TABLE OF CONTENTS: Knowledge: 1 Leverage: 2 Timing: 3 Pick Them Right: 6 How I Did It: 7 Recap: 8 KNOWLEDGE: “You need to know what you’re doing!” As with anything in life, you need to know what you’re doing! So, it’s time to get powered up! Get licensed as a sales person - this way you can be an insider so to speak. Network with other brokers, study the market and properties - this way you can spot the good deals. And hey, getting your 2.5-3% commission on your first purchase isn’t bad either! As a matter of fact, I used my commission to put down on my first home I bought as I didn’t have money. You want to use all the tools and programs available to you. If you have little to no money, you must find and utilize an FHA loan. FHA loans do not require you to make large down payment. In fact, you can put down as little as 3.5% of the purchase price. It’s a good option for those who are young, first-time home buyers that haven’t had enough time to save for a large down payment or establish a high credit score. Additionally, if you cannot qualify for a traditional loan due to bankruptcy or foreclosure, you may still qualify for an FHA loan. With an FHA loan, you can finance almost 97% of the purchase price. In many cases, you can get the seller to pay for your closing costs and use your commission as a down payment! Essentially, buy a home with NO MONEY! This is how I purchased my first home. 1 LEVERAGE: “Leverage can be your best friend or your worst enemy.” As with any investment, you want to use leverage (financing). Remember, leverage can be your best friend or your worst enemy depending on whether you use it at the right time or not! Here are some of the ways you can get started: A. See if you quality for a FHA financing (a mortgage that's insured by the Federal Housing Administration (FHA) and if so how much of loan you qualify for. B. Reach out to some investors to partner up with them. Most of the time you can offer to invest your commission into the deal and manage the remodel for a split of the profits on the flip. C. If you are renting your home, rent with an option to buy at a fixed price. Granted, this is hard to do with many landlords if the market is hot, but I have been able to do this when the market is soft. Landlords are always motivated to lease their vacant properties. As markets turn, in a few years, your option will have value! You can then find an investor to come in and exercise your option for you as well as share any profits on the sale. D. Find a seller that is motivated to carry the note/loan for you with little down payment or lets you assume their existing loan. Believe it or not, during the 2 TIMING: “You gotta know when to hold ‘em and when to fold ‘em.” One of the most important aspects of successful investing in any asset class is timing. Real estate is cyclical, just like the stock market - it goes through bull and bear markets. You need to know where we are in the cycle before you jump in and invest! This idea does not get enough credit. When it comes to investing, your timing is crucial. There will always be advisors telling you, “now is the time to invest” in real estate or the stock market. But, if you think about it, had you bought in 2000 or 2007 it would have taken you 7-10 years to simply get your equity back! One the secrets to my success has been my market timing. I sold my CA properties in 2004-2005 and bought into the Texas market, which at the time was in down cycle. By 2007, I sold most of my real estate - over 100 million dollars worth. A few years later I bought most of them back at deep discounts. I started to buy back in CA in late 2008 to 2011 - many REO (real estate owned) properties. Don’t follow the herd. Educate yourself to see the cycles we are in and stay ahead of the curve. In this chapter, I will show you on what to look for to gauge the economy and plan your investment or exit. Here are the indicators I look for: 1. Monetary policy: Remember, to reach massive scale in investing you need to use leverage, so, the cost of money plays a huge part in your investing strategy. The federal government was forced to ease interest rates to a 40 year low after the great recession of 2008. 3 Now that this has come to an end, and with the cost of money going up rapidly in the past 12 months, the real estate market will be impacted negatively. For example, if interest rates double, you will only be able to borrow half as much if you want to keep the same payment - that is huge! 2. Home prices: You have to look at the historical charts to see valuations based on past history. If prices are topping out the prior cycles, you want to stay out or at least not expand your portfolio at the moment. One chart I follow is: https:// en.wikipedia.org/wiki/Case– Shiller_index. They monitor markets in many major cities like Miami or NY but also monitor the entire US as a whole - is what I look at. Prices peaked in the first quarter of 2006 when the index kept by Shiller recorded a level of 198.01, but fell rapidly after that to 113.89 in the first quarter of 2012. So, imagine if you just followed this report and sold in 2006-2007 and bought back when it hit a low in 2012? 3. Stock market valuations: Why is the stock market important? Well, many people have a good portion of their nest egg in the stock market through their 401k or other retirement accounts. When the market plummets, so does their confidence to spend money. This directly affects consumer spending which is an 80% driver for the economy! I like to follow the S&P 500 index historical P/E (price to earning) ratio: https:// en.wikipedia.org/wiki/Price– earnings_ratio Since 1900, the average P/E ratio for the S&P 500 index has ranged from 4.78 in Dec 1920 to 44.20 in Dec 1999. However, except for some brief periods, from 1920 to 1990 the market P/E ratio was mostly between 10 and 20. So imagine, if you had sold your stocks and real estate in 1998-1999 and bought it back a few years later when P/E plummeted - you would have found incredible deals! The average P/E is 14 historically - right now we are at about 18 for 2019 - which is high. This is an indicator that the stock market is due for a big correction or possibly a bear market (multiple years of downward pressure). 4 4. Home affordability: This is important as prices rise faster than wage growth. You will have an overshoot scenario. We are there now. In late 2017, we saw prices heat up in many US markets and in 2018 we have seen softening which is a sign we have seen the top already. You can see more historical date at: https:// en.wikipedia.org/wiki/ Housing_affordability_index 5. Investor sentiment: Market sentiment is the overall attitude of investors toward a particular security or financial market. I am a contrarian so when I see everyone is bullish and buying as much as they can, I take it as a sign it’s time to sell sell sell. I have been right every single time! I see now this with apartment investors and many investors in stock market which I am a seller of both now not a buyer. So what’s happening now? Based on all my top 5 indicators, I see the real estate and stock markets are ripe for a correction. 2019-2021 will be time to buy. Now, if you want to make money in real estate, it’s important to pull the trigger when the time comes. Many investors get emotional when things are going up. They get greedy thinking things will keep going up - they don’t want to miss out on the upside. But when things go down they don’t want to buy as they think it will keep going down. They never pull the trigger and therefore never make any money! Although I don’t hold a crystal ball, my knowledge of past and current conditions, combined with 25 years of experience, has armed me to invest with confidence. Each cycle typically last 3-5 years but this bull market cycle we have had the longest stretch of uptrend due to steep declines we saw as a result of the great recession. We have experienced over 9 years of uptrend - the bull is getting tired and I see this as time to sell. Now, that’s not to say I won’t buy anything now - I am always looking for a great deal. but at any time but I don’t jump in and double down in this stage of the cycle we are in now. 5 PICK THEM RIGHT: Here is my criteria for picking the right property to flip: 1. Location, Location, Location: You don’t want to buy a home that backs to a noisy street or freeway! 2. Value-add: Make sure you can add value to the home - fixer uppers are often the best candidate for a profitable flip. 3. Price per square foot: Make sure you are paying on the lower side of the comparable in the same track or neighborhood - you never want to buy the most expensive price per square foot home in that neighborhood! “You gotta know when to hold ‘em and when to fold ‘em.” One of the most important aspects of successful investing in any asset class is timing. Real estate is cyclical, just like the stock market - it goes through bull and bear markets. You need to know where we are in the cycle before you jump in and invest! This idea does not get enough credit. When it comes to investing, your timing is crucial. There will always be advisors telling you, “now is the time to invest” in real estate or the stock market. But, if you think about it, had you 6 3 HOW I DID IT: My Story: I got licensed in 1992 as sales person. I had no money and no knowledge so I worked as a loan processor for a loan company. While processing loans, I noticed many applicants owned investment properties with tremendous amounts of equity. So, I started my own mortgage company offering new loans to property owners and started to make money. But, in 1994, rates went up, my loan company started doing very poorly, and I was forced to close it down. With my small savings, I started a discount store/food mart. But by 1996, that too went downhill and I found myself broke and in debt. I realized then that the only tangible asset is real estate! I started looking for bank owned homes that were selling at a massive discount. I was licensed and now had the knowledge as I had been watching the market and saw how other investors created massive wealth by buying income properties from my mortgage company days. I found a foreclosure that fit all the criteria, but I didn’t have any savings to put down. I used my commission of 3% as a downpayment, got an FHA loan, and rented out the house. Two years later after the market turned around, I sold the property for a $70,000 profit! I now had some real money and bought two homes with it, repeating my success. In 2000, I purchased my first commercial property. I was able to buy it from the bank (who had foreclosed on the property and now owned it) for around $660k and with a minor remodel, sold it for $1.6 million making my first $1 million dollars! 7 RECAP: Knowledge: Get your license and power up on your knowledge of your local markets Leverage: Get qualified or look into partnering up with an investor Timing: Wait for a recession or correction to buy Pick Them Right: Look for properties that offer the most upside. Now, it’s time to get to work. Remember that all good things take time. It took me 10 years to make my first million in real estate with literally NO savings! Your first investment property may take two to three years to realize a profit. However, once you get started and become sharper at finding the right deals as well as becoming more credible and connected - it becomes much easier to make your first (and second and third!) million dollars. 8 How To Make Your First $1,000,000 In Real Estate …With Little To No Money For almost three decades, Manny Khoshbin has invested in commercial real estate all across America. His core focus has been acquiring underperforming assets and improving them to force appreciation. Manny currently owns and manages nearly 2,500,000 square feet of commercial assets across six states. Today, Manny is focused on guiding young entrepreneurs and investors on their journey to build wealth and secure their financial future. He believes in hard work and encourages other to NEVER. GIVE. UP. The information in this article is not a financial advice, it is for informational purposes only, you should always consult your own financial advisor when it comes to investing.
