Financial Freedom Group Blog

My $100,000,000 Plan

Without further ado here is my $100,000,000 plan.

The goal, remember, is to create $100,000,000 net worth in 5 years or less.  You will see a carry forward in year 1 that took into account where I was when I started this exercise.

I am going to outline the 5 years individually with the action step and how much income each step will generate.

Year 1 Action Steps:

We have created a business that flips properties at $10,000 a month for $120,000 annually.

We have created a business that sells notes from properties in IA that we sell on a contract for deed.  This will net $200,000 annually.

Purchase a piece of land, do entitlement work, sell it for double the purchase price (paid $100,000 and sold for $200,000).  Net, $100,000 annually.

Create a new, positive, cash flow of $8,000 a month from buying real estate.  $96,000 is the annual net number.

We purchase real estate that has a value of $2,000,000 for only $1,800,000 (10% equity).  This adds $200,000 to the net worth.

Carry forward $7000 a month positive cash flow.  This is a $84,000 addition to the net worth

Carry forward $250,000 equity. 

Recap

• $120,000 Wholesaling Deals
• $200,000 Selling Notes
• $100,000 Land Deal
• $96,000 New Cash Flow
• $200,000 Equity from New Purchases
• $84,000 Existing Cash Flow
• $250,000 Existing Equity
• $1,050,000 Gross after Year 1
• ($60,000) Living Expenses
• ($20,000) Business Overhead
• $970,000 Net Worth

Year 2 Action Steps:

We wholesale properties for $20,000 a month.  This is $240,000 annual increase in net worth.

We purchase $7,000,000 worth of real estate for $5,950,000 (15% Equity).  This adds $1,050,000 to the net worth number.

Cash flow from new real estate acquisitions is $15,000 a month for $180,000 cash added to the bottom line.

Carry forward cash flow from the previous real estate acquisitions is $15,000 a month also for an additional $180,000 per year.

Appreciation of 3% on real estate already owned for an increase of $135,000 to the bottom line.

Get into a land deal for $1,000,000 and resell is for $3,000,000.  $2,000,000 addition to our net worth.

Business sells IA property notes for $500,000 profit annually.

Equity and cash carried forward from previous year of $970,000. 

Recap of Year 2:

• $240,000 Wholesale Business
• $1,050,000 Equity from Purchases
• $180,000 New Cash Flow
• $180,000 Existing Cash Flow
• $135,000 Appreciation
• $2,000,000 Land Sale
• $500,000 Note Sales
• $970,000 Carry Forward Cash and Equity
• $5,255,000 Gross
• ($80,000) Living Expenses
• ($140,000) Overhead Expenses
• $5,035,000 Net Worth

Year 3 Action Steps:

Our wholesale business is running at full steam turning out $35,000 a month.  This adds $420,000 to the bottom line.

We get into a large value add industrial project.  Create $10,000,000 in equity.

3% appreciation on real estate owned (total amount of $11,600,000 worth of real estate) this would be $348,000

Carry forward cash flow of $30,000 a month.  This adds $360,000 a month to the bottom line.

New monthly positive cash flow of $40,000 per month.  This adds $480,000 a month to the bottom line.

We add to the investing business by adding a commercial brokerage which nets $1,000,000, we have an equity stake in deals we have put together for $2,000,000 and we continue to sell notes for $3,000,000.  This adds $6,000,000 to the bottom line.

We purchase a land deal for $3,000,000, subdivide and sell for $6,000,000. 

Equity and cash carried forward from Year 2 $5,035,000.

Recap of Year 3:

• $420,000 Wholesale Business
• $10,000,000 Industrial Value Add
• $348,000 3% Appreciation
• $360,000 Carry Forward Cash Flow
• $480,000 New Cash Flow
• $1,000,000 Brokering Deals
• $2,000,000 Equity Stake in Joint Venture Deals
• $3,000,000 IA Note Sales
• $3,000,000 Land Deal
• $5,035,000 Equity and Cash Carried Forward from Previous Year
• $25,643,000 Gross
• ($150,000) Living Expenses
• ($300,000) Overhead Expenses
• $25,193,000 Net Worth

Year 4 Action Steps

We stop the quick turn real estate business.  Even though it is leveraged it isn't worth keeping around.  We consider selling the business but in the mean time this adds $0 to the bottom line.

3% Appreciation on real estate owned ($27,000,000 in total real estate).  This adds $810,000 to our net worth.

We carry forward monthly positive cash flow of $70,000 a month.  This is $840,000 in the bottom line.

New monthly positive cash flow of $70,000 a month.  This adds another $840,000 to the bottom line. 

Big Deal creates $10,000,000 in equity. 

Real Estate Investing Company.  We broker deals for $2,000,000.  We joint venture with investors for $4,000,000 in equity.  We sell notes for $5,000,000 profit.  This is a total of $11,000,000 in net worth

land purchase of $10,000,000 and resell for $22,000,000.  This adds $12,000,000 to our net worth.

Equity and cash flow carried forward of $25,193,000

Year 4 recap:

• $0 Stop Wholesale Business
• $810,000 3% Appreciation
• $840,000 Carry Forward Cash Flow
• $840,000 New Cash Flow
• $10,000,000 Bid Deal Value Add
• $2,000,000 Brokering Deals
• $4,000,000 Equity Stake in Joint Ventures
• $5,000,000 Note Sales
• $12,000,000 Land Purchase and Sale
• $25,193,000 Equity and Cash Carry Forward
• $61,683,000 Gross
• ($500,000) Living Expenses
• ($1,000,000) Overhead Expenses
• $59,183,000 Net Worth

Year 5 Action Steps:

3% appreciation on real estate owned ($60,000,000) for a total of $1,800,000 added to net worth.

Carry forward monthly positive cash flow of $140,000 a month for a total of $1,680,000 to the net worth total

New monthly positive cash flow of $140,000 for an additional $1,680,000 addition.

1-2 Big Deals for a total of $20,000,000

Our investment company brokers deals for $3,000,000.  We have an equity stake worth $6,000,000  in joint venture deals and $7,500,000 in cash from note sales. 

We purchase a land deal for $10,000,000 and resell for $22,000,000 for a profit of $12,000,000. 

Equity and cash flow carry forward for a total of $59,183,000.

Recap of year 5

• $1,800,000 Real Estate Appreciation
• $1,680,000 Carry Forward Cash Flow
• $1,680,000 New Cash Flow
• $20,000,000 From Big Deal(s)
• $3,000,000 Brokering Deals
• $6,000,000 Equity Stake in JV Deals
• $7,500,000 Note Sales
• $12,000,000 Land Deal
• $59,183,000 Equity and Cash Carry Forward
• $112,843,000 Gross
• ($6,000,000) Living Expenses
• (2,000,000) Overhead Expenses
• $104,843,000 Net Worth

This plan does not take in account tax effects. 

I will post an update to where we are tomorrow.  We are ahead of schedule.

If you have any questions please let me know.

$100,000,000 Plan

An outstanding way to really stretch yourself is to create a plan to develop a net worth of $100,000,000 ($100 million) in the next 5 years.  You will find that you will try to do it by using techniques that you are familiar with.  You will soon find out that you will have to move to bigger deals to get to the numbers you are looking at or start to leverage yourself tremendously to buy a lot of single family homes.

This will take some time to put together.  I initially did my $100,000,000 plan on an airplane while flying to a real estate seminar.  I will post my original plan tomorrow, and I will also share how it has worked itself out. 

Here is how to put the plan together.

Create a plan for every year of the 5 years.  Have the previous year add into the plan that you are creating.  I would also add in 2-3% to the equity as appreciation.  I am going to leave the structure open for your mind to run wild. 

A few tips.  I would try to focus on deals that have some component of value add.  That may be a rehab, problem management or a vacant commercial property.  Adding value is an outstanding way to explode your wealth.  I would also add in big deals to your plan.  You may not know much about big deals but that is OK.  I would also look at many different types of deals such as land, development, apartment buildings, commercial properties, etc.  If you have questions please post in the comments section (I am sure others will have questions as well and we can all learn together).

Stay tuned for my $100,000,000 plan.  Also feel free to send me your plan and we can brainstorm around it.

I am back

The last couple of weeks I have been on vacation.  Add that into us working on a few deals and I haven't spent much time on my blog.  Please forgive me.

I am going to be adding some posts on how to think big, a review or two of some books that I have read lately and a how to article on laying the foundation of your investing.

Investment Opportunity

We have an opportunity for someone to invest with us as an equity partner.  Here are the deal particulars.

• Purchase Price: $6.8 Million
• Underwritten Value by Lender: $9 Million
• Total Down Payment needed: $950,000
• Our Contribution: $400,000
• Amount still needed: $550,000

The upside to the deal:  The property needs some rehab work (about $200,000).  One of our partners currently owns 1100 units and he specializes in rehab of apartment buildings.  The property will be managed by Centra Asset Partners who specializes in rehab and turn around projects.  Julie and I currently have an interest in 680+ apartment units as well.  When we got it under contract when the occupancy was around 60%.  Now it is close to 85% occupancy.  Our target occupancy is 93% because this is where the rest of the market is operating.  This property is located about 10 minutes outside of Fort Worth, TX in Haltom City.  The market in Texas is very strong because of the oil economy and job growth around that.  This is a B class property and is suitable for blue collar workers.

The potential downside: The economy could change directions and rental rates could drop.  The later is unlikely because of the renters that are coming back into the market because of the housing market softening.

Our strategy is to refinance the property in 9-12 months after the rehab is completed and the rents are stabilized.  We have already been approved for the financing by Prudential once we have 3 months of occupancy above 85%.  Once we refinance the property you would receive your initial investment back and retain your ownership.  You would also receive cash flow as it becomes available and as an investor you would get a preferred return (meaning that you would get paid before we get paid).  If you invest the entire $550,000 you will get 25% of the equity ownership in the deal.  If you invest less ($110,000 minimum) you will receive a prorated amount of ownership.

If you have more questions please let me know.  I would be happy to discuss them with you via e-mail or over the telephone.

This can be a great deal to park your money for a little while and then get it returned to you but you will still keep all the benefits of owning the property.

The Deferred Life Plan

I have read the book the Monk and the Riddle by Randy Komisar and more recently read the 4 Hour Work Week by Tim Ferriss and both talk about avoiding the deferred life plan.

The deferred life plan is working for 35-45 years doing something you don't like so you can spend the next 10-15 years doing something you enjoy (retirement).  Personally being a slave to a job when I don't have to be does not sound appealing and I imagine avoiding the deferred life plan is one reason why you are reading this blog.

When I was working a corporate job, I saw people that were in high positions working themselves into the ground to one day live their dreams.  At the time I wasn't aware of the term the "deferred life plan" but I it seemed obvious to me that a lot of money wasn't worth what these people were doing to their health, relationships, and families.  I didn't want to get myself into that same position and that is when I started buying real estate.

Another problem about the deferred life plan is that people are looking forward to retirement because they dislike what they are doing but dread the thought of retirement because they don't know what to do with their time.  This becomes evident by the chart from this site.  I reposted it here for your convenience

Age at Retirement	Average Age At Death
49.9	86.0
51.2	85.3
52.5	84.6
53.8	83.9
55.1	83.2
56.4	82.5
57.2	81.4
58.3	80.0
59.2	78.5
60.1	76.8
61.0	74.5
62.1	71.8
63.1	69.3
64.1	67.9
65.2	66.8

It is unfortunate that people have gotten so wrapped up in their job that they have forgotten what they love to do.  The author of the study concludes that people put tremendous amounts of stress on themselves while working and that stress leads to poor health which leads to people dying less than 2 years after they retire.

Right now we have an incredible opportunity to live the life that we desire now, not 45 years from now.  Real estate investing has allowed us tremendous opportunities and I am going to share with you shortly some steps that you can take right now to live the life that you desire in the near future, not 45 years from now.

We are going to be introducing some new and exciting learning opportunities for you to take your investing to a new level and avoid living a deferred life and get into the life that you desire now!

Learning to Invest

Learning how to be a good real estate investor is like Emmy (she is my adorable little niece) learning how to ride her bike.  You are going to have some bumps and bruises along the way but you need to do like Emmy.  When she falls down, she gets up and brushes herself off and gets back on her bike. 

When you are investing your are going to get some bumps and bruises.  These are going to be some of the best times for you to grow in your investing.  If you fall once, get a scrape and vow never to invest again you are missing out on some awesome opportunity.  The same would be true for Emmy if she wiped out on her bike once and gave up.

Emmy has guidance.  She has her parents making sure she has a helmet on her head and that she gets out of the street when a car is coming.   They are also giving her tips on how to ride successfully and holding her up to make sure she succeeds.  I doubt it would have been good for Emmy to find a bike and get on it and ride it without someone giving her guidance or anything to protect herself.  With guidance she is limited to scrapes and bruises, not major accidents.

The same is true for you as an investor.  It is possible to learn on your own, you just hope you don't get into an accident that is fatal to your investing career.  With someone guiding you along, the journey will be much safer and you will have success much quicker.   

Find some resources like this blog to get started.  Then when you want to take things to the next level find a mentor to help you formulate a game plan to take things to new levels

Cool Tool: Rentometer

I found this tool to help you determine the rent for a property.  The rents for an area could be off because it takes into consideration what units are being advertised for, not what they actually rented for, but over all it proved to be fairly accurate for determining the rent for an area when I tested it out for some of my properties.

Check it out here.

A quick $10,000

I could have made a quick $10,000 today.  It would have been easy.  All I would have had to do was a double closing where the buyer was committing mortgage fraud and I was to be helping by distributing funds that were not listed on the settlement statement.  I passed.

Money is too easy to make legally to have to do it illegally.  There are going to be opportunities where you can be lazy and do something that is in the gray area or even black and it will be quick money.  Take a little time, hone your skills and you can make more money legally than you ever thought imaginable.  You will also sleep well at night too. 

Headlights

The headlights on a car can only illuminate the path in front of your car for about 200 feet.  With that light you can travel all the way across the country safely.

When you are getting started in your investing you don't have to be able to see the path from LA to New York.  You just have to know enough to take action.  That allows you to move along the path safely.  When you get an unknown area of the path you get more education and the path will again be clear.

How to Determine the Value of Property

It can be nearly impossible to pinpoint the exact price that a property is worth.  No two properties are exactly the same.  They may have similar features and may even be in the same building but they are different. 

I run into many people that will tell me that the appraised value is __________ or the tax assessed value is __________ and they will hold that value as fact.  The true value of a property is what someone will pay for it, nothing more.  An appraisal will try to take into consideration comparable properties but I have seen two appraisers be off $150,000 on a property that was apparently worth between $310,000 and $460,000.  That is an increase in value of over 48% over the lower number.

The best way to get an idea of what a property is worth is to find comparable properties that have sold in the area with in a reasonable time frame.

What is a comparable property?  There are a few main factors to compare as well as some minor issues.  The main factors are the number of bedrooms and bathrooms in the property, the finished, above ground square footage, and the year built.  The minor issues are the amenities and finishes of the property.  A brick exterior is more valuable than siding, granite counter tops more valuable than Formica, etc.

What is an appropriate area of comparable properties to compare?  To figure out the area that the property is in you should look for properties that are in similar locations.  One block might be the difference between school districts or cities and that can have a tremendous impact on the value.  On the other hand a neighborhood may go on for miles and homes may sell for similar prices throughout the neighborhood.  A general rule of thumb is within one mile of the property is considered the same area but other factors may change that dramatically. 

What is a reasonable timeframe from when the comparable property sold?  It depends on the market.  In general within one year is a good rule of thumb.  You want to use the shortest time period possible for a comparable property because the market could be changing.  If the market is increasing dramatically you should use a shorter time frame.  The same is true if the market is declining in value. 

A great comp, as comparable properties are called, would have been sold within 1 month, have the same number of bedrooms and bathrooms, be the same style house, have similar finishes and be on the same block.  If you can find three properties that have similar qualities, take the average of these three properties and you should have a good idea of what your property is worth.

A real estate agent can be a great resource for helping you determine the value of your property.  They will usually do this for free in hopes of getting the listing on the property.  I would recommend getting three different real estate agents to come out to help you determine the value.  Personally look over the properties that they use as comparables and verify that they are indeed comparable.  Occasionally real estate agents will give you a high value in hopes of getting the listing so be aware of that. 

Eventually as you are in the game longer you will know what the market is doing and what a property will fetch on the market.

Vacation Time

Over the course of the summer I will have spent 5 weeks out of 5 months on vacation traveling to different parts of the US and Mexico.  If you are having trouble finding motivation to get rolling in your investing what would it mean to your relationships, health, business, etc. to be able to spend a week of every month traveling for recreation?  Take the word recreation apart down to its key components once. 

Tremendous growth takes place while re-creating no matter what area of your life you are working on.

How can you have more time to spend not working and away from the daily grind?

Bandit Signs (and where to put them)

In my post on Finding Great Tenants, Curtis asked were to put the signs.

If you are putting out hand written signs (the best for a property you are trying to get handled, we know because we tested it) for a property that you have available for rent/sale or if you are putting out preprinted signs (you can use hand written signs too, we tested it too and you get good results either way) to buy more properties you want to put them at the busiest intersections around your property.  I place them on wire stakes so when someone is stopped at a light or stop sign my sign is right there for them to see.  You can also put them up on telephone poles but the utility companies my quickly take them down.  Use 18 X 24 inch signs.

Also, make sure you check with your local authorities to make sure putting out signs are OK.  (My method of checking was to put them out and see if they called me.  The technique nearly got me $45,000 in fines in a new city.  Test it out with a few signs first then roll out a larger campaign.  An 800 number keeps you anonymous too.)  In one city the ordinance was that you could put them out Friday to Sunday.  I went out at 12 midnight on Thursday night/Friday morning and then picked them up late on Sunday.  This can be a good strategy to stay in good graces with the city.  Most city workers don't work on the weekend so if you have them up from 6PM Friday to Sunday night you are in good shape.

Signs are by far the best way to get your phone ringing if you are either buying or selling a property.  It is a lot of work but the payoff is worth it.  You will only have to do it for a little while before you can outsource it to someone because you are making good money from all of the houses you are buying.

Seth Godin

Seth Godin is a marketing guiness and he also gives great advice about running a business (which real estate investing is).  I read his blog everyday.  He has a ton of great posts (the best of the best can be found in his book, Small is the New Big.  In particular a post that I like and I think it pertains to a lot of real estate investors that are looking to get started.  I run into a lot of investors that are waiting for all of the start to allign.  Seth's riff lays out exactly when you should get started.  Check it out here.

Julie's Blog

My wife, Julie has a blog.  It is a great daily devotional.  You can check it out here.  She has been on the road for a couple of weeks but she will get caught up.  She has a nice following that looks forward to her posts.

I do the same devotional and it is a great way to learn the bible.  It is hard to know where to start without a little guidance.  If you want a copy of the devotional that we do let me know and I will get it over to you.

Also, my offer still stands.

(To those that subscribe to the RSS feed, I am sorry about the one word post.  I was typing the title and accidently hit enter which published the post)

White Water Rafting

I am getting to spend some awesome time with my sister who lives in Florida and my parents during our road trip to go rafting at the Royal Gorge (which is a class 3-5 rapids that has a very high water volume of 2,300 cubic feet per second) and then on to the Grand Canyon.  We are having a great time together. 

(Me and my dad are in front, my sister is two back from me and Julie is two back from my dad)