My wife has been in the yachting, hotel ownership and timeshare business. In 2002 I went to work for a land developer which is what I call my day job.

Now we are very blessed as this creates a very good income for my family which allows us the extra funds to get started in our ventures.

We also had pretty good credit. One of the bonuses we get is an incentive to practice what we preach when selling to investors. He allows us to purchase a lot from him with us using our commission as a down payment.

He also pays the first 12 interest payments. You must still obtain your own financing, but basically the first years costs are only taxes & HOA fees.

Now this is also a great deal for the clients, because they get the payments as well even though they must put down 10%.  Land along the waterway in Myrtle Beach has been and will continue to increase very rapidly.

So in January of 2003 we bought our first lot in Myrtle Beach, SC for $62,880.  We closed on it January 7, 2003.  We used our commission for the down payment and received the 12 interest payments.

Since we were not using any of our money for this transaction, we decided to purchase another lot in Greenwood, SC on Lake Greenwood for $91,880 with the same deal. 

We bought one more in June in Palm Coast, FL for $78,880 again with the same deal from the developer.  We bought this one with Lisa’s brother, so we could pay for their new baby’s college.  We now considered ourselves big time real estate investors.  We owned 4 pieces of property including our primary residence.

THEN WE READ YOU’RE BOOK AND EVERYTHING CHANGED!!

My wife Lisa picked up a book titled “Rich Dad’s Prophecy”. She could not put it down.  She then bought “Rich Dad’s Retire Young, Retire Rich” and read it.

Now we are in June of 2003. We took the family on a vacation to Lake Hartwell, SC where we rented a lake house. Did I mention we have 5 children ages 7, 9, 10, 11 & 15?

While we were there, she handed me “Retire Young, Retire Rich” and my context changed instantly!  I looked at Lisa and said we are paying for this guy’s lake house and he can use it whenever he wants.  My eyes opened up.

Now Lisa was already on the positive side of this, while I was thinking of the risk.  I had taken a chance on a business in 1985 and it forced me into bankruptcy.  I was a little bit hesitant and scared. But with her encouragement and support we decide to make a move into your world.

WE GOT OFF THE POT AND GOT STARTED!!

PROPERTY #4

Since I am in the real estate business all I knew was the MLS, so we started looking and found a brand new home that had been purchased.

The owner moved in and was transferred by his company 1 month later.  We were told by their agent that this home was being controlled by a relocation company.  They were asking $119,900.

This model was being sold brand new for $135,000 with no upgrades. We made them an offer and finished at $116,500 with them paying $1,800 of closing costs. 

We put 10% down and financed it for 30 years fixed at 6.35%. We rented it before the first payment was due for $1,100 per month. Our monthly payment with everything included is $921. We said this was good and the mortgage company said we could do 3 more of these. Wow. This was in August of 2003.

PROPERTY #5

I also read in the book where sometimes you need partners.  I was looking for lots on the Intracoastal Waterway for a client, and ran into a guy that said he was getting divorced and his wife would get the proceeds, so he wanted to dump it.

Now these lots had been selling for $279 to $299,000. I asked him what he would take for it, and he said for $200,000 it’s yours.  Now we did not have the $20,000 to put down, and we did not know about financing on the appraised value instead of the contract purchase price.

So I asked 3 of my partners I work with if they wanted to go in with me and they said yes.  We went to a different bank and were approved immediately.  We did an interest only loan for 3 years at 4.8%. The payment is $184 per month for each of us. This was in September of 2003

PROPERTY #6

We live in a nice neighborhood and noticed one weekend a sign that said absolute auction of a house on our street. We decide to check it out, and found out this 2400’ home was appraised at $215,000.

We decided to put our name down as a bidder. We had set our maximum at $178,000 and when the bidding started, it was down to two of us in about an hour.

Finally at 10:30pm that night the other guy dropped out at $177,500.  We owned another home. We decided we were going to sell this one.

My wife said let’s put a for rent sign in the yard until we close and ask our minimum we try to get which is around $200 over the payment. So we asked $1,700 per month.

Before we closed, we had a two year lease on the property at $1,700 per month.  We put 10% down on this home and the interest rate was around 6.5% fixed for 30 years.  Our total payment on this is $1506 per month. This was in September of 2003.

PROPERTY #7 & #8

My mother Nancy had been renting since we moved to Myrtle Beach in 1998.  With our new found courage, my wife said let’s find a duplex for her to live in.

She can own one side and we will own the other.  We purchased a duplex that had been recently renovated and was all brick for $134,900. We were able to finance her side with 5% down and our side for 10% down.  We rented our side for $750 per month.  We financed this in her name at 6.25% for 30 years.

I am on the deed and mortgage, but not the note. The payment on our side is $538 and her side is $564. We are still in September of 2003.

BUYING HOMES BY THE NUMBERS!!

In the same neighborhood as #4 we met the builder direct. We found him willing to negotiate if we would take 3 houses at once. We picked the floor plan and lots to build on.

We purchased the homes $5000 under value with the stipulation they also pay 3% in closing costs and pay me a 4% commission on each home. 

So we are paying $123,500 for each home minus the 3% and the 4% which brings the real amount to $114,855. We staggered the closing dates of these homes to May 1st of 2004, August 1st, 2004 and September 1st of 2004.

We have already taken a security deposit on the one for May 1st. They are now selling in the range of $135 to $140,000. This is September 2003.

WE SOLD SOMETHING!!

As I said earlier I am working for a land developer. They had run out of inventory and asked me to sell some of our lots. Remember the one we paid $62,880 for. It sold for $94,880 so we did a 1031 exchange in to property #12.

The lot we paid $78,880 for in FL we sold for $129,900. We did a 1031 exchange in to property #13.  By now I guess you can imagine we own almost all of your books and the advisors books and have been studying our new field. This is November of 2003

HERE COMES THE TEAM!!

We followed your advice and have hired a great attorney who specializes in real estate and estate planning. He also handles setting up the LLC’s and handles the 1031 exchanges.

We formed 2 real estate companies. The 1st is JLS Enterprises Inc. This company is for my day job income and any personal real estate dealings.

The 2nd company is All Team Realty Inc. which belongs to the MLS and NAR. This company was set up to hire agents and work with other investors. We found a great accounting firm and our agent specializes in real estate investors.

One of our tenants owns a handyman service and works for us almost full time now. We have 2 insurance companies that handle our rentals and liabilities issues. We have found a community bank that wants to work with us long term. They are willing to go by the appraised value instead of the contract price. It is based on 5% for 1 year with 80% LTV.

PROPERTY #12

With the $23,000 we had from the sale of the lot, we bought a brand new home in a Centex community. This subdivision is in the fastest growing area of Myrtle Beach called Carolina Forest.

We purchased this home for $122,260 and before it closed the appraisal was at $130,000. We had to use their bank to get the options, so I felt this is a lousy loan package.

We had to put 20% down and the rate is 8.3% fixed for 2 years only. We will re-finance next year. We rented it immediately for 2 years at $1000 for the 1st year and $1050 for the 2nd year.

This community is brand new and away from everything at this time. Our payment is $925 per month. This is January of 2004

PROPERTY #13

We had profited from the sale of the Florida lot in the area of $37,000 so we bought another lot on Lake Wylie in North Carolina.  We paid $159,880 for this lot and the one beside us just sold for $189,880 with less waterfront and view. 

This was from my developer, so I received a $10,000 commission I put in my pocket and we still received the first 12 interest payments. The interest rate is 4.75% for 3 years interest only. This was also with Lisa’s brother. This is January of 2004.

NOW WE ARE LOOKING ALL THE TIME FOR THE NEXT DEAL!!

PROPERTY #14

While working other properties with my developer in North Carolina, we found that the new neighborhood we were opening was in the best school district. They expected to sell it out in one weekend because of the new lines being drawn for the schools.

We purchased another lot for $139,880 with the developer paying my down payment and first 12 interest payments. The rate on this lot is 4.65% interest only for 3 years. We expect to sell this one in the fall of 2004 for $199,880. This is February 2004.

PROPERTY #15

A new partner comes on the scene. A friend of mine that my wife and I had trained in the timeshare business is doing very well. We were talking about what Lisa and I were doing and he wanted in.

So this was the deal we made. He would put up all of the money, and when we sold the property we would split the profits 50-50. No we are not taking advantage of him; we are doing all of the work and will send him his checks.

We found another home in perfect condition in the same neighborhood as #4. We made a low ball offer and it was accepted at $115,000. He put 10% down and we financed it for 30 years at 6.5% fixed.

Before we closed we had rented it to Hitachi Corporation for one of their employees. The rent is $1100 per month. Our total payment is $890. This is February 2004.

PROPERTY #16

The partners I am working with in my day job are starting to take notice. Because we all make very good earned income they wanted to purchase another property with me.

We bought another lot in the Charlotte North Carolina area. This one over looks a lake. The developer paid the 10% down plus the first 12 interest payments. We paid $199,880 for the lot.

The one next to us was purchased by Hersey Hawkins the famous basketball star for $269,880. This loan is also at 4.65% interest only for 3 years. We expect to sell this lot in the fall of 2004 for $299,880.

After property #12 was purchased one of my partners in my day job bought 3 homes for rentals in the same subdivision as #12 which we manage for him.

Now he paid too much for these, but he has not read any of your books. This is March of 2004.

FORECLOSURES AND COURT HOUSE SALES!!

As you taught us to expand our context we also expanded our risk. We started going to the monthly court house auction in November of 2003.

We just watched and listened. In March of 2004 we said lets give it a shot. We had done the research and we pay a company for the most up to date info on foreclosures.

My Sundays of watching football or the races was delegated to driving around and looking at properties. I watched the games later on tape.

March 17, 2004. This is a special day. Not only is it St. Patrick’s day, it is also the anniversary of the first day my wife and I kissed. Any way back to business. We went to the auction and bought 2 houses.

PROPERTY #17

As we were driving around checking out the foreclosure list we noticed this home on a corner lot that the tax record showed at about 1450 square feet.

It did not look right as the 3 homes we are building are 1435 square feet and this home looked larger. My estimate was around 1900 square feet from experience. When it came time to bid on this home I would have went to $150,000 based on size. We were very surprised when the bidding stopped at $131,000 with us a high bidder.

We took it to our new bank and the appraisal came back at $163,000 with the home showing 1454 square feet. I went out and measured the home and it is 1935 square feet. So I challenged the appraiser and he went and measured the home himself.

We were right and the new appraisal came back at $185,000. We only put $1800 down and closed. This was March 17th of 2004.

My wife, our handyman and myself tackled the home for the next 8 days. We had to replace all of the ceiling fans, light fixtures, range, dishwasher, hot water tank, well pump, and microwave, paint the entire inside and haul off all of the trash.

We spent including the down; closing costs and repairs $12,000. I listed it on the market Friday March 26th for $189,900. We accepted an offer of $185,000 on March 31st with the closing date set for April 30th. We were elated at this endeavor. We will make around 170% profit on our money.

PROPERTY #18

We bought this property at the same time as #17 for $80,000. It appraised for $94,500. We are still working on it. My wife is painting as I write this letter. We expect a return of around 60% on our investment when we are through.

PROPERTY #19

In the MLS I saw another lot for sale in the same neighborhood as #1. I made a low ball offer and it was accepted. The bank did the appraisal and it came back at $70,000. It will actually sell for around $85,000 but that’s ok because I only paid $54,900 for it.

That means no money down at the bank, plus I get a 5% commission on the sale which pays my first years payments. We will close this one on April 16, 2004

PROPERTY #20

Can you believe it, my mom does not like living in the duplex. We made an offer on another home in the same subdivision and it was accepted. Now we can rent out the other side of the duplex for another $750. That is $1500 in for $1102 going out.

PROPERTY #21

Lisa went to the upset bid auction at the court house on March 31st. She bought another home for $72,500. It is the exact same home as #18 which we paid $80,000.

This one is in the same shape and needs to be rehabbed as well. We will close on this property by the end of the month. We expect to make around 80% on our investment.

NOW FOR THE PROBLEM!!

Our challenge is our LLC’s and 1031 exchanges. As you advised we set up LLC’s with our attorneys. The one for our long term rental properties is Mountain Top LLC, because we want to retire on the top of a mountain in West Virginia.

The one to hold our lots is named Pay Dirt LLC for obvious reasons. The one for my partner and I that own properties #15, 17, 18 and #21 is The James Gang Investments LLC.

We just sold #17 as I explained with it to close on April 30, 2004. We want to 1031 exchange this property. Our problem is the bank which will allow us to buy on appraised value and use the LLC name we are at our limit with them.

This is our first year of doing business with them and the limit given us is a $400,000 line of credit. When we close on #17 we will have around $150,000 available, but need to spend $186,000. They will not go over the $400,000 line.

We have not found another bank that will allow us to buy in the name of an LLC. Also if I finance one of the homes that is under construction and put it in to Mountain Top LLC and later want to refinance I will have the same problem.

How do you avoid these challenges? We are on a roll and do not want to come to a stop. Now is when we need some more of your advice.
AND BESIDES THIS IS ALL YOUR FAULT!!

My wife and I used to lay in bed as long a possible with 5 kids, and now we wake up at 4:30 to 5:30 in the morning thinking about real estate deals to be had and to take care of the ones we already have purchased.

We are going to the auction again on April 5th, because I have another partner that wants to give us money to buy homes. Your books and your team are AWESOME.

I will be giving them for presents at Christmas this year. Our kids think we are nuts. Our 11 year old thinks we collect houses. By the way we have not played the “Cash Flow 101” game yet. Between my day job and our new ventures, I barely have time to read and look through your web site.

We want to be able to financially retire when our youngest graduates high school in 2014. Our goal is to have in excess of one hundred units bringing in passive income so that we may continue to enjoy the lifestyle we live in today. I am 43 and my wife is 42.


Sincerely,

Jim Smith

Click Here For Your Ultimate Investor Pack