Book Review: The Millionaire Real Estate Investor

[andviv]

I wonder how many people actually follow this thread.... anyways, it is a nice exercise for me to write about the book and try to give back to the forums...

Today's section is called The Three Areas of Focus for The Millionaire Real Estate Investor

In this section Keller talks about the Pareto's Principle (also known as 80:20 rule) which states that 20% of your actions lead to 80% of your results. The idea behind this rule is to maximize your returns by focusing.

"Focus is the key to great success, more than effort, experience, or even natural ability"

Keller also mentions that when studying the highest achievers in any field one discovers that they have powerful focus. As part of this studies the authors tried to discover what the highest achievers focus on and came to the conclusion that they focus in three criteria:

CRITERIA: WHAT YOU BUY
They are the standards that define what kind of property you are looking for... it is about identifying predictable value. Its purpose is to filter the deals that you analize so you only buy those that are "good".

TERMS: HOW YOU BUY IT
Terms define how you turn an opportunity into a deal. Terms are about maximizing financial value. Buying right means getting the right terms.

NETWORK: WHO HELPS YOU
The author mentions the importance of networking so people sends you opportunities, offers mentoring and provide services so you can buy the right properties. He mentions this as Leverage: the fact of getting more done with qualified people than by yourself.


This is today's section. Hopefully tomorrow I will post about the four stages of growth on the path to a million.

 

[bflbob]

I wonder how many people actually follow this thread....

I'm here!:cheers:

 

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[andviv]

I think the text for the myths and truths were poor. I think it is kind of weird that a myth is "A is not good" and then the truth is "A is good". I was hoping the myth/truth titles had better wordings.

Despite of this, I mostly agree with the points he is making. The three personal myths are things that I think I overcame some time ago, and I have to thank Robert Kiyosaki as his books helped me to change that perspective. The author did make some valid points, for example:

"Prosperity can provide a false sense of security" usually when both spouses have great jobs with high paying salaries, the family kind of relaxes and think they are set for life. When change happens it takes a long time to react and accept the new reality. Also, I remember when I did my fist six-digit deal, I thought I was the smartest investor ever and did my biggest mistake. Success without control leads to big mistakes (just think about successful rock stars and sport superstars that go bankrupt a few years after retirement).

Another text I selected: "The faster you reach a position where you can begin your investment career, the faster you'll be able to achieve financial independence"

"Realize that whatever your job or work is, you also need to be an investor"

when talking about the myth #3, the author mentions RK:
"People will believe what they want to believe. They find excuses that prevent them from taking a look at what might work. And when they find a reason, they make that reason their reality"

I will talk later about the five investment myths later, for now I need to get ready for my weekend trip to Boston. I will post more when I get back.

 

[AroundTheWorld]

2. Myth: I don't need or want to be financially wealthy -- I'm happy with what I have
Truth: You need to open your eyes -- You do need and want to be financially wealthy

I take issue with this one.

Can you be happy with where you are and still strive for something more? - Can you be content and not complacent?

Because.... I am happy with what I have. I have a loving husband and amazing kids. I have my little homestead and time freedom.

I'm not "there" yet, there are many more things on my "to do" list, but I believe you CAN and SHOULD be happy on the journey - not just the destination.:banana:

 

[andviv]

1. Think powered by a Big Why
This is pretty clear to me. If you don't have a compelling, personal reason to achieve then you just won't make it. The reason of "having lots of money" usually is not good enough. What is your personal reason? WHY do you want to get rich and be out of the rat race?

If you don't want this 'thing' with all of your mind, heart and soul then you probably will not take that extra step needed to make it. Find that something that motivates you more than anything. Ask yourself what would it mean to you to have that or do that?

I've worked on this for many hours. If you have not done it, believe me, it is harder than it sounds. Maybe for others was very simple, but when I ask many many people about this they don't have a clear idea of what they would do with their lives if they would not need to worry for money ever again in their lives.

"Having no motivation will lead you nowhere. A small source of motivation will bring you small success. Big success, in contrast, requires much much more. It requires a Big Why --an evergreen, ever-growing Big Why!"

The last advice is to remember that you are not competing with anybody, and you don't need to compare to others'. It is purely personal. Once you have identified your big reason, this Big Why will lead you in your life as it will allow you to prioritize your needs as well as your choices and actions that will fulfill them.

Tomorrow I will try to find the time to post the next section.

EDITED:
I added this quote as I thought it was appropriate to this section.
"Dream no small dreams for they have no power to move the hearts of men."
--Goethe

EDITED:
Peter2 posted a great "how-to" about setting goals in this post http://www.thefastlanetomillions.com/showthread.php?t=310

 

[MJ DeMarco]

I wonder how many people actually follow this thread.... anyways, it is a nice exercise for me to write about the book and try to give back to the forums...

I'm following it ... just don't have much to contribute as REI is not my knowledge base.

 

[andviv]

Re: Introduction and Overview

I consider myself lucky...

I recently read about a sociological/psychological experiment in a magazine that concluded successful people actually consider themselves lucky as a result of their positive thinking. ...

Mental perception appears to be everything in this fast track game.

Yes, I agree with that but that was not my point.

My point is that, now that I read about what you have done in life, I come back to you and say: "randallg is just lucky". This kind of comments are the ones that really upset me. Why? Cause you are successful not because you have been disciplined in what you've done, or because you worked hard to get there, or because you took the risk/chance and made it... you are here just cause you are lucky. That is the comment that I really disagree with.

 

[andviv]

After a short vacation time in Boston during last weekend and a frantic week at work and in my investment efforts, I finally am dedicating more time again to this book review.

I had already mentioned some parts of the Personal Myths, now I am going to talk about the five investing myths. The author mentioned that even though these myths apply to real estate. they are common for almost all type of investing. Many times they are used as justification for failure.

Investing myth 1: Investing is complicated
While reading this section I underlined some passages that I want to mention here:

"It's like Warren Buffet says: 'You don't need to be a rocket scientist. Investing is not a game where the guy with 160 IQ beats the guy with 130 IQ'"

"... you never need to know everything in order to do something. You just need to know the right things to do at any given moment. Over time, given enough chances to study and experience something, you naturally and progressively will learn everything you need to know to do it well. That is how you become an expert." this was the best part of this section IMHO

"Like anything else in life, real estate investing is only as hard or as complicated as you make it"

 

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[willymo]

Great book!! I've read it twice and I'm also implementing his spreadsheets for buy & hold, rentals, networth. Right now I am reading his other book The Millionaire Real Estate Agent. In it he shows realtors how to transform their business from a S to B by using the power of Leads, Leverage, and Listings.

 

[andviv]

Investing Myth 5: All the good investments are taken

The truth behind this myth is: Every market, in every time, has its share of good investments

I think for me the fact that made me realize this is truth was reading Russ' success story. I still have hard times with the fact the he and his wife were able to cash flow positively every month in the California area. And it is not any area, it is wine county... so yes, it is possible.

Keller discusses the market forces and mentions there are two: Economic forces and Personal forces. His point is that many times investors focus on the status of the economy ("real estate is crashing; the market is tanking; interest rates are too high/low; etc) and often overlook personal situations that can create opportunities (here he mentions divorce, death and debt as negative ones; relocation, marriage and family growth as positive examples). Now that I think about it, my first RE deal was possible because the seller was getting married and she was moving in with the groom... so she had to sell the house fast... it was almost time for the wedding.

Because personal forces are always at work, personal opportunities are always at work, it does not matter the economic conditions.

 

[andviv]

A friend of mine gave me this book as she knows I do REI.

Title: The Millionaire Real Estate Investor
Authors: Gary Keller, with Dave Jens and Jay Papasan
Subtitle: Anyone can do it... Not everyone will... will you?

http://www.amazon.com/dp/0071446370/?tag=tff-amazonparser-20

I will be posting my comments here about this book as I am going through it.
Please feel free to add any comments about this book.

Andviv.

 

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[andviv]

Introduction and Overview

The book has three parts:

Part One: Charting The Course
Part Two: The Four Stages
Part Three: Staying On Top

I just started reading part one.
In the Introduction the author mentions that "Money Lives on the Other Side of Fear". Here he mentions that Fear could prevent you of taking action and then regret it. But also it is important to understand that Fear is also a sign that something is not right. His approach is: "Don't be afraid of fear. Respect it, keep going, and move past it"
He also mentions that the books has two main parts, one that focuses on your thinking, while the second one is about taking action.

In the Overview, the author talks about the effect of Luck in investing. He says that many people believes that Luck is one of the essential ingredients in REI, but he says that, even though Lady Luck does play a hand from time to time, the professional investors do not rely on luck to make their investments successful.
As an example of this he mentions that there are models that the pros use, and says that even Monopoly, the game, has a strategy that you can follow to maximize your chances to win. This is one of the points I was talking about with some friends, as many say that most of the accomplishment of others are pure luck; personally I think that this is one of the most offensive things you can tell to a successful person, as I am sure that SteveO or RussH are not successful just out of pure luck. They made it because they design it that way and followed a plan.

 

[Yankees338]

Estoy aqui! I appreciate the review...I definitely enjoy them.

 

[JK79]

I am interested as well. Is this a book that someone new to REI can understand and learn from? I am interested in learning about REI to see if this could be a new path to follow to get away from the 9-5, and I am looking for some good reading.

 

[andviv]

sure, sounds good

I am interested as well. Is this a book that someone new to REI can understand and learn from? I am interested in learning about REI to see if this could be a new path to follow to get away from the 9-5, and I am looking for some good reading.

Have you understood what you have read here so far? if so then yes, you can start with this book. If not then you can still get the book and start reading it and then come back here and ask, somebody will explain it to you.

The reason for me to start this thread was precisely that. I've seen many people asking "what book should I read" so I am hoping that others can post their reviews to books they are reading and want to share with the forum members.

 

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[andviv]

The Four Stages of Growth on the Path To A Million

First, you must learn to think a million which is thinking like a millionaire REI... "the bigger I think, the more I can accomplish. I've learned that what I hold in my mind is what shows up in my life."

The next step is to buy a million which is the best models to invest in RE. The idea is to understand what models are needed to buy a property with a market value of a million dollars or more (he does not talk about any model just yet, he just mentioned this as part of the four stages).

After buying a million, the next step is to have equity of one million dollars in your properties. This is called Own a million.

Last stage is to Receive a Million which is receiving an annual income of a million dollars from your investments.

This small section, to me, was not good at all. I did not get anything important out of this section, but I do want to mention it just to be faithful to the book review (I don't have to like it, I just report what I see and make my comments).

He concludes the Overview by mentioning that Financially Wealthy people think differently from the rest and as a result make different choices and enjoy more freedom in their lives. Also, the biggest obstacles most people face are their own doubts and fears. I do agree with these two points.

The last page of this Overview has a table with Points to Remember:

- Investing is needed. Everybody should invest. Wake up in the morning and say "I am an investor. I'm building financial wealth. Is today the day I find an opportunity and make a deal?"

- A proven model built on the best practices of high achievers in a given area will produce the most desirable and predictable results as well as maximize your chances for continued success over time.

- High achievers use models to take the luck out of the game. They implement big models to minimize risk and maximize profit when buying, holding and selling Real Estate.

- The three areas of focus for the Millionaire Real Estate Investor are Criteria, Terms and Network, and they determine what you'll buy, ow you'll buy it and who will help you.

- The path of the millionaire REI progresses through four stages: Think a million, Buy a million, Own a million, and Receive a million. Order does matter here.

That is the end of the section called Overview.
Next section is Mythunderstandings. I will find time tomorrow to post about that one.

 

[MJ DeMarco]

Re: Introduction and Overview

Its insulting when someone alludes that you are lucky. Its equivalent to when I'm out driving my car and some retard says "Did Dad buy that for you?" (I look relatively young) .... its jealousy and moreover, highlights that individual's inability to come to terms with their own shortcomings and failures - which ultimately is a limited view of them self.

Andviv nice thorough review. Thx!

 

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[Cat Man Du]

Re: Introduction and Overview

Not appropriate.

 

[andviv]

MYTHUNDERSTANDINGS

This section talks about the incorrect ideas that do not allow people to improve and to invest successfully.

These mythunderstandings are classified in two groups: Three personal myths and five Investing Myths

Personal Myths:

1. Myth: I don't need to be an investor -- My job will take care of my financial wealth
Truth: Yes, you do need to be an investor -- Your job is not your financial wealth

2. Myth: I don't need or want to be financially wealthy -- I'm happy with what I have
Truth: You need to open your eyes -- You do need and want to be financially wealthy

3. Myht: It doesn't matter if I want or need it -- I just can't do it
Truth: You can't predict what you can or can't do until you try

Investment Myths:

1. Myth: Investing is complicated
Truth: Investing is only as complicated as you make it

2. Myth: The best investments require knowledge most people don't have
Truth: Your best investments will llways be in areas you can or already understand

3. Myth: Investing is risky -- I'll lose my money
Truth: Investing, by definition, is not risky

4. Myth: Successful investors are able to time the market
Truth: In successful investing the timing finds you

5. Myth: All the good investments are taken
Truth: Every market has its shareof good investments

 

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[andviv]

Investing myth 3:Investing is Risky -- I'll lose my money

The definition of the word "investing is "To commit (money or capital) in order to gain a financial return. Nowhere in there says anything about risk. For great investors "it's not about ignoring risk; instead, it's about following sound investment principles and models. By doing that they take the risk out of the game."

The author also mentions that in investing you make your money going in, which in most cases means buying something of value for terms that immediately create a profit for you.

He also mentions "[investing] is about having sound criteria, the patience to find the right opportunity, and a willingness to take correct action quickly." -- for me, the most difficult part has been learning to sit and wait patiently until the opportunity is there. I used to think that I had to keep all the time my money moving, but by doing that I was jumping from investment to investment without following my own plan and/or in investments that did not meet my own defined criteria... man, it is hard to learn to have patience, specially when you are one of those so-called type A persons.

The author also mentions that, once the opportunity you were waiting for is there then you have to be able to pull the trigger immediately -- This has happened to me several times... as I had put money in investments that were not my real goal, when the great one showed up many times I was caught off-guard and had to let them go for lack of cash and/or other resources.

Keller closes this section by mentioning that Investing can never be absolutely risk-free, but it does not have to be risky.

 

[andviv]

Investing Myth 4:Successful Investors are able to time the market

The opening line for this section was a shocker for me: "Timing is everything. But now that you know that, forget it, because you can't truly time anything."

His point is that timing is about being active, as the real opportunities cannot be observed from the sidelines. You have to be in the game. The best deals come from the best opportunities, and the best opportunities go fast.

Keller says that "Successful timing is made possible by time spent on the task over time" -- I saw a thread about this in the RD forum today, and there were a lot of people complaining about how expensive RE was or how depressed the market was, and many people there were trying to "time" the market so they could buy at the bottom. see that discussion here http://forum.richdad.com/forums/tm.asp?m=616660&p=1&tmode=1&smode=1

Now, about the phrase "being active", Keller goes into explaining that this does not mean that you are buying and selling all the time, but you are searching consistently with your criteria so you can know when an opportunity surfaces.

He closes the section by stating: "Any time an opportunity meets your criteria and you act, you have timed the market successfully"

For me this was 'the' myth. Up until now I had the same perception about timing, but after reading this section and thinking about it I have come to the conclusion that yes, it is critical to keep searching if you really want to find a real deal. I had given up for some time before, frustrated for the lack of good deals. Meanwhile, many others were making lots of money as they kept searching and finding deals while I was out of the game, complaining how tough the market was at the time. Well, lesson learned.

 

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[andviv]

The law of momentum: compounding your success

The closing section for this chapter is the comment about not getting discouraged by starting small. Usually the first deals take a lot of time and money and the returns are not spectacular, but the author recommends not to let this discourage you from continuing, and soon, before you realize it, things will be getting bigger and bigger and your deals will amount to a lot.

I try to constantly remember the lesson that SteveO's story provides. Starting with reading a book, buying four units, and 9 years later owning more than 600 units. If that is not compounding success, then I don't know what it is.

This concludes Part 1 of the book.
Next: Part two: The four stages.

 

[andviv]

2. Think Big Goals, Big Models, and Big Habits
The main point the author makes here is that, in order to lead a big life, your thinking has to lead the way.

Some interesting quotes from this section:
[the millionaire real estate investor] understood that the size of their financial lives had been determined by the size of their thinking
also, Life is too short to move slowly We here in the fast lane for sure believe this, right?
If you know where you're going, there is a best path for getting there.

Now I think this is the key point of this section:
Big Goals force you to restate your Big Why in specific and measurable terms, and Big Models represent the proven systems and activities that will get you to those Big Goals.

Keller recommends you go for big goals. Going for small goals make you think about the steps to get there and create habits that will keep you at that level. For example, if you plan of making a flip to make $5k then you will be looking for properties that allow you to make those $5K in profit. But the actions are not that different than working on a flip that will net you $50K or $500K. Yes, there are conditions that change, but you are creating a habit of thinking and going for big properties, and as we know, habits are really difficult to break.

If you follow a model to make $50K, that is what you will be making. If you follow a model to make $500K that is what you will be making happen in your life. That's why I started switching from SFHs to Multis. And I have a model to follow, as I've met somebody that made it happen. I now just need to follow what this model says and I should be able to make it. I don't need to reinvent the wheel.

About habits, Keller also says that "There is no such things as a neutral habit. habits are either good or bad. They either lift you up or drag you down." -- so, have you thought about your habits, and which of them you should eliminate as they drag you down? which ones you need to reinforce as they do work for you? and most importantly, which new ones you need in order to get to the next level?

Keller also mentions something extremely important, something that I am still struggling with a little bit: "... but even good habits can be a handicap if they are small and box you into a certain level of accomplishment. Those who take the incremental approach and start with small habits will find that the real challenge lies not in adopting new goals and models but rather in breaking their old habits and forming bigger and better new ones.

This table is presented:

Big Goals, Big models & Big Habits
1. Big Goals -- The specific, measurable targets that fulfill your Big Why
2. Big Models -- The proven systems and strategies for reaching your Big Goals
3. Big Habits -- The consistent actions and right choices that come from following Big Models

 

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[andviv]

5. Think Real Estate
Real Estate has many advantages:

1. Accessible -- anyone can buy it
2. Appreciable -- increases in value over time
3. Leverageable -- Buy on margin & borrow against equity
4. Rentable -- Cash Flow! Cash Flow! Cash Flow!
5. Improvable -- Sweat equity
6. Deductible/Depreciable/Deferrable --great tax benefits (right, Diane? )
7. Stable -- Slow rise & slow to fall
8. Liveable --Shelter in more ways than one...

Keller goes to explain each of this points but I think they are evident and clear.

"It's impossible not to become wealthy over time in this business."
Stanley Armstrong, Millionaire Real Estate Investor, Washington DC.

"Where else are you going to make a small down payment, let somebody else pay for it, and you reap all the rewards? I can't find anything that beats that."
Will Stewart, Millionaire Real Estate Investor, Sugar Hill, CA

"I think real estate is the platform that gives you the most control."
Robert Kiyosaki, Best-selling author and millionaire investor, Scottsdale, AZ

 

[andviv]

6. Think Value, Opportunity, and Deals
This is one of the most important steps that Keller mentions in this book, IMO.
Why?

THIS IS THE SECRET FORMULA TO BECOME RICH IN REAL ESTATE!

This process describes how most Real Estate Investors become rich. This is the answer to the common question that most newbies ask: How do I find deals?

The process is described like this:

KNOW VALUE --> FIND OPPORTUNITY --> MAKE DEALS

There you have it. That is all. That is all it takes.

In Keller words: "... you have to know values in order to recognize opportunities and have to find opportunities before you can do deals."

You just don't go out and make deals (those are not deals, they are just transactions. How do I know? I've made many of those, fewer of the others ).

"The millionaires follow a simple process, and that process works."
"We came to understand how it saved them time, reduced their risk, and kept them focused. .... It is how they think, and it does make a difference in the results they achieve."

In this section there are really not that many comments I can make, or add more value to it. What I quote here is the key, in my opinion.

Successful real estate investing begins with identifying value. How do investors identify value? That's easy. They look at real estate. They look at a lot of real estate. They look carefully at a lot of real estate. I wish I could tell you there was a shortcut, but there's not, and I caution you against trying to create one.

"Beginning investors' biggest mistake is that they don't do their homework."
Dottie Bowe, Millionaire Real Estate Investor, Portland, ME

After looking at a lot of RE then you will start getting a sense of asking prices and how much buyers are willing to pay, you understand what's worth what. You learn this for both sales prices and rental rates.

Keller mentions that "the more you look at properties, the more your sense of value becomes accurate and internalized." so when you see the numbers for a property you will determine quickly the price that will make a property an attractive investment for you.

Every opportunity is not necessarily a deal. What turns an opportunity into a deal is that the property meets your Criteria and the seller is willing to meet your Terms.

"Deals aren't found. Opportunities are found. Deals are made."
Dyches Boddiford, Millionaire Real Estate Investor.

 

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[andviv]

It's a long read and I feel like some of it was basic common sense.

What was amazing to me, given my experience in the field for a few years now, is that those basic common sense things are what make the difference, and most people don't follow them, thus getting into financial trouble (for example, lets buy this house for $100K because a year ago it was worth $200K, I'm buying cheap, so it is OK if it does not cashflow for the next three years).

 

[bflbob]

In my mind, that is one of the best proceedural books on RE.

A really great read!

 

[andviv]

more from the Overview

Another interesting point is that in order to get to Big Goals you have to do things the best possible way.

This is one of the ideas that I completely agree with: "if you look to the very best people in a field and study what they do, you often can repeat their success. The key is to learn how they achieved their goals and then understand why they did it that way. When you grasp those two things, you can start where they left off"

Also he says that every success story worth exploring has three fundamental parts: What a person thought he or she could do, how that person did it, and what that person accomplished. "Big Goals powered by Big Models lead to Big Success"

"Successful investors clearly follow proven models, and those proven models for selecting, buying, and owning real estate can generate the kinds of remarkable results those investors have achieved"

Another section he mentions is the typical example of the $xxx-thousands that got away, where he cites one of those examples that I'm sure we all relate to: Do not do an investments cause you are second guessing yourself, only to find out later how good it was and you just lost the opportunity to make $xxx-thousand dollars had you acted correctly. His point was to not make the same mistake again.


Next section: Financial Riches vs Financial Wealth

 

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[andviv]

The section about financial riches vs financial wealth is rather simple for those of us that have read RDPD. Here the author talks about his weekly mornings meetings for breakfast with his friend/mentor. During these conversations his mentor explained to him the difference between the two terms.

Being rich is about having money (you can have a high paying job and be rich) while financial wealth is to have assets that generate cash for you. Key in the distinction is the small amount of time used to manage these assets compared to the income generated. I liked the fact that he mentions that all of the assets demand some time from you.

Part of the teachings from this mentor was to have keep a personal balance sheet to summarize his net worth (accountability). He does mention that these financial principles are not new, that have been around for ages.

Next section: The three areas of focus for the millionaire real estate investor.

 

[JesseO]

I'm here too! =)