How to Build Passive Income
My son, Josh Mettle, just interviewed me for his Physician Financial Success Podcast on iTunes. I hope you give it a listen while you’re walking your dog, hiking or traveling up the coast 🙂 You will learn (among other things):
- The kind of stuff they never teach you in real estate school.
- What I learned from Donald Trump about picking up great properties.
- How to bootstrap your way into income property investment.
- How to weather the storm when markets move from good to bad to good again.
- How to retire with cash flow.
- How to start!
If you have a secret desire to bridge from the billable hour to passive income for life, this may help you get started. Enjoy!
What is Possible in 2015?
One of the main things that sets you aside as a landlord, real estate investor and entrepreneur, is that you have vision. You create new futures, new goals, new, renewed and improved properties, beautiful environments and other happy living circumstances. You are a leader.
Most people only see what’s in front of them. Most people find it difficult to envision a future that is not already there.
Entrepreneurs see things that are not there yet and then make them come into being.
Here’s a couple of examples from my own family:
My Dad was always considered a “wild man” because (among other things) he believed in his visions of the future and took big risks to make them happen.
Dad never waited for permission, agreement or approval.
He used to drive through Kanab, Utah on his way to boat at Lake Powell or vacation in Phoenix. Dad just loved the Kanab town and red sand.
So he bought 500+ acres of it.
Our family all thought he was out of his mind. My Mom actually went on strike for a couple of years.
The people in Kanab thought that the sage brush and red sand was only good for grazing cattle.
But Dad envisioned a bridge across the river, a beautiful subdivision of acre-plus ranchettes and his very own “No Bull Ranch” with three canyons backed up to BLM land that goes forever.
And that’s what exists there now.
Before that, Dad had a landscaping business and a nursery on a few acres in West Valley City, Utah. So naturally, he decided to bulldoze it and build 90 apartment units.
One day Dad was out on his tractor grading the land in preparation for building, when a black limo pulled up out front and a man inside asked one of Dad’s workmen where the owner was. The workman pointed to Dad on the tractor, and the man from Aetna said “give him the loan.” (This actually happened in the real world!)
Entrepreneurs have vision, and the leadership to make that vision come into existence.
My inspiration for this New Year 2015 post was a podcast I just listened to by Eben Pagan. Eben says:
“As an entrepreneurial leader you are the keeper of a very special flame — the vision of a better future…. As the leader, your ability to envision a better future and then translate that vision to others is priceless.”
Eben also points out that it’s key to keep believing in yourself and the future you envision:
“Even. When. Other. People. Don’t.”
[By the way, if you haven’t subscribed to Eben’s podcasts you are missing out on some wonderful entrepreneurial leadership that will inspire you to grow your business to the next level in 2015. I highly recommend it.]
Remember this quote from Steve Jobs?
“A lot of times, people don’t know what they want until you show it to them.”
Could there be any better example of leadership and entrepreneurial vision than Steve Jobs?
So let’s make this personal. What can we envision in 2015:
- That would enhance the lives of our tenants?
- That would enlarge our cash flows?
- That would improve the value of our property?
- That would contribute positively to the neighborhood?
- That would build our business and our estate?
- That would “put a dent in the universe?” (Steve Jobs)
I don’t know about you, but I have a lot of work to do!
So here’s to you and me having some wonderful visions of a better future in 2015. Let’s get out there and bring them into existence.
How to be Smart in a World of Dumb Landlords
Last week I told a tenant: “I am not your mother, father, bishop, priest, pastor, social worker or shrink.”
The tenant was shocked. But that stopped the gossip right there in its tracks.
She and her husband had been my great tenants for six years. They always paid their rent on time and were lovely people. Now they were splitting up, and both wanted to hurt the other by telling their landlord bad things.
I said “you guys need to knock it off. I want to remember the good things about you so I can give you a great reference when you need it in the future.” Uh, they hadn’t thought about that.
Can I be painfully honest with you for a moment?
Not the “you have spinach in your teeth” type of honesty, but the brutal, painful, your business will never improve until you get this, kind of honesty.
So here it is.
You have to run your rental property like a business. If you already run your units like a professional, you can be excused from this “Come to Jesus” meeting. The rest of you, please listen up.
In the old Wild West, every railroad worker wore a different uniform and a different hat: Conductors, Engineers, Firemen, Brakemen, Flagmen, Porters, etc. This made it easy to identify their different jobs.
Borrowing from that tradition, consider each different job you have as a different “hat.” You are probably a mother, father, daughter, son, volunteer, cook, cleaner, chauffeur, coach, possibly a professional, and if you’re reading this blog post you’re probably also a landlord.
Whatever job you’re doing, consider the “hat” you’re wearing at that instant. If you confuse your hats, you can get in trouble. And some tenants will try to suck you into their drama to throw you off and get you to wear the wrong hat.
One of the best examples of this is a prospective tenant who doesn’t qualify to rent your unit. This person knows that they will be homeless or living in a relative’s basement unless they can find a landlord who will buy their “story” instead of actual qualifications. This unqualified tenant will want you to wear something like a social worker hat instead of a landlord hat when you are deciding whether they qualify for your units. Guaranteed, they have a hard luck story to beat all hard luck stories. And if you succumb, you will get the unqualified tenant (and the legal fees, rent loss and other expenses that come with unqualified tenants.)
When I was practicing law for landlord clients, I once evicted “Utah’s Most Wanted” criminal. Scary. But how did that man become a tenant of that property? The landlord was not running his property like a business, because the tenant obviously didn’t begin to qualify. That landlord was not wearing his “landlord hat.”
Likewise, if you accept a “story” instead of on-time rent payments, you are not running your rental property like a business. I have often been shocked at how long a landlord will allow a non-paying tenant to go on story-telling instead of serving a polite, professional, pay or quit notice with a smile. Put on that “landlord hat.”
And by the way, I can tell you this from long experience as both an attorney and a landlord, that the longer you allow a non-paying tenant to keep possession of your unit, the harder they will fight to stay there, and the higher your legal fees will eventually be.
Just saying.
Look, here’s the truth: landlords that run their rental property like a business are just plain smarter. And they make a lot more money.
The good news is that it’s relatively easy to gain the same kind of smarts as the landlords with fat pockets. So here’s some tips:
- Every landlord in the known universe should go to their local Apartment Association and take the Good Landlord classes and the Landlord 101 class. Don’t argue with me about this, just drag yourself down there and do it right away.
- Join the Apartment Association, and get access to their forms, their advice, and their service providers. This will save you over and over, especially in a weak moment.
- Read and read some more. If you’re relying on old knowledge, you’ll be obsolete in no time. Keep up.
- Hang out with interesting, smart landlords who are socking away for their retirement and let them rub off on you. (You can find them at the Good Landlord classes 🙂
You’ll still be you. But you’ll be a better, smarter, version of you — with a great rental property business and lovely tenants.
Now go forth, get smart, and make a profit!
Photo credit: electricnerve via photopin cc
The Power of the Word “No”
When I was a youngster, I had the great opportunity of working for a famous best-selling writer.
He took big risks on me and put me in charge of a series of important projects – including flying me to Kingsport, Tennessee to publish one of his books at the tender age of 22.
Then he put me in charge of renovating a big hotel in Florida, and then half a million sq. ft. of office space in Los Angeles. I had hundreds of people under my charge and I was 23. (He once told his son-in-law “if you need a miracle, send Cynthia.”)
But the biggest risk he took was when he put me in charge of the PO (purchase order) line. In other words, if I signed off on a renovations expense – the check issued. The dude was a risk-taker.
But it was a calculated risk. Before I got the power to sign POs, he made me stand in front of a mirror with a witness for one hour and say “NO.”
That seemed kind of fun for about five minutes.
After that I had to get creative. Have you ever considered how many ways there are to say “no?” There’s Shakespeare “no,” Bible “no,” Beatles “no,” Rolling Stones “no,” big meanie “no,” nice “no,” cheerful “no,” angry “no,” conservative “no,” enthusiastic “no,” hear no evil, see no evil, speak no evil. You get the idea.
At the end of the “No” drill, no was just no. It didn’t come with a bunch of baggage and mis-emotion. It wasn’t necessarily tyrannical or oppressive. It didn’t immediately cause a reaction in me or the people I dealt with. I also learned that you can actually say no without using the word. For example, you can say not okay or not approved.
Over the years, and especially in business, I’ve learned that when you say no, if you go on to kindly educate the person as to why – they will often thank you. I am repeatedly surprised when I get thanked for saying no.
For instance, I probably get one or two requests every month to let a tenant out of their lease.
I explain that the bank has to rely on me to collect the rents each month so that their mortgage gets paid, and the property is kept up. Likewise, I have to rely on good qualified tenants to keep their contracts and pay their rents so I can keep my contract with the bank and our service providers. If we let everyone out of their lease when it was inconvenient for them to fulfill their contract, we wouldn’t even have a business.
Plus, I’m required by law to treat all of our tenants the same, so if I let one person out of their lease I have to let everyone out of their lease or I may get in discrimination trouble which could carry a $10K fine.
That’s the bad news. The good news is that I will work like a mad woman to re-rent their unit as fast as possible to mitigate the damages.
Tenants appreciate it when you explain the business reason why their request is not approved.
Every once in a while if a tenant gets belligerent (which happened recently when a tenant’s boyfriend tried to verbally rough me up) I might get snarky and say “what you’re really saying to me is ‘hey I want to break my lease and I don’t want to suck up the costs of my actions, so I want you to suck up the costs of my actions. And if you say no you’re just a big meanie yucky landlord.’”
That usually ends the conversation.
Here’s a horrible example of some landlords that couldn’t say no:
When I was practicing law an adult daughter hauled her parents into my office under protest. The parents (I’m guessing in their mid-70s) had a young family living in their rental house that hadn’t paid rent for years. Years. (I’ll save you from the giant convoluted stories that the landlords bought instead of collecting rent.)
The retired landlord had gone back to work so he could pay the mortgage on the rental house because the young family wasn’t paying rent.
That was a landlord that could not say no. It was easier to go back to work than to confront the deadbeats and say nyet.
You can’t be successful in business unless you have the ability to say and hear the word no. Learn to use it and succeed.
[Photo credit: christopherdale via photopin cc ]
How to Build Passive Income Streams
My son and investment partner, Josh Mettle, has a new podcast: Physician Financial Success, which teaches physicians how to avoid financial landmines. Dr. David Phelps teaches professionals how to stop trading time for dollars and transition from earned income to passive income. The two of them got together for this really great podcast.
I’m a “retired” attorney, which makes me kind of an odd bird. When I got ready to retire, I then had a full time crazy-busy law practice and I co-owned and self-managed 70 houses and apartment units in my “spare time” with the help of my daughter-in-law. I called the Bar and asked if there was some kind of a checklist or roadmap for how to wrap up a practice and retire. Apparently, attorneys don’t retire, they just have heart attacks and die. I wanted to skip that part! So I had to invent my own off-ramp.
Dr. David Phelps seems to have systemized it.
If you have a secret desire to transition from the billable hour to passive income, it’s worth 30 minutes to listen to these two smart investors discuss the process.
It’s like dessert without the calories!
P.S. You can sign up for Josh’s new podcast at iTunes if you want to hear more great investment advice while you walk your dog or commute to work 🙂
How to Become a Weekend Millionaire
Twelve years ago I had virtually no assets. Zip, zero, butkis. To balance that out, I had big law school student loans (which I’m still paying), and a new law practice. Retirement funds? No way.
What I did have is a strong work ethic, a great education, an enormous ability to work hard and produce, and I’m honest. That made me a good prospect as a partner.
My son/investment partner Josh, was busy building his loan business. He has a fantastic business sense, a strong work ethic, an enormous ability to work hard and produce, and he’s honest. That made him a good prospect as a partner.
So we were off to the races.
When I look back now, I have no idea how we pulled off most of what we pulled off. It was sheer intention.
I was getting older (just between you and me) and needed to get serious about putting together a retirement. Josh was young and needed an investment plan so he didn’t party away his income.
As a loan broker, Josh has seen thousands of credit applications, and he says that almost everybody lives beyond their means, no matter how much money they make. Very few people have income producing assets.
Think about that.
In about the last 12 years, I have bridged from earned income (the dreaded billable hour) to passive income. I have an income for life and assets with equity that I can pass on to my loved ones. I have a tremendous sense of peace and well being from that accomplishment.
That’s self made wealth.
I still work hard every day. I never have to show up for work and wait for someone to tell me what to do. I get to select my goals and choose my projects.
The only purpose for this little exercise in rear view mirroring is to say to you….if I can do it, anyone can do it.
There’s a book I wish I would have written that I want to recommend: “The Weekend Millionaire’s Secrets to Investing in Real Estate: How to Become Wealthy in Your Spare Time,” by Mike Summey. Mike retired at age 50 with a 7-figure annual income from his rental properties. He started investing at age 34 while working at a demanding job. Over time he purchased hundreds of rental properties in his spare time. Mike has already walked the path. You don’t have to invent it. Get his book and start by following his program.
It’s doubtful that we will ever see real estate loans again at interest rates where they are now.
I hope every person who reads this blog will take the next step to becoming a weekend millionaire by adding at least one rental property in 2014. Then follow Mike Summey’s program and keep going until you reach your own wonderful retirement, with cash flow.
Warren Buffett on Gold vs. Income-Producing Investments
This is the best tutorial I’ve ever found on gold as an investment. So I thought I’d share:
“Gold is a huge favorite of investors who fear almost all other assets, especially paper money. But what motivates most gold purchasers is their belief that the ranks of the fearful will grow.
“The world’s gold stock is 170,000 metric tons. If all of the gold were melded together, it would form a 68-foot cube – and fit in a baseball infield. At $1,750 per ounce … [last year] its value would be $9.6 trillion. Call this cube pile A.
Now create pile B. For 9.6 trillion, we could buy all U.S. cropland (400 million acres producing $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor selecting pile A over pile B?”
[Photo credit: Fortune Live Media via photopin]
2013 started with a new 7-plex
Our goal for 2012 was to increase cash flows and add cash flows. Happily, we did that. We now own and self-manage 100 lovely houses and apartments.
We closed on a great 7-plex at the end of October. Over the following 3 weeks we installed a new parking lot, a new roof, new landscaping, and gave notices to all the smokers. Bye-bye.
Tomorrow, the first gorgeous, fully renovated, 3BR townhome goes on the market. I expect to be able to increase the rent on that first unit by $300/mo. over the former rents. That’s my sick and twisted definition of fun.
So in 2013 I want to really “put a dent in the universe.” (Steve Jobs)
We have a tried and true formula at this point, and I’m going to spill the beans this year on what we do and how we do it. Stay tuned!
In 2013 we plan on adding and beautifying more units, adding cash flows, doing some writing, and taking some time off.
I better get back to work 🙂
This is a great retirement gig!
Professionalism
I ran into an old friend a few nights ago. His name is David Read and he’s the real estate broker that sold my son, Josh his first home. It was a view condo. Josh was 20 years old and I was a single mom going to school.
Dave treated us like we were special.
Josh made a bundle of money off of that first home. He lived in it for a couple of years, then he rented it out for a couple of years, then he renovated it and moved back in, then he sold it for a $65,000.00 profit.
It’s doubtful that Josh could have “saved” $65,000.00 in the same time period. Plus when you factor in the tax benefits and the benefits of having his tenants pay his mortgage down, Josh figures that he pretty much lived in the condo for free for the years that he lived there.
The experience also made Josh a believer, so I was able to recruit him as my real estate investment partner and that has worked out pretty good too!
Dave got Josh off to a great start in life, by helping him buy that first home. And it wasn’t easy, because Josh was a 20 year old punk kid :), he was a commissioned salesman at Lifestyles 2000 Fitness at the time, and Dave had to work hard to find Josh that first loan.
Here’s what I learned from Dave’s professionalism and kindness:
1. Show up at the close (or go over the HUDs in detail beforehand so your clients know what to expect when they sit down to sign hundreds of pages).
2. Make your clients feel special.
3. Solve problems.
Not necessarily in that order.
Fund Your Fabulous Retirement with Cash Flow from Rental Property
Recently, I got an email that went something like: “Sure, right, easy for you to say. You can buy rental property because you have a law degree and money and credit.”
Huh?
Let me just say, that when I started investing in real estate with my son, I was fresh out of law school with huge student debt, in my mid-40s, no money, no time, no retirement plan, and barely any credit. Plus, I had just finished a 14 year stint as a single-mom.
Yep, I was really special.
We made only a tiny bit of profit on our first investment, after investing a whole summer of work. (We made the mistake of trying to be flippers. Now that I think of it, that was only one of a huge number of mistakes!)
We went negative on our second investment, a condo, which went down in value about $25K the first year we owned it because of a ton of foreclosures in that development. The condo is now worth double what we paid for it with a nice positive cash flow.
On our third investment, an eight-plex (which we had no business buying), we found out at the last minute after investing $15,000.00 earnest money, $3500+ for an appraisal and inspections, etc., that we couldn’t qualify for the loan. I wasn’t willing to walk away, so I broke down and begged a relative for the loan. It was horribly embarrassing. The relative gave us the loan and took a first position lien (because the property was a good investment) at a whopping 8.5% interest. We had no track record, so we paid through the nose for the first three years that we owned that property. My son and I did all the work (in our spare time after hours and weekends) for the first three years. Plus it was negative cash flow and Josh and I had to work to feed the creditors. (Please don’t follow this example!) After that we were able to refinance at 6.5% interest and we finally had positive cash flow. Today, 8.5 years after the purchase, the property is worth twice what we paid for it and we are currently refinancing for about 3.85%. Booya! Now we’re talking cash flow.
So don’t be a big stinking crybaby! (To paraphrase Donald Trump.)
Let me tell you what is way more valuable than money or credit. It’s the burning DESIRE, the drive, the motivation to be successful, to win, to be self-made. This is the entry ticket to the game. If you have this great desire, it’s game on.
You are going to make mistakes. You will sometimes lose money. You will experience frustration and aggravation and nasty little punks that get all up in your face. You will start out working long hours. You won’t know how to do a thousand things.
But over time, you will experience pride and accomplishment. You will have a ton of fun making things look great and renting it to nice people, and you will fund your fabulous retirement before you know it.
You may have to be creative, especially to start. But if you actively look and actively make offers, suddenly you’ll find a property and a situation that will click.
Now get out there with a smile on your face and put together a great retirement…one cash-flowing rental property at a time!