This is part 1 of a 3-part series on the money lessons I’ve learned from the recently held Money Summit and Wealth Expo seminar. This series will cover the 3 ways to grow your money: real-estate investing, stock market investing and building a business.
- Part 1 – Real-Estate Investing
- Part 2 – Stock Market Investing
- Part 3 – Building a Business
During the Money Summit and Wealth Expo, I was lucky to learn from 3 very successful real-estate investors: Trace Trajano, Eden April Alemania-Dayrit and Noli Alleje. Read on as I share to you those lessons so you too can start building your riches through real-estate investing.
Best-selling author of Think Rich Quick and Real-Estate Guru
Trace Trajano is widely regarded as the author of the best-selling book “Think Rich – Quick”, which he co-authored with Larry Gamboa. He, along with Larry Gamboa share a dream to create 1 million Millionaires by year 2020. This is a huge and audacious goal but with millions of dollars in successful real-estate investments and several students coached who are now millionaires, this is a dream not far from reality.
According to Trace, real-estate is a good investment mainly for 4 reasons: income, equity, appreciation and leverage.
- Real-estate gives you income in terms of capital gains when you decide to sell the property or monthly rental from your tenant in case you rent it out.
- As you pay down the amortization, you build equity for the property.
- Appreciation means as the price of goods increase due to inflation, the value of your property generally rises with it.
- Lastly, real-estate gives you the leverage to acquire a property even with only 10% down payment.
Trace also warns about the risks in making money through real-estate. He mentioned about the condo craze where everybody is buying pre-selling condos. The reason he does not encourage buying a pre-selling condo is because it is subject to market fluctuations. Real-estate markets can go from boom to bust in a few years. Your money is also tied up for 3 to 5 years and therefore not working for you during this period. He said, it is even more dangerous to use your life savings and securing a bank loan because you risk losing everything. The bank can go after everything you own if the deal does not turn out to be as good as you’re hoping for.
Another risk you can encounter when you invest in real-estate is getting a bad tenant when you decide to rent your property out. Without effective screening of tenants and proper property management, you can risk getting a “tenant from hell”. A tenant who is not only good at avoiding paying your monthly rentals but even better than your lawyer in taking advantage of every loophole in the law so you cannot evict him.
To mitigate these risks, Trace suggests to learn the real-estate business first through Affiliate Real Estate Marketing. When you do Affiliate Real Estate Marketing, you basically sell another person’s property first. When you successfully sell the property, you get extra income through commissions. When you are not able to sell the property, you would still end up building your buyer’s list without losing money since the property is not yours anyway. When you go through the process, you will learn more about the real-estate market. You will know what properties are selling hot in an area and what’s not. You get to work in the real-estate business without risking your own money in a property.
According to Trace, the goal of a real-estate investor is to make money from the property, NOT necessarily to acquire the property. To achieve this goal, one simply has to find a qualified buyer, understand his needs and financial capabilities, and find the right property that fits his needs.
This is where Trace’s eXtreme marketing comes in. To do extreme marketing, you need to ask 3 things:
- Who is your target market?
- What is your compelling message?
- What is your medium?
Who is your target market? What are their needs? Why will they pay you the price? Landlords for example are mainly concerned with ROI and cash flow. End buyers normally focus more on the down payment and the monthly amortization.
What is your compelling message? How will your message stand out? What will compel prospects to call or contact you? You need to consider your target market when you formulate your message. Know what’s important to them and deliver that message.
What is your medium? Will you do online marketing? Or will you do offline like handing out flyers, posting bandit signs and the like? Are people in your target market even logging in to the internet?
These are important questions you need to ask yourself when you decide to do extreme marketing to sell your property.
Eden April Alemania-Dayrit
Eden is the fastest and youngest millionaire Think Rich Pinoy franchisee. She specializes in rent-to-own deals. To this date, she has already bought and sold more than a dozen houses in just 2 years.
According to Eden, one can earn from real-estate in 3 ways: wholesaling, retailing and rent-to-own.
- Wholesaling is when you buy a property at way below (e.g. 60%) market price.
- Retailing is when you do some renovations, flip the property and sell it for a higher price.
- Rent-to-own, also known as lease with option to purchase offers the tenant the option to own the property once fully paid.
You can also earn through real-estate by becoming either a passive investor or an equity partner. When you’re a passive investor, you earn a guaranteed 8 – 12% annual return. You basically lend money to acquire the property. As a return, they give your money back along with the interest after a few months. When you decide to become an equity partner, you share in the profit like splitting it 50-50, but you also share in the risk in case the property is not sold or you get a bad tenant.
The basic formula for investing in real-estate is Find – Fund – Fix – Sell – Profit.
- Find a great property that’s below market price.
- Fund it by using other people’s money through passive investors or equity partners.
- Fix it by doing renovations to make it ready for occupancy.
- Sell the property to your target market.
- Profit from the property when you’re able to sell the property at a price higher than what you originally paid for it even after factoring in renovation expenses, paying back your investor’s money including interests, marketing expenses and taxes.
As you can see, the formula is very simple, but going through the process is definitely not easy.
The Property Forum Founder
Noli is the master auctioneer who was once successfully auctioned properties worth around 3 Billion pesos. Yes, that’s capital “B” as in billions.
According to Noli, the auctioning of foreclosed assets started in the early ‘90s during the boom of the property sector. When the Asian financial crisis hit, people suddenly could no longer pay their monthly amortization, thereby causing those properties to be foreclosed through “Dacion en Pago” (a.k.a. good foreclosures).
In 2009, the Philippines had about 184 Billion worth of foreclo
sed assets. The past due loans for the same year amounted to around 115 Billion pesos. This means, there’s a big opportunity out there in foreclosed assets.
Why is it a good idea to invest in foreclosed assets? According to Noli, the papers are generally (but not always) in order primarily because banks have a reputation to protect. Because of this, banks normally would have to do some asset inspection, appraisals, etc.
Noli warns though that this business is not for the weak of heart. The fact that it is foreclosed means there’s a problem. When you invest in a foreclosed property, you need to do your due diligence. You need to inspect the property in the morning and afternoon, at night and dawn, weekdays and weekends. Take pictures. Look for defects on the water line. You can also ask the neighbors to find out more about the property.
In the end, you make money when you buy so you need to make sure you’re getting a great property for a great price before going into a deal.
That’s all I have on my notes about real-estate from the Money Summit and Wealth Expo Seminar. I hope you learned something to give you a head start in building your riches through real-estate investing.
P.S. If you have a great property about to be foreclosed or you just need to sell your property fast, we can help! Just go to http://www.akosiallan.com/sell-your-property/.