A letter to me
By Vena Jones-Cox

I started investing in real estate in 1989. I was, well, young. Really young. Young in the sense of chronological age, but also young in the sense that I lacked both experience and perspective: I grew up in a family that ran a mom-and-pop landlord business, with a father who had the depression-era mentality of, “Money is for having, not for spending”—a philosophy he applied as much to his real estate business as to my desire for $90 jeans.

Like most of us, I wish I’d known then what I know now. So my goal for the rest of the year is to invent a time machine that will allow me to go back and deliver this letter to my 20-something self.

Dear Vena;

I am your future self. I have some things to tell you that will make you a lot more successful a lot faster and a lot more consistently.

You won’t believe me, because what I’m going to tell you flies in the face of what you’ve learned, or think you’ve learned, about real estate—but your future experience will show you that what I’m going to you is true, whether you follow my advice or not.

First, let me assure you that real estate investing was the right choice for you. I know you’re thinking about a lot of other opportunities—using your real estate license to list properties, for instance. Don’t bother: working with traditional buyers and sellers is a lot harder and a lot less lucrative than buying and selling properties for yourself.

In fact, you’d do well to avoid getting distracted by ANY of the “opportunities” that you’ll be presented with over the next few years—I know you get bored easily, but there are plenty of things to learn and shiny stars to chase within the real estate business itself. Focus on your core business—learning it, expanding it, and systemizing it.

Speaking of which, the other thing you need to be studying, right now, is business.

You know very little about how to run a real business, because what you’ve observed dad doing is working a very time-consuming real estate job. It’s neither necessary nor desirable for you to do everything that needs to be done to buy, finance, manage, rehab, or sell properties. IN fact, you’ll make more money if you don’t try.

Nor, despite what you’ve seen our father do, is it good to hire other people to do those things and then micro-manage those people. I know you think that you do everything from negotiating with sellers to balancing the checkbook to filing better than anyone else possible could, but that control-freak mentality is going to handicap you.

Read a book called “The E-myth Revisited” by Michael Gerber. Pay special attention to the part about systems, and about Key Performance Indicators. Note that “how much money do I have in the bank?” is not a good Key Performance Indicator.

I know you “can’t afford” an assistant. Do the math though: how many more deals could you do if you weren’t answering the phone every time a potential tenant called, and repeating the same salespitch over and over? How much more money could you make if you weren’t the one sitting around for an hour as those same potential tenants DIDN’T show up for your appointment? What if you didn’t have to balance the checkbook every week? One extra deal every 2 months would more than pay someone to do this.

Which reminds me: DON’T HIRE YOUR FAMILY. OR YOUR FRIENDS. And for God’s sake, NO PARTNERS! I know, it seems a lot easier than finding a stranger you trust, but unless you want to fight with the people you love for the next 20 years, resist the urge. And I know that a partner seems cheaper than an employee—you don’t have to pay him unless the business makes money. Plus, he can do all those things you don’t like to do, like sell and negotiate. Until he doesn’t, and you end up doing it anyway, and you STILL have to give him ½ the profits because you can’t fire a partner (especially when he’s also friends/family). Just. Don’t.

Let me tell you where your dad was right: rentals are a great way to build wealth in the long term. Buy them cheap, have a strategy where you have no cash in them (buying and fixing with private money, then refinancing at 70% of fixed up value will work through about 2008—after that, you’ll have to use cash partners), and then aggressively manage them until the tenants pay them off. You won’t be able to live off the income until they’re free and clear—remember, dad had a high-paying job for the first 14 years he was in real estate, and then made $100,000 a year teaching classes until his properties were paid off—but they’ll support you very nicely after the mortgages are gone.

Come to think of it, don’t buy any rentals from 2005 to 2010. Don’t refinance anything during that time, either. Even at 70 cents on the dollar. You’ll see why later.

Now let me tell you where he was wrong. Rentals aren’t all you need—you need a strategy that will generate cash, regularly and predictably, and damn the taxes. You won’t like retailing, so don’t even try it. Wholesaling is your answer. Look it up. And yes, it’s just as easy as Ron Legrand says.

He was wrong about rehab too. Don’t pay workers by the hour. Don’t always look for the cheapest solution. It’s often cheaper in the long run to replace the (furnace, roof, appliance) than it is to do a band-aid fix and keep fixing it over and over and over. It will cost you more to hire contractors and do the renovations right to begin with, but you’ll get better tenants and have a lot less headache. Just build the extra cost into your purchase price.

And by the way—when you buy a rental, make sure you have the money to fully stabilize it immediately. No more “We’ll replace that 19 year old roof when it starts leaking”. Do it when you buy it, or don’t buy it.

You’re going to find out pretty soon that teaching is your passion. It will take you longer to figure out that people will pay you for it, and even longer to feel OK about charging what it’s worth.

Listen to others when they tell you you’re not asking enough for your seminars. Listen to them when they tell you that you need to tell people to buy. DON’T listen to them when they tell you to do nothing but pitch. DON’T listen to them when they tell you it’s OK, or even desirable, to be less detailed or thorough in what you teach. Yes, you’ll do a lot more work and yes, people who have less experience and poorer quality product will make millions while you make thousands, but you’ll attract the RIGHT people—people who are serious about the business, and who can later be sources of deals, and money partners, and who will pay you the big bucks for coaching.

Don’t hold any events that cost you a lot of money from 2007 to 2010. You’ll see why.

Don’t live off of every dime you earn. You’ll need cash reserves for those rentals—at least a few thousand per property. In the bank. In an account with no ATM card. In addition to that, you’ll need 6 months worth of living expenses in reserve. And don’t spend that on another property, no matter how good a deal it is. I know you think that you need all the money you’re earning right now, but when you look back on the things you spent that “necessary” money on, you’ll wish you’d just kept it instead. Example: the potbellied pig. Just don’t.

Here’s a philosophy to live by: buy when others are selling, and sell when others are buying. You’re going to see a couple of recessions and expansions in the next 20 years—don’t let them scare you. You’ll get your best deals when no one wants to buy real estate. Don’t avoid the market during these times—just plan to hold and rent for a few years, then dispose of the properties when the economy recovers. Dad was right about something else: when people aren’t buying, they’re renting. It’s a no-lose scenario, as long as you never leave the market. Except in 2007.

Because you’ll experience the greatest real estate bubble in American history from 2001 to 2007. After that, you’ll experience the greatest crash in history. By 2009, you’ll be buying properties cheaper than you are right now. Seriously. And a few other words of wisdom: buy as much Phoenix real estate as you can from ’03 to ’05, then dump it. Also, short the following stocks in ’07: FNMA, Citigroup, Bank of America. It’s OK to use your reserves to do this, because, trust me, you’ll be set for life when you do.

Above all, be flexible.

Many of your friends and colleagues—even those that you consider successful—will lose everything when the market changes. Not because they’re not smart, but because they can’t reinvent themselves fast enough. Make sure that you absorb every bit of education you can, continually, because that’s what’s going to save your butt. The more you know, the more creative you can be about financing, selling, renting, and more.

When one thing stops working—or better yet, when it STARTS to stop working—do something else. When the bank money dries up, use private money and partners to buy and rehab. When the lease/option market goes away—and it will, when everyone with a pulse can buy a house—sell your properties outright, instead. When your wholesale buyers can’t get the money to buy from you, provide financing for them. When values on single families get driven up to beyond what you can reasonably pay, buy multis.

Don’t be afraid. You can’t see the future, but I can see the past. This business is more fun than you can imagine and more challenging than you’re prepared for, but in the end, it’s more rewarding than anything else you could do.

Love,

Vena

P.S. Speaking of love, let’s talk about who you should and shouldn’t date…


Reprinted with permission of Vena Jones-Cox. To get more free articles and tips, subscribe at www.TheRealEstateGoddess.com