“Guru Review” - Than Merrill

I’ll save you the Google search, Than is short for Nathaniel.

I saw Than speak at Larry Goin’s Investorpalooza (yes - Investorpalooza) in January 2008.  He was the opening speaker and he annoyed me to no end.

Maybe it is something national speakers are taught to do when the have the opening 8:00 AM session at these events - audience participation, to make sure they’re alert and not snoozing.  I mean really, how can push your product to someone trying to attain REM mode?  Than’s approach to audience participation was not to ask them a question and to have them all shout out some canned response he’d set up at the beginning of his presentation.  His approach was to make a statement, and then ask the audience to repeat the “key words” of that statement.  He did this SEVERAL times.  For example, Than has 2 systems and he’ll be talking away and make a statement like “… I have two systems.  How many systems?” and the sheeple respond together with “Two!”  Two systems!  Wow, I’m on the edge of my seat…

Than spoke for 90 minutes and I wrote down 4 things.  That’s not good, most of what he talked about was the basics most beginning investors can learn for free.  Most speakers with a product to sell will give you little nuggets of information used in their system and to get the rest of the story, you need to buy their product, sign up for a mentoring program with them (first 12 to the back get one-on-one sessions…), blah blah blah.  The 4 things I wrote down were 1. Track Marketing - I also noted I could do this on a spreadsheet).  2. Objection scripts - part of his TWO systems.  3. Buyers list is most valuable asset - can’t argue that. 4. Market general benefits vs. features - good nugget, when showing a home to a potential buyer, don’t harp on the stainless steel appliances and the nice new deck (features), concetrate on the benefits - close to work, shopping, interstate access, quiet neighborhood, good schools - whatever is a benefit to living there.

I did write down one more thing, and that was Than has one of the “Flip This House” teams on A&E.

That’s my review of Than.  I didn’t buy either of his TWO SYSTEMS and he should never be allowed to do an opening session at this or any similar event again.

Real Estate “Guru” Reviews

There are a lot of real estate “gurus” out there, most specializing in a specific niche market.  If you’re attending your local REIA meetings regularly and they are bringing in these gurus to speak at the meetings, then you’ve probably heard some of these people speak.

Here’s the typical real estate guru: they start out with how they started investing in real estate, give you some nuggets of information, then start selling you their product.  When they’re done, their product and bonuses cost as much as some mid-sized cars, but they sell it for one price on their website, but for tonight only you get it at the incredibly low price of $997 (or whatever).  If you decide their product is not for you, you can send it back opened, marked up or completely UNOPENED (it’s SELF help people, not SHELF help - you have to open the package before it can help you), keep the bonus material, and they’ll send you a refund.  Then they’ll ask you if you’d like to know how to get the product for free.  After a loud “yes” from the audience, they head to the back of the room and say “Follow me to the back and I’ll tell you how to get it for free,” which usually involves working their system and doing it successfully in a certain amount of time, send them a copy of the check and a testimonial to get a refund.

There are some speakers who do not follow this standard, and that’s a refreshing change.  I think the whole “follow me to the back” routine is asinine, but it does work.  I just wish they’d turn off their microphone, because it’s annoying to hear them answer questions, especially since we don’t know the questions being asked.

I will be individually reviewing gurus that I have seen or listened to in interviews with other real estate experts and let you know my opinion of them and their product.

Real Estate Investor Associations

When you get into this business of real estate investing, one of the best things you can do is to join your local Real Estate Investors Association (REIA).  To find group(s) close to you, visit www.nationalreia.com, click on “Find A REIA” on the left, click on your state and then find the group(s) closest to you.  There are costs to join, for example my REIA group is $150 to join, $99 renewable after that.  Add a spouse for $25.  Visitors pay $15 and that can be applied to a membership if you join that night.

REIA groups offer a chance for you to network with other investors and visit with vendors to see what they have to offer.  Some REIAs have a deal table where other investors bring deals they have to offer to other investors.  REIAs also offer education and this is probably the main reason for their monthly meetings.  This education can come in many forms, local members may talk about lease options one month, a mortgage broker may talk about different lending options available to investors, the next month may be 1031 exchanges and the next month may be a real estate expert.  My REIA group has a lending library.  We can check out courses, like Carleton Sheets “No Money Down” course, Bill Twyford’s NLP course and several of Ron Legrand’s courses, all at no cost just - one of the many benefits of being a member.

You may find another investor to partner with on some deals, perhaps someone who can mentor you through your first few deals.  Get to know these people, they can help you be successful.

Networking and education are two of the main reasons to join a REIA.  It is well worth the investment.

Buying Rentals Right

In my last post I mentioned buying your rental properties right.  There are several formulas out there to buying real estate.  Due to short attention spans, I won’t even begin to list them. 

A common formula is After Repair Value (ARV) * 70% - closing costs - taxes - insurance - repairs - your profit = Maximum Allowable Offer (MAO).  This works great for rehabs and wholesale deals, but not always for rentals, because rentals are driven by the Net Operating Income (NOI).

Here is the formula used by used by Mike Summey, who co-authored “The Weekend Millionaire’s Real Estate Investing Program”, “The Weekend Millionaire’s Secrets To Investing In Real Estate”, “Weekend Millionaire Mindset” & “Weekend Millionaire Real Estate FAQ” (all are suggested reading).  The “Secrets” book has sold more copies than any other real estate investment book.

Gross Rent (what the tenant pays you)
- Vacancy Rate (usually 5% - 10%, depends on the area)
= Net Rent
- Management Fee (whatever the property manager charges)
- Maintenance Reserve (savings for future repairs)
- Utilties (what the owner may be responsible for)
- Taxes (1/12 of the annual property taxes)
- Insurance (1/12 of the annual insurance premium)
- Other expenses
= Net Operating Income

The NOI must be able to cover the principal and interest payment on your mortgage.  If it doesn’t, you can still “cashflow”, but you’re setting yourself up for failure.  If your gross rent is barely covering your Principal, Interest, Taxes & Insurance (PITI), you better hope that when your tenants move out, you can get new ones in right away and that the previous ones didn’t trash your property.  Otherwise, make sure you have a large cash reserve handy.

Let’s run an example of this formula:

Gross rent: $750 -
Vacancy Rate (10%): $75 =
Net Rent: $675 -
Management Fee (10%): $67.50 -
Maintenance Reserve (10%): $67.50 -
Utilities: 0.00 -
Taxes: $100.00 -
Insurance: $58.33 =
NOI: $381.67

Here are some mortgage amounts, rates and terms that can be covered by an NOI of $381.67:

10 years, 6% int., $34,378.03
30 years, 6% int., $63,658.80
10 years, 7.5% int., $32,153.41
10 years, 0% int., $45,800.00
30 years, 0% int., $114,500.00

Yes, that is ZERO percent interest on those last two examples.  For reference, the 30 year, $63,658.80 @ 6% has a total pay back of $137,397.81.  The zero percent interest can only be done with owner financing (if you find a bank loaning out at 0% for 10 or more years, let me know), and there are sellers out there that will finance you at that rate.  They won’t give it to you, you have to ask, they might say yes.

This formula is very similar to what commercial property owners use to determine Capitalization Rates (Cap Rates) and how much they can pay for a property.  Cap Rate is a posting all to itself.  I’m sure I’ll cover it eventually.  If you use this formula, your chances of being successful will greatly increase.

I don’t want to be a landlord!

“I don’t want to be a landlord!”  I hear this phrase from many other real estate investors.  They don’t want phone calls at 2:00 AM for an overflowing toilet (because 2:00 AM is when everything breaks in rentals).  My response to these investors is “Okay, then don’t be. BE AN INVESTOR!”

Hire a property manager to handle those calls, collect the rent, evict tenants who don’t pay, and to screen and place new tenants in your rental units.  If your objection to this is that you can’t afford a property manager, if you want to be wealthy, you can’t afford NOT to hire a property manager.  Your time is better spent looking for your next deal, not doing what a property manager can do for you.  If your argument is that hiring a property manager will eat all of your profits, then you didn’t buy that property right, assuming you’re getting top rent for that unit.

Buying properties at a discount, whether it be short sales, from a motivated seller or a frustrated landlord, then either reselling to another investor, or rehabbing and selling retail for quick profits can make you rich, but they will never make you wealthy, because at the end of the day, you have to keep working those deals to keep bringing in the pay checks.  With long term holds (rentals), you can be on the beach or at a mountain cabin and those checks are still coming in. 

Getting to that point is not a “get rich quick” proposition.  It will take time.  I’ve heard anywhere from 5-8 years is the average time to become wealthy as a real estate investor.  This will depend greatly on your work ethic and determination.

Look for my next post where I will go over buying rental property “right.”

Welcome To My Real Estate Brain

Hello, my name is Lon Peper and welcome to my blog on real estate investing.  The name of my blog came from a friend of mine who keeps a folder in his filing cabinet labeled “Brain,” where he keeps important notes on various things he needs to remember for his job.  I have adopted this as well, and I have a brain folder as well as some brain documents and spreadsheet tabs, whatever is most convenient.  Now I have my real estate brain.

I have been investing in real estate for about 2 years now.  As I learn new things, have thoughts, ideas and rants, I will post them here for all to learn, laugh and comment.  I am by no means a “guru,” in fact I will be critiquing gurus I have seen at boot camps, my local real estate investment association and elsewhere.  My intent is to help newbie investors in their goals to become successful at real estate investing, help grizzled veterans add to their repertoire of investing knowledge and for me to recall on my brain later on.

Please look into my brain often, comment, correct me if I’m wrong, drop some insight on me.  Let’s collaborate and be successful together.