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.

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!

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.

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.) 

Being down to your last dollar means different things to different people. You might adjust your family budget when you check this and find out what being down to your last dollar means in some parts of the world. For instance, you’ll be amazed by what $350 means to a family of four in rural Bangladesh.

The Guardian is one of the UK’s leading national newspapers (bear with me on this one…). I wasn’t a big fan of the print version, but the online version is great (and apparently one of the ‘most read’ newspaper sites in the WORLD). For the purposes of making that last dollar grow I strongly suggest becoming a regular reader of their daily personal finance section - money. Everything is set out in the type of ‘ABC’ language that even I can understand. They have a regular column called ‘cash clinic’ which gives e.g. debt and mortgage advice.

The average American has around eight credit cards. I have ‘only’ three, but paying them off regularly certainly does not come naturally, either to me or to millions of others and I am worried. I’m not too bothered about the credit card companies getting their money back. What worries me is that I know they don’t really want the money back; they want to keep charging me for it. And paying for the debt wastes a significant proportion of my income.

In order to reduce the debt, I’ve decided that we only need one credit card. Now I know that might sound like someone with an alcohol problem saying they need to keep one bottle of whiskey a day and they’ll be fine, but hear me out.

The credit card will be for real emergencies and necessary big-ticket items only e.g., a member of my family is in hospital and I need to pay now; a flight cancellation forces me to rent a car, and so on. For everyday expenditure, I will only use my debit card. It comes straight out of my checking account, and my bank doesn’t charge me for using it. If I don’t use it, they actually give me interest!

To end up with one credit card, I’ll need to pay off all three and then ditch two. But paying off those three cards seems such a mountain to climb that I usually end up staying at the bottom and doing nothing except flinch as the minimum payment leaves my paycheck each month.

After conducting a thorough investigation to find the simplest and quickest way out, I found an interesting article by Andrew LaPointe that makes it all seem much more manageable. He suggests seeing the mountain as a pyramid, starting at the top and working downwards. His 4-step plan looks workable to me. By breaking the problem up into pieces, and starting with the smallest one, it becomes approachable.

I can feel the stress easing already! I’m going to stick to this plan and each time I finish paying off a card I’ll cut it up and show you the pieces here.

P.S. If you want to do the same, send me a picture of a piece of your cards (the top left hand corner - not the important bit!) and I’ll post it here too - we can beat the debt together!

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.

I like the Motley Fool. They seem like a trustworthy, prudent bunch of people. I like them because talking to them about (even very small) investments is like having an intimate chat around the barbecue (grill, barbie, braii) with old friends who do a lot of investing and seem to know the best tips for a newcomer. I like getting my free regular newsletter from the Motley Fool because it feels as if they are sharing some knowledge with just me.(though of course there are thousands out there who are feeling the same way!).

A good example of how the Motley Fool makes ‘Fools’ of us all (in the nicest possible way) is a recent article titled ‘How to turn $1000 into $1 million’. I can’t fault their logic and the ‘hidden gems’ they pass on to subscribers are invaluable. Your only frustration might be the time it takes to make a million! (If this is the case, I would suggest that you split
your dollar. Use half to go the Motley Fool way and the other half to go your own sweet way. Then you can gauge how their experience is working against yours.)