Down to my last dollar!

A comment on a previous post was so detailed I felt the response deserved a post of its own:

“…i was recently supposed to start school in september to become an interior designer but decided that it wasn’t the right decision for me. I know it would bed difficult to get into but, I have always in the back of my mind thought it would be really cool to get into flipping properties and was wondering if you could either answer some basic questions for me or redirect me to a place where i could find REAL SOLID information.

I know im only a 20 year old girl with limited knowledge,skills and money, but I’m pretty sure i can learn anything i have to.

I guess the main thing I’m looking to find out is how much money would i need to save to get something like this off the ground. I live at home and save most of my money( i’m still anticipating ill have to save for a couple more years before i can really do anything.) Basically I know that this isn’t going to happen over night and it’s going to be somewhat risky, but this is what i want to do, and if its at all possible, ill do it.
I know id have to start off pretty small doing condos or something, and there is a lot of things i need to get in order. I’d like to start small so i dont get in over my head and so i could slowly try to add money to my bank so i can do bigger things. Would you be able to tell me:

-is it possible to start of doing more cosmetic things(flooring, kitchen/bathroom renos, paint and other things that dont involve mega money and completely gutting a house, and still turn any profit?
-how much money i would need to get started on something smaller, i know the more you put in the more you get out, but i dont have a lot of money yet.if i bought a $200 000 condo, with a $10 000 downpayment and did about $20-30 thousand in improvement would that be enough? would i be able to get anywhere?”

It sounds like you’ve thought through the idea sensibly and have taken the time to examine the options. So you’re already on the right track.

The TV shows make the process look relatively easy and, with a few dramatic hiccups on the way, usually deliver a happy ending. Bear in mind that what they have cut out is as important (perhaps more so) then what they have kept in.  As Ralph Roberts, the co-author of Flipping Houses for Dummies says:

“It’s never as easy as it looks on TV. People don’t generally line up at your front door begging you to buy their house for 30-50 percent below market value. Renovation expenses always exceed estimates. And you can’t always sell a house for what you think it’s worth. Flipping houses for a profit requires time, money, and what I like to call sticktoitism—dogged determination in the face of overwhelming uncertainty.”

So if you think you’ve got ’sticktoitism’, then go for it.

Do spend some time in understanding the fundamentals of property development and real estate management. For this I would recommend three books which ’give it to you straight’. Don’t be put off by the titles - these are the best to get you off the ground. The first is Real Estate Management for Dummies, the second, which we have already mentioned, is Flipping Houses for Dummies, the third is Property Management for Dummies.  There are MANY books out there, but these three will be enough to start you off.

Take some more time. Select an area (preferably your own neighbourhood - or at least one which you can visit easily and regularly) and then ‘walk it’ - which properties are available, what types of properties are selling quickest.

Read the local press to keep up with developments in your area, and keep up to date with national news relating to real estate issues, mortgages, foreclosures etc (Business Week has a much-awarded blog called Hot Property).

Remember that knowledge is power - nowhere more so than the property market!

If you’re going to need capital (i.e. a loan) to get started, then meet up with banks and mortgage lenders in your area well in advance. Explain to them what you intend to do and build up their trust and confidence - get a feel for which one you feel most comfortable with.

Get to know the local realtors, explain what you plan to do - if things go well you will need them in the future, and they will be able to give you some sound advice.

Also start to build relationships with good local contractors. Again, you won’t be using them immediately, but you will save time and money later on if you have an idea of a ‘trusted team’ in place before you start.

Basically, become an expert in your chosen field and in your chosen neighbourhood (you can always expand the geography later as you develop).

Finally, remember that ‘flipping’ is not the only way to get ahead in real estate - gradually buying a portfolio of properties to rent is another way. Another is to become a realtor yourself - once you have the direct experience of working in the property market you will be in a great position to go into ‘flipping’ or property development in general.

MSN have a little feature today called 12 steps to become a millionaire.

There are a couple of good tips, though it eventually drills to down savings and investments linked to various third parties.

Do take note of the earlier steps, before it goes ‘commercial’. 

Here’s a tip that I find useful: It often helps to approach a challenge from a different, less obvious, direction.

Many successful entrepreneurs have used similar methods as a way to ‘bluesky’ their way to a fortune. Do you remember Alex Tew, founder of the Milliondollarhomepage? Who would have though that the answer to making a million was staring out from the pixels on his PC screen?

When considering how to turn one’s last dollar into something more substantial, remember the telescope effect. What do I mean by that? Well, when we look through the small end of a telescope, we see an object in the distance, enlarged. However, when we turn the telescope round and look through the wide end, objects appear very small. Looking at our last dollar and trying to fathom how to turn it into, say, a million, the problem seems almost too big. So turn the problem around: Pretend you have already achieved your goal, in this case that you already have a million dollars. Don’t you feel a long way from that lonely dollar?

The next step, of course, is to look back on how you made that million from a dollar. An hour spent on the internet will show you that the rich made their first million in many different ways. How did you make yours? Coming up with the ‘big idea’ is the subject of another post.

For the time being, the message is that it can be more productive to imagine yourself at the destination, looking back, rather than at the start of the journey, looking forward.

I love this kind of story. CNBC’s stock-picking contest comes with a million-dollar prize. The likely winner is a 46-year old waitress from Ohio who never picked a stock in her life. I could do it! You could do it!

I found this article on the UK’s Daily Telegraph newspaper website. It’s obviously UK-centred, but still has plenty of ideas to increase your disposable income, if not actually increase your income!

Million Pound Property Experiment was a television series in 2003-2004 which aired on BBC Two in the United Kingdom. Starting with a loan from the BBC of 100000 pounds, designers Colin McAllister and Justin Ryan bought, renovated and re-sold properties for a profit, with the ultimate goal being a sale of a property for £1 Million.

After a fraught journey of two and a half years and eight properties the boys finally made it, with a net profit of 290000 pounds.

It looks fairly easy to do when neatly split into eight 30 minute TV episodes, but I’m sure there’s a lot more to it.

A tempting idea though! Could it work in ‘real life’? Just need that bank loan…

No chance. Ok, extremely slim chance. Thanks for the advice I’ve received from many, but I won’t be ‘investing’ my last dollar on the lottery. Why not? Well, despite the fact that 1/3 of Americans think that winning the lottery is the only way become financially secure in life, you actually have much more chance of being hit by lightning, than being singled out by ‘the fickle finger of fate.’

If you don’t believe me, check out your odds here.

I’m not saying don’t, but…

Warren Buffet aka ‘The Sage of Omaha’ counts his wealth in billions. He was probably down to his last dollar in around 1930 (when he was aged 11). However, his advice on successful investment applies whether you have a dollar or a billion dollars.

According to this fascinating article, he attributes his success to reading one book, ‘The Intelligent Investor’, by Benjamin Graham. To get a free summary, read the article, to get the full lesson, you’ll need to get your hands on the book.

No, this isn’t another tale of corporate greed, we’re talking about real food (and real profits). According to this article in the UK Daily Telegraph, baking is booming. So here’s my thought: at a pinch you can purchase cake ingredients for less than a dollar. Bake a cake (or persuade a family member or friend to help you!). Your next stop is ebay. There you can sell your creation for upwards of 5/10 dollars (if you don’t believe me, check this out). Be sure to put your profit back into more ingredients and that dollar really begins to grow.

And chef, be sure to let me know how you get on!

One of the best sites around for bloggers intending to make money from their sites is www.problogger.net . This site gives you all the information, tips and hints you might need to monetize your blog - quickly. The guy behind problogger is Darren Rowse. Darren, we salute you! By the way, I have no personal connection to the site, except that checking it out it has really helped me out on many occasions recently, and more people deserve to know about it. Not that it needs my help, it is already a firm favourite in technorati’s Top 100 blogs.