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.

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.

Thanks to the thoughtful person who recently sent me a copy of a new book called ‘The Power of Nice’ by Linda Kaplan Thaler and Robin Koval of The Kaplan Thaler Group. It’s subtitled ‘How to Conquer the Business World with Kindness’, but the many hints and tips it gives are applicable to all of us in our everyday lives. You might think that being nice is a fairly obvious way of doing well in life, but believe me, plenty of us could benefit from the lessons in this short book! I’m a firm believer that cynicism kills (dreams, ideas, people, you name it) and ‘The Power of Nice’ certainly affirms my belief. N.B. The Kaplan Thaler Group is ranked as one of the fastest-growing advertising agencies in the United States, with over a billion dollars in billings - so they are definitely worth listening to!

Probably not. Cardsharps use the laws of probability to increase their chances of winning and you can use the same tools with the lottery/lotto. It turns out that winning the lottery is not as random as we might imagine.If you study the winning numbers of any particular lottery over time (quite a long time), you’ll find that certain numbers come up more often than others do. Moreover, some numbers come up less often than others (step forwards our fickle friend, the number thirteen).

This article, using the UK’s Lotto as a basis, outlines the numbers drawn most often. It also points out that whatever you do, your chances of winning a significant amount are still small to negligible. (As an aside, if you’ve read the book or seen the movie ‘A Beautiful Mind’, you’ll know that is based on the life and work of John Nash, who popularised (and won a Nobel Prize for his work on) Game Theory. If you haven’t done either of these things, you probably should.) 

This great little book can be read in one session and the lessons learnt can be applied immediately. Though it is aimed at teenagers it will be of benefit to financial beginners of all ages. I just finished it over the weekend, but I am already applying the principles!

Compound interest, the ‘rule of 72′ and so on are well known to all millionaires (though not to me until recently). This book explains how to make a small amount of money become an unbelievable amount of money in language every layman can understand.

If you don’t have the $2000 the title suggests, then there is a whole chapter devoted to how to create that amount with minimal effort in a short amount of time.

When you’ve read ‘Making a million with only $2000′, let me know what you thought.

Oh, and the author’s website is here.

Felix Dennis is the British magazine publisher who brought us titles such as Maxim, Stuff and The Week. Now semi-retired he is a published poet and author. Dennis, who is estimated to be worth around $1.2 billion, recently published a book in which he shares his secrets with us. From the point of view of his personal and family life, he did it the hard way - he might regret that now, but he sure had fun doing it.

In the book, Dennis summarises his ‘league table’ of prosperity:

Total assets -  

$2m-$4m The comfortable poor

$4m-$10m The comfortably off

$10m-$30m The comfortably wealthy

$30m-$80m The lesser rich

$80m-$150m The comfortably rich

$150m-$200m The rich

$200m-$400m The seriously rich

$400m-$800m The truly rich

$800m-$2 billion The filthy rich

More than $2 billion The super rich

So how rich are you? If you don’t make the league table, this book is a great way to get started!

Do you remember when you were a child, trying to get to sleep at night? The harder that you thought about sleeping the longer it seemed to take to fall asleep. The same is often true when we are trying to think of the solution to a pressing problem. The harder we think about the problem, the further away an answer seems to be.

As we sit down to confront the problem, many thoughts come to mind, but few are clear and helpful. When I was that sleepless child, I would climb out of bed and select a book from the bookcase. Reading the book back in bed I would forget that I was trying to sleep and would eventually do so without further effort. I would like you to ‘get out of bed’ and reach for a book. In this case, it is a particular book called How to Get Ideas, by Jack Foster (sample review: ‘If I had money enough to buy only one book, it would be Jack Foster’s How to Get Ideas. It is a quick read for a quick start, a motivator to make you more productive and more secure. This book should be re-read every four or five months as food for the rest of your life.’).

Instead of sitting down at my desk with a mug of coffee, switching on the question ‘I am down to my last dollar. What do I do now?’ and racking my brain for hours (a similar sensation to hitting my head against a brick wall, and with broadly similar results) I now imagine that instead of being ‘me’ I am in fact a counselor. ‘Me’ has come to my office asking for help with a problem, ‘I’, the counselor, am going to dig deep into my own experience to help ‘me’ to form a plan leading to a resolution.

It sounds a little schizophrenic, but believe me, it works. The old saying ‘physician, heal thyself’ applies. We have the deepest knowledge about ourselves, our strengths, our weaknesses, what holds us back, our fears, our circumstances, our hopes and dreams. What better person to advise us than ourselves? The key is to separate ‘I’ and ‘Me’ for the exercise, as I do, so that one is effectively interviewing the other, listening to the answers and giving sound advice based on our own knowledge and experience.