt, and doubled down with ideological indoctrination.
Unless you stick to hardcore math and science, college won’t give you the knowledge or skills to become secure in today’s world. I’m trying to help with that right here.
Time was, the unspoken deal was you become the wage slave, borrow all the money you can, become indebted to the banks – and the ‘company’ will reward you with steady employment. But we know those days are gone.
Technology is replacing jobs quickly enough that contemplating a universal basic income doesn’t seem outrageous. Huge swaths of the economy are going to be wiped out once driverless cars become the norm. What advanced artificial intelligence will do after that is yet to be seen, but I think we can count on one thing – it’s not going to be good for most ‘normal’ jobs and careers.
As James Altucher says, now is time to Choose Yourself.
Altucher suggests finding a way to chose yourself in a creative manner, writing or developing content for others. But that’s not for everyone. While that book was inspirational to me and has certainly influenced my decision making, I realize it’s not the only path. Nor is it even the best path. However, the sentiment is one I want you to understand: in today’s world, you must choose yourself because, in the end, no one else will.
I first chose myself when I went into real estate.
Before then, I thought I did everything right. I got the internship, the entry-level job in the field I wanted, the Master’s degree and followed all the rules…until….9/11 happened.
Wall Street crumbled and with it went my dreams.
You can do everything right and still lose.
However, real estate provides an almost ideal setting for choosing yourself.
But, this is bigger than just real estate. What I want you to learn from this series is how to take a step back and look at the wider landscape. It’s not just about building buildings, it’s about building your life to suit your needs and no one else’s.
Student debt, mortgages, marriages. These are all ways to control you and keep you addicted to the salary. It turns you into a whore, no matter how much you think you love your job or your boss. And from what I can tell most of you do not love either one of those things very much.
I’m not going to tell you to start a website and make millions. I’ll let other folks float you that dream. No, what I’m going to do is show you how you can go from a job that shackles you, to a career that frees you and protects you against the future.
Is real estate a panacea? Hell no. But if you do it right, you can be prepared to weather storms and ride the waves. And the best way to get started is developing your own home first.
What I’m giving away here is priceless. You can take this plan and change your life, I did exactly the same thing. And today, every month, a check shows up which will only grow as time goes by. When I’m ready to retire, I will have everything in the world I need waiting for me…because of the work I did in my late 20’s.
Sound good? I bet it does. The security of knowing my retirement is taken care of helps me smooth over year to year fluctuations in income without losing my mind. I can draw down my savings when needed because I know I’m already set with assets. I’ve got enough stress in my life, and I’m thankful every day I worked my ass off in my late 20’s to give me this comfort. You can do this too. I’m going to tell you how. But first:
I’m giving away all this information for free, what I ask in return is that you do three things:
Sign up to my mailing list:
Share on Facebook and Twitter
Leave a comment.
Ok, did you do all of that? No, really, did you do it?
Ok, great. Now on to the next installment of the series: “How to Make a Million Bucks and Get Set for Life.”
Your First Real Estate Project
In my last post, we left off at the “Promoter.“ Let’s get to it:
Real estate deals and development projects don’t just magically appear. Someone has to identify the opportunity, secure site control, obtain financing, and then execute on building a building. The person who does this is known as the promoter. In smaller deals, they are simply the developer, but when things get big enough (like multi-millions) the promoter may be separate from the developer.
Being in control is the main benefit of being the promoter. The project is yours, the idea is yours, and the profits are yours. When projects get bigger, you will begin to share pieces of those profits with equity partners, development partners, construction managers, etc, but generally speaking, you are the one in charge. When you get more advanced, you can even find ways to make money as a promoter without any money – but that’s a subject for another post.
I’ve just thrown a lot of words at you, let me define some of them:
Equity – at risk money used to finance the project, often combined with bank debt. Can be yours or someone else’s. Third parties that provide equity funding are often called equity partners or equity investors.
Site control – legal right to use the property, whether through contract, title (ownership), or lease.
If you have site control, you have all the power.
All the power means you get all the money.
Site control is everything.
Site control doesn’t cost much to obtain. You can control a piece of real estate by making an offer which is accepted, but contingent upon certain things happening. For example, you can make an offer on a house contingent upon you getting financing. This is pretty normal. The sellers may give you up to 30 days or more to find suitable financing, and if you can’t, then you can walk away assuming your contract is set up properly (consult with a real estate lawyer before making any offers on real estate, I am not a lawyer).
And once the building is built, retaining site control allows you to decide how and when to dispose of a property.
Basically, he who controls the land controls the universe when it comes to real estate development.
At this point you may be saying to yourself “Ok – all this sounds great, but damn it sounds really complicated. Jack, are you sure this is something normal people can do? What if I don’t know anything about this stuff? What about how to actually do it?”
All great questions and I promise, I’m getting to that – but before then let’s talk about what your first project should be and why:
Your First Real Estate Development Project
Your first real estate project should be your own home. Creator mindset. You’re not just consuming real estate – turn that around and use this chance to build something of value.
By developing your own home, you become the “promoter” in your very first real estate deal. This is where you’re going to learn skills to level up from here into larger more lucrative projects.
When people say owning a home is an investment, they are lying to you. Simply buying a home, paying a mortgage and hoping prices go up is speculation – not investing.
The right way to make a home an investment is to add value to the property as I explained in the earlier posts. You can renovate and/or expand an old shitty property, or even build a new home on a fresh lot. Doing this creates value through your entrepreneurial effort and turns your home into a true investment – rather than it simply being a way for the banks to earn interest income from you.
And by being the promoter of your first project, you will learn all the bits and pieces of real estate development along the way – if you have the right mindset…which, of course, you do, that’s why you’re here. The first piece you’ll learn is financing:
Owner Occupied Financing
Real estate is a capital-intensive enterprise. It takes lots of money and usually that means borrowing money to make it happen. The easiest type of financing to get in the entire world, aside from student loans, is owner-occupied real estate debt.
When you borrow money for your own home, the banks feel more secure you won’t default and walk away from the debt. To them, it’s safer than if you borrowed it for an “investment” property. People have attachments to their homes and will generally fight tooth and nail to stay in them, even when a financial crisis hits.
When the bank’s comfort level is higher, this means it’s easier and cheaper for you. This, in turn, is reflected in lower interest rates and the ability to borrow more money versus the equity you invest (higher leverage).
If you’ve ever tried getting a small business administration loan or a commercial loan for a new business you know it is damn near impossible, unless you have the money already.
Because loans for personal residences are without a doubt the easiest investment money you can get, it makes sense to use this as a way to build wealth.
Access to capital is crucial for any enterprise and here the banks are lined up to hand it over.
How do I get the money?
Ok, here’s the rub. I can tell you what real estate to buy, how to develop it, and how to get financing for it – but there is one pre-requisite: you have to have a job first.
This may seem like a no-brainer, but it will be discouraging to those who think this is a get rich scheme, which I’ve explained already, it is not.
Your job is your ticket to financing. Without a job, the bank will not give you the money you need to buy your owner-occupied residence. The job is also how you will save enough money to make your first investment.
Yes, it takes money to make money in this regard. Real estate is capital intensive, and you’re gonna need $10,000 – $30,000 to get started depending on your market.
If you need to save, do it. If you need to borrow money from your parents, you can do that too. But I’m sorry to explain, real estate is a game that takes money and you’re gonna need some to get started.
Now the beauty of real estate is that you can take $10,000 and turn it into $250,000 worth of assets through leverage. I’ll explain how you do that in later posts, but understand this for now, real estate is all about secured leverage – I.e. multiplying the effect of your investment by borrowing.
Ok now back to “why owner-occupied residences should be your first real estate development project.”
Tax Benefits are outrageous!
We all know you get taxed when you earn income, and it sucks. You also get taxed when you make money in the stock market. But when you make money on your owner-occupied residence, you literally pay no taxes on up to $250,000 in profit.
That’s right, you literally pay no taxes on any money you make on your primary residence. The only caveat is that you must live there for two of the last five years, but since it’s your home and this is a long game – that is no problem for you.
Imagine what your salary would be like if there were no taxes taken out at all. That’s what it’s like to make money on your primary residence. And you can do this over and over again, every two years.
On top of that, every dollar you pay in mortgage interest is deducted from your income, reducing your normal income taxes as well – meaning more money in your pocket each year.
Hmm, that seems too easy?
Yes, the entire system is set up to encourage you to become a homeowner – but the system wants to create bank slaves. That’s not you.
What we’re talking about here is how to game the system to your advantage and come out way ahead, rather than be chained to a property forever “hoping” it goes up in value.
This is the way of the evolved man. Don’t take what life offers, but demand what you want instead, and in this case, that’s financial security and secure way to obtain it.
Ok, so we’ve established a few things:
- The world is a crazy place with no security and you have to choose yourself to survive.
- You must build assets and income at the same time.
- Real Estate is an investment when you add value.
- Financing for real estate is easy to get.
- Loans on real estate are cheap.
- Owning real estate reduces your ordinary income tax.
- $250,000 of profits on your first project (owner-occupied) are tax-free.
- Developing your first home as a promoter will provide a great investment, but also education on how to become a real estate developer yourself.
In future installments of this series, I will explain step by step what to look for in your first project, how to put the team together, how to finance it, and what to do when you’re finished. Real estate is a long game that requires patience and investment – just like this blog series.
Stick with me and by the end, you’ll know more than 99% of people when it comes to real estate and building a portfolio to ride into retirement.
Believe me, the satisfying sound of mailbox money showing up each month now and forever is worth the time and effort.
Until then, be sure to sign up for the mailing list, share this article and please – if you have a specific question – post it to the comments. Thanks!
Great piece this is something that I am very interested in. Thanks Jack!
My pleasure. By the time I’m finished with this, it could be an expensive book but I’m happy to share it all with you guys now. If you have any specific questions, leave em here – I’d be happy to address them. Thanks as always for the support!
Real Estate was always something i wanted to get into and being in Philly I think it is a market that can be used and sustained. Property is still fairly cheap here and neighborhoods are changing overnight. Should I be concerned about a housing bubble? I know there is chatter of it in Miami and a car bubble nationally. Thanks
Bubbles come and go. If you know your local cocktail waitress is buying multiple properties, its prob a sign to avoid the market. But generally, what I am going to teach you has built in protections to bubbles. Creating value in your property gives you both profit and downside protection. More to come!
Great series, Jack. Did two read-throughs before commenting, wanted to soak it up.
In the past, the valuation method I’ve used is basically how the insurance man values a property. I get the feeling you do differently, but you don’t seem to be strictly adhering to relative value.
Relative value is more of a guide, yeah? Something can be worth the moon and stars, but that’s only useful if you actually make the sale.
There are a few ways to value property through an appraisal. One is replacement cost – what it would take to rebuild the home if it were destroyed. Another is market value, and that’s done through comparative sales analysis where other similar properties in similar locations are analyzed and a value is projected that way. This is the most common way banks use to value properties for loan purposes. The housing market is indeed a market and assets do tend trade in predictable ways.
Please stop lying about Richard Spencer being “leader of the alt-right”. The alt-right has no leader.
Glad you haven’t forgotten about this series. Shared with a buddy looking to buy in Anacostia. Would be an interesting first property for him.
Definitely haven’t forgotten. Just been swamped with stuff! I will see this one through to the end and by then it will be more valuable than most books out there on the subject.
Anacostia is a good place to find deals which can turn into owner equity. Also great location long term with huge upside. Things are moving there already quickly.
Jack, when are you going to finish this blog series? Or write a book about it that I can buy?