“You can choose to lead, or not. You can choose to have faith, or not. You can choose to contribute to the tribe, or not.

 “Are there thousands of reasons why you, of all people, aren’t the right one to lead? Why you don’t have the resources or the authority or the genes or the momentum to lead? Probably. So what? You still get to make the choice.”

 —Seth Godin, “Tribes: We Need You to Lead Us,” p. 146

 Are you looking for a good leadership book to read to start the New Year? This is a good one; better than I thought it would be. If you have ever attended one of the Prosperity Summits co-sponsored by REIC, you may remember how many times Garrett White said the word “tribe.” When I attended my first Prosperity Summit, Garrett probably said the word “tribe” at last twenty times. Because he said it so many times, I became curious about 1) what a tribe is, 2) how to create one myself, 3) how to become a tribe member, and 4) what the big deal is.

Garrett read this book and began to understand the power of a tribe. I read this book and began to understand the power of a tribe. You will, too.

What do tribes have to do with real estate? In a word, nothing. But that’s not important. The way tribes tie into what we do here at REIC is this: when you have extra income produced by real estate, you have extra time; if you have extra time you can help the world by living your soul purpose. Those you affect, help, work with, lead, etc. while living your soul purpose are your tribe. Real estate is the tool used to finance your soul purpose so you can build a tribe.

Make the choice to read this book this year. It can change your perspective on many different topics. The year is fresh; opportunities to lead a tribe abound. Don’t let the year slip by without doing something great!

If you are interested in reading my full book review, click here.

What is the best way to invest in real estate? Using a process that is going to take a lot of time and money, or one that will take very little time and no money? Kind of a no-brainer, isn’t it? If you want to invest in real estate, why would you ever try the fix-and-flip method? It takes a lot of time and a lot of money to make a very small return on your investment. What about if you were to buy a house and turn around and sell it a short time later to make a $25,000 profit having never seen the property (besides an MLS photo)?

Well, it’s possible, if you do things the right way. Kris Krohn’s Strait Path real estate investing system includes six elements of successful real estate investing:

1. Time
2. Effort
3. Risk
4. Service
5. Market Volatility
6. Profitability

I’m going to discuss the first element: Time. Time is a funny thing. It is a commodity that is in the shortest supply and the highest demand. If you ask people why they fail to do the things they want to do with their lives, or have the things they want to enjoy, or even enjoy the things they already have, there is a pretty good chance that it is because they “don’t have the time.”

Investing in real estate is difficult at best. And if you invest in real estate using any method besides the Strait Path System, you will also burn a lot of time in the process. All forms of real estate investing require some amount of time. But who wants to spend hours upon hours on one real estate deal? Let’s face it, real estate investing really isn’t very interesting. The less time you spend on a transaction, the more you will make and the more time you will be able to spend doing what you want to do.

In his book, The Strait Path to Real Estate Wealth, Kris Krohn states, “Successful and sustainable real estate investing requires that you learn how to reduce the time you expend, while at the same time increasing your profits. The more time you spend on any individual deal, the less time you have to spend on creating multiple deals. The more time your strategy requires, the less successful you’ll be, and you’ll be inclined to wash out of real estate investing entirely. The more time an investment takes, the more it feels like a job, as opposed to a true investment, which should demand passive participation on your part.

“The success of the Strait Path system is largely a function of speed. Speed is achieved by eliminating flawed perspectives and habits, focusing on the right deals in the right ways, and leveraging the time, talents, and efforts of others. In short, you’ve got to use the right system executed by the right people in the right ways.”

So, in order to keep your real estate investments true investments (instead of another full-time or part-time job), spend as little time as possible on each transaction.

“Our society is afflicted by a spirit of thoughtless arrogance unbecoming those who have been so magnificently blessed. How grateful we should be for the bounties we enjoy. Absence of gratitude is the mark of the narrow, uneducated mind. It bespeaks a lack of knowledge and the ignorance of self-sufficiency. It expresses itself in ugly egotism and frequently in wanton mischief. We have seen our beaches, our parks, our forests littered with ugly refuse by those who evidently have no appreciation for their beauty. I have driven through thousands of acres of blackened land scourged by a fire evidently set by a careless smoker whose only concern had been the selfish pleasure gained from a cigarette.

“Where there is appreciation, there is courtesy, there is concern for the rights and property of others. Without appreciation, there is arrogance and evil.

“Where there is gratitude, there is humility, as opposed to pride.

“How magnificently we are blessed! How thankful we ought to be!”

 —Gordon B. Hinckley, “‘With All Thy Getting Get Understanding’,” Ensign, Aug 1988, 2–5

Last year, I wrote an article titled “Thanksgiving Day – The Forgotten Holiday” to pay homage to a holiday that is about more than good food, family, friends, and a post-turkey nap. The very foundation of the Thanksgiving Day holiday is to feel and show gratitude for what and whom we have in our lives. It is not an accident or a coincidence that Thanksgiving Day is celebrated after the years bounty is brought into storehouses. It is at this time of year especially that our ancestors were able to take a step back and actually see a physical manifestation of not only the fruit of their labor, but physical, quantifiable proof of their abundance. I hope that as you read this post, you will think about the things and the people that you are most grateful for and express your gratitude for those blessings.

What are you Grateful For?

Start with a surface-level list of items you use every day that makes modern life great. Your list may look something like this:

• House(s)
• Car(s)
• Cell phone
• Laptop or desktop computer (or both)
• High-speed internet
• Wireless internet access
• Post-It notes
• Cable TV
• NetFlix
• The latest Harry Potter movie
• Josh Groban’s new album

I encourage you to use the above list to get yourself thinking of all of the gadgets, tools, and entertainment sources that make your daily life better.

Next, create a list of ten (10) people in your life that make getting through the day-to-day bearable. Include family members, friends, co-workers, and acquaintances to get started. Feel free to add more lines yourself.

1. __________________________________________
2. __________________________________________
3. __________________________________________
4. __________________________________________
5. __________________________________________
6. __________________________________________
7. __________________________________________
8. __________________________________________
9. __________________________________________
10. __________________________________________

Next to the person’s name, identify why you are grateful for them. What have they done for you in the past year that allowed them to show up on your gratitude list? If there are multiple reasons, list all of them.

This is when this exercise will get fun—for you and for those people on your list.

By the end of Thanksgiving Day, contact the people on your list, tell them about what you did, and express the gratitude you feel towards them. I would be extremely surprised that the opportunities you create to show gratitude will end badly. On the contrary, these opportunities will likely be among the most memorable of the year, for you and those you are grateful for.

Share your experiences with us! Add a comment about your experience on the comment form below.

Happy Thanksgiving!

“Not in achievement, but in endurance, of the human soul, does it show its divine grandeur

and its alliance with the infinite.”

Edwin Hubbel Chapin

“Endurance is nobler than strength, and patience than beauty.”

John Ruskin

 “Endurance is not just the ability to bear a hard thing, but to turn it into glory.”

William Barclay

 With your feet planted solidly on the Strait Path, you are on your way to prosperity and your financial goals. In order to finish your 10-year game plan strongly, you have to stick with it. You have to endure to the end of the ten-year period in order for the plan to bear all of its fruit. Remember: the Strait Path System is not a get-rich-quick program. It is a get-rich-slowly-but-surely program. Because progress can be slow at times, sticking to the plan can be difficult.

 When people first begin, they are excited and positive that they will be able to stick with it until the end. But so often, people fall off of the path for one reason or another. They simply don’t stick to their game plan. In order to stick to your game plan, you have to do four things over and over again:

1.  Buy discounted properties
2. Fill the properties with tenants using the Compassionate Financing method
3. Sell the property to the tenant when their credit has improved
4. Roll the proceeds into more homes

 This is all it takes. But most people lack the discipline to get it done. Some people take the money they should use to but more properties and buy toys, vacations, or junk. That creates a major set-back in the game-plan that is difficult to recover from, so people just quit. Because they did not delay their gratification, they risk ultimate game-plan failure. It isn’t pretty.

 So what do you need to do to stay on the path? Repeat the four steps above over and over again until you reach a point Kris calls “critical mass.” At that point, your goals and your dreams are almost within reach.

“Happiness is to be found along the way, not at the end of the road, for then the journey is over and it is too late. Today, this hour, this minute is the day, the hour, the minute for each of us to sense the fact that life is good, with all of its trials and troubles, and perhaps more interesting because of them.”

—Robert R. Updegraff

 REIC works with a lot of people, and our list of clients grows longer every week. Every one of these clients creates a customized 10-year game plan, which is essentially a set of goals spanning the next ten years. All of our clients are not sent down the same path and expected to gain the same results. Each one of our clients is unique in many ways: their knowledge of investing, real estate, mortgages, their financial position, their level of working capital, their credit scores, their job history. Our clients and their goals cannot be pigeon-holed into one investing path and expect to succeed. There are four different paths that we put our clients on, depending on their situation.

Path #1: Preparation
Those who are set on this path need to build a foundation for their investing future. They are usually unable to secure traditional financing for one reason or another and need to build credit history, job history, repair credit history, resolve a prior bankruptcy, etc. before they can fully enter the investing game. This path must be followed until the client will qualify for traditional financing.

Path #2: The On Ramp
Those who are on this path have good credit and an established work history, but no assets to work with. These people need to save for a down payment, buy their first home, and refinance it to pull the equity out so they can buy another home. It is very important that individuals on this path purchase a home with equity in it so that equity can be recycled into more homes.

Path #3: Acceleration
Those who find themselves on this path are solid in all areas: Good credit, good job history, income, assets, and a home with equity in it. People on this path are in an awesome position to really kick-start their portfolio. When they leverage their assets correctly, their portfolio can grow very quickly. The key to this path is leverage.

Path #4: Cruising
The clients we put on this path are in the best financial position possible to experience huge growth potential. Their credit score is premium, as is their income and job history; they have a home with usable equity; and other assets that can be leveraged to grow a huge real estate portfolio (401(k), IRA, annuity, permanent life insurance policies, liquid investments, etc.). The key here is momentum. Once these clients get going on their investments, they need to repeat the process in order to build a portfolio that will provide for their retirement. Growth at this level is exponential.

 No matter what path you follow, stick to it. Self-discipline and delaying gratification will keep you on the Strait Path. Each path requires some level of sacrifice, but the rewards for the sacrifice are huge!

Comments? What do you think?

“No wealth creation system would be complete without a vision of the end goal. A game plan provides motivation when things are tough and discipline to turn away from temptation…To be successful, you need a structured and systematized approach to investing. This is achieved by constructing a portfolio game plan.”

—Kris Krohn, The Strait Path to Real Estate Wealth, p. 77

  For every large and important venture, planning ahead is the way to success. Investing in real estate is no different. Planning for the future is the first step you take when you begin walking down the Strait Path to Real Estate Wealth. This “big step” is broken down into three “baby steps:”

1.  Identifying and leveraging hidden assets
2. Creating a ten-year-long, customized goal
3. Enduring to the end

 People have a lot more assets to work with that they often realize. These assets are usually referred to as “hidden assets” because people either don’t know they are there, or if they are aware of them, they don’t realize they are valuable to them (assets are valuable) to the degree that they could be life-changing.

 When I was an Accounting major at Utah Valley University, I learned what assets are: an asset is anything that has value, whether it is cash, existing real estate, or other types of property. Many of our members have these assets and know about them because they are obvious. I like to call them “hard assets.” In addition to these hard assets, there are also “soft assets” that you can put to work:

1.  Home equity
2. Qualified-plan funds
3. Income
4. Job history
5. Credit history
6. Relationships

 Investing in real estate requires you to take out mortgage loans, and loan applications require you to list your assets. Creating an inventory list of your assets before beginning the application process will help speed the funding process along. The first three “soft assets” are easy to quantify, but what about the last three? How are job history, credit history, and relationships valuable?

 Job History: In order to become a real estate investor, you must show 2 years of job history in the same industry in order for money institutions to okay your loan(s). If you have a good employment track record but keep jumping around from industry to industry every few months, you will not be seen as reliable, credible, and able to pay back a loan. If real estate investing is in your future, buckle down, keep working in your current industry for at least 24 months, and then you and your application will receive the time of day from money lenders.

 Credit History: Your credit worthiness is judged by your FICO, or credit, score. The higher your credit score (up to 840), the easier you will receive money from lenders. In order for you to have a chance, your credit score should be at least 700 or higher. If it is lower than that, get a credit report and look at it to find opportunities to raise the numbers. Remember, the higher the better.

 Relationships: When people you know watch you begin investing and succeeding in real estate, chances are they will want to know how to get in the game. Because you have the know-how to succeed, you will be able to join forces with them in order to create more for both parties. This process is called partnering. Partnering allows you to actually monetize your relationships with friends, family, co-workers, etc. Using your relationships as assets, you will have the power to buy more homes than you would be able to do on your own, thus increasing your net worth and cash flow.

 Sit down right now and make a list of all of your assets, hidden and obvious. Hang onto that list because it will help you begin your real estate investing experience.

 What do you think? Add a comment below.

I know an individual who has done twenty-one fixer-uppers over the course of about twenty years. He chose this strategy because he loves working with his hands and the process of beautifying homes. Even though almost all of his deals were profitable, he’s stopped doing them and has taken a corporate job instead. He realized that it just wasn’t working — he was never going to achieve lasting wealth by doing it. He’s a particularly poignant example because I don’t know of anyone better than he is at fixing and flipping homes. He, like so many others, realized that flipping was an unsustainable strategy.

I met another man who made a $10,000 profit on a flip. But after he did the math, he realized that he had earned the equivalent of $12 an hour.

The only time I’ve ever lost money in a real estate deal was on my fourth investment, which I purchased to flip. I bought it for $300,000, and I had solid comparables to substantiate a $400,000 market value. I was so excited by that amount of supposed equity that I jumped on the deal. After being on the market for ninety days, the home eventually sold at a $5,000 loss to me. I assumed it would act like a typical flip, but it was way over the median home price for the area. The lessons I learned were 1) avoid houses above the median price, and 2) flipping is unreliable. It may work consistently for some people, but it requires so much intricate knowledge and experience that newbies are virtually guaranteed to lose on the strategy.

The Good

When done right, fixer-uppers are bought at substantial discounts. Securing up-front equity is an excellent way to mitigate risk.

The Bad

The difference between market value and perceived value often dictates that relatively little of your time, money, and effort will result in increased actual value (see chapter 6).

Lending requirements make it extremely difficult to get an accurate appraisal within a few months of purchasing a home. You may buy a home for $150,000 and then put $40,000 into it in the hopes of getting an appraisal for $230,000. But an $80,000 jump in value within a few months is a huge red flag for banks, so appraisers are less willing to account for it, which makes flip homes more difficult to sell quickly.

Flipping creates a full-time job, rather than passive income. You have to keep doing it over and over again or else the cash flow stops. This is a major drawback even for those who love to do it.

The Ugly

Most people don’t consider every variable, which means that their calculations are wrong. It may appear that a home has $40,000 of equity, but that number can be whittled down quickly to nothing after factoring in capital gains taxes, realtor fees, monthly payments, fix-up costs, and the inevitable devaluation of the property to sell it fast. Initial excitement can often very quickly turn into a nightmare scenario where you’re lucky to break even, or where you actually lose money.

Most flips must be purchased with 40 to 50 percent equity for them to be profitable. These deals are nearly impossible to find, especially for beginners.

All things considered, the most successful flippers find that the return on their time and money equals that of a decent-paying job. In other words, they would be better off to work a little overtime at their current job, rather than falling into the flipping trap.

Flip deals carry a high risk of market dependency. The entire strategy is predicated on re-selling the home quickly. Therefore, if the market drops while you’re fixing up a home, all your equity goes down the drain. Without a hold strategy, you have no way of earning it back — you’re forced to liquidate the home as quickly as possible. You’ll feel lucky to break even, and in many cases you’ll lose money.

Rentals are the most common form of real estate for average investors. The concept is simple and straightforward and doesn’t require a lot of sophistication: you purchase a property, and then rent it out and hope that you can earn a positive cash flow.

The Good

Rentals create a monthly cash flow (though many rental owners experience negative cash flow).

Rentals are usually in demand, depending on the type and size of the home.

The buy-and-hold strategy means that appreciation and long- term profitability are almost guaranteed — as long as the investor holds onto the property long enough.

Investors enjoy tax savings by writing off mortgage interest payments.

The Bad

Investors expend significant time and effort fulfilling landlord duties.

On paper a rental seems to be a good holding strategy, but most people sell rentals in a few short years — often at a loss — because they get so fed up with them.

It’s very difficult to get a positive cash flow from rentals in the first few years.

High occupancy turnover means that investors have to get new tenants frequently.

The Ugly

It’s relatively common for renters to damage the home, in some cases significantly.

The investor is responsible for all repairs, resulting in high out-of- pocket expenses. The investor must paint the inside of the home and replace the carpet periodically. He or she must pay for broken furnaces, air conditioners, garage doors, appliances, etc.

The investor is on call twenty-four hours a day, seven days a week, unless he hires a property management company, but doing so substantially reduces profits.

Some rentals are located in undesirable neighborhoods, which can increase risk.

Rentals return significantly less revenue than properties acquired using the Strait Path system

There are obviously countless types and variations of real estate investing. When I created the Strait Path system, I studied every system and strategy I could find, all of which fall in the general categories of 1) rentals, 2) fix-and-flip, 3) lease options, 4) distress sales, including short sales and foreclosures, 5) multi-unit investing, 6) speculative building, and 7) land development, residential development, and commercial development.

I wanted a system that was simple, safe, replicable, and predictable, and that could be applied without needing massive amounts of time, knowledge, experience, and capital.

I wanted to create something that anyone, regardless of his or her current circumstances, could apply successfully without taking on a lot of risk. I therefore eliminated the last three general categories, though I considered them in depth. Multi-unit investing, spec building, and new development are simply not available to most investors. For our purposes, we’ll compare Strait Path real estate to only the first four categories.

Let’s consider each of these in turn to ascertain the strong points and drawbacks of each.

Rentals

Rentals are the most common form of real estate for average investors. The concept is simple and straightforward and doesn’t require a lot of sophistication: you purchase a property, and then rent it out and hope that you can earn a positive cash flow.

The interesting thing about Strait Path real estate is that even though profitability is one of six factors considered for every deal, the Strait Path system is still far more profitable than other forms of investing. In other words, the Strait Path system is still the best even when profitability is an investor’s sole or primary focus.

This is because the system offers five profit centers, wher

eas others offer only one or two. The five profit centers include 1) discount equity, 2) cash flow, 3) down payment, 4) appreciation, and 5) tax benefits.

1. Discount Equity Discount equity is the difference between the market value and the purchase price of a home. Our finding system helps us secure properties with 15 percent equity or more. Depending upon the size of the home and its discount purchase price, you may make more on one purchase than you make all year in your current job. For example, if a home is worth $275,000 and you can purchase it at a 15 percent discount for $233,750, you’ll make $41,250 on the purchase alone.

2. Cash Flow Cash flow is the monthly amount you receive from your tenants less your monthly mortgage payment. In short, it’s the difference between your mortgage payment and what your tenant pays you each month.

$200/mo cash flow

3. Down Payment The technical term for this is “option consideration,” which is a fee paid by tenants to secure their opportunity to purchase the home within a specified period of time. This is nonrefundable, and we receive on average $5,000 down per house.

$5,000 down payment

4. Appreciation Appreciation is the rise in value of a property over time due to increased demand. What’s notable about Strait Path real estate is that we don’t rely on appreciation to turn a profit, though we do account for it when it occurs.

10% additional profit

5. Tax Benefits Tax law allows homeowners to deduct mortgage interest from their taxes. This is a huge advantage in Strait Path real estate, since the goal is to purchase as many homes as possible

With a fixer-upper, investors receive the first profit center and, if they’re lucky, the fourth. But they have no cash flow, they do not get a down payment, and capital gains taxes often wipe out any earnings. With rentals, investors enjoy tax benefits and sometimes benefit from property appreciation. They receive no down payment, however, and they’re lucky if they get a good deal up front and receive a positive cash flow. Once again, the Strait Path system offers investors all five income streams.