Aaron Adams 1127 Shelby Street Indianapolis, IN 46204 [email protected] www.indybustours.com 10 TIPS AND TRICKS FROM A MILLIONAIRE REAL ESTATE INVESTOR By Aaron B. Adams 1 Adams / 10 Tips and Tricks / 2 Who Am I? Twelve years ago I was teaching High School. I taught U.S. History and Spanish. I made less than $40,000/year and had over $200,000 in debt. I wasn’t financially destitute and I actually had excellent credit. I was living the typical American Dream of a mortgage, a car payment, credit card bills and a 9-5 (well actually 7-3 for teachers  ) job. One Friday night I saw an infomercial that would change my life. My wife was out of town and I was home alone on the couch watching TV. As I channel surfed, I came across and infomercial from a man who was explaining how to invest in real estate. Interested, I got on the internet and logged into eBay and bought someone else’s used version of his investing program for $20. The book arrived a few days later and I began to read. Ironically enough, at this same time, I was also working on completing an MBA at California Polytechnic Institute in Pomona California. I had been taking MBA classes for almost a year when I purchased the real estate investing book. I was mildly irritated that none of my professors had taught me any of the techniques I was learning in this book. As I look back, I now know that it was because none of my professors themselves had really made any money, much less in real estate! After finishing the book, I had a ton of questions. But being a risk taker at heart, I decided to plunge in and buy an investment property. I found a duplex in Hemet California that I could buy Adams / 10 Tips and Tricks / 3 for $100,000. It needed about $10,000 in work but would generate $750/month per side. After realizing that I could live in one side and pay my mortgage from the rent on the other side, I put my 3 bedroom house on the market to sell and jumped in with both feet! Through all my years of college I was fortunate to have the opportunity to work full time and pay for my tuition/books/fees without having to borrow any student loan money. I ended up taking out student loan money to pay for the $10,000 in work the duplex needed. Between borrowing the 3% down I needed for the mortgage, borrowing the money I needed for closing costs and borrowing the money I needed for the rehab on the duplex, I basically borrowed 100% of the purchase and rehab costs I needed to own this duplex. I hadn’t spent ONE PENNY of my own money to buy this property! This is just one example of the many techniques that I teach investors at my Bus Tours I give all over the country www.indybustours.com I few short months later, I was able to sell my duplex for $175,000! After the closing, I sat there looking at the thousands and thousands of dollars I had just earned and thought about how little time I had spent “earning” that money. It was at this moment, that I fire lit up inside me that still burns strong today – almost 2000 properties later I have purchased single family homes, Adams / 10 Tips and Tricks / 4 duplexes, apartment complexes, trailer parks. I have also been involved in hard money lending, private equity partnerships, new construction, and almost every type of business transaction that exists for real estate. The one thing I have learned through all this time is that real estate is BEST learned from one person to another –face to face with question and answer. My purpose of this book is NOT to teach you everything you need to know about real estate. I found it IMPOSSIBLE to learn what to do with question and answer. I had mentors and experienced investors who taught me the pros and cons of each strategy and who helped me pick an individualized strategy for where I was living and the real estate climate that existed in early 2000. What I really hope to accomplish is to give you some ideas and proven techniques that I have used over and over again to make money AND to paint a picture for you of ways that you could start making money from real estate investing in just a short amount of time. For those of you who ALREADY have some real estate investing experience, there may be some new ideas you haven’t thought of before OR some new ways to use old ideas you already were familiar with. None of these ideas are 100% mine, but the experiences are and they are backed by the hundreds and hundreds of properties I have purchased over the years. ENJOY the tips and tricks and I look forward to meeting you face to face at one of our events down the road. Adams / 10 Tips and Tricks / 5 Chapter One – USING PUBLIC RECORDS TO FIND HOME RUN DEALS A couple of years ago, I went down to the city offices and pulled up the tax records on an apartment complex. Tax records are public records and anyone can look at them. In fact, most realtors have access to tax records online and they are easy to search. I noticed that the mailing address for this apartment complex was different than the address of the apartment complex itself. This made sense to me because I assumed that the apartment complex owner was NOT living at his own property. I also figured that the owner would NOT want his tax bills mailed TO the apartment complex because he wanted to get them at his OWN house. Next, I took a look at how long the investor had owned the apartment complex. In this case, he and his wife had owned it for over 35 years! This was very interesting to me because I decided that these owners may be interested in selling the property if someone offered them the right amount. I knew that often times, investors who own multi-family properties think that the properties need to be in pristine condition or completely full if they are going to be able to sell them. I was hoping that these owners had interest to sell but just needed someone to drop an offer right into their lap. After deciding to write an offer on this property, I had to figure out how much to offer the owner. If I offered too much, I would leave money on the table; offering to low would guarantee the owner would throw my offer in the garbage. This particular property was in a highly distressed condition. I knew it would need a couple hundred thousand dollars in work to get it back up to great shape. I also knew that if the owner listed the property on the market, they would probably Adams / 10 Tips and Tricks / 6 be able to get $75-$100K for it. Gambling that because the property was in bad shape the owner would think it was worth less money, I sent them a letter that said: Dear investor, My name is Aaron Adams. I am an investor who is very interested in buying your property located at. 1234 Main Street. Indianapolis, IN. I would be willing to pay you $35,000 all cash two days after your acceptance of my offer. I will pay you all cash and will take the property AS-IS. The only thing I require is clean title and for property taxes to be paid current. My number is (xxx-xxx-xxxx) Please call me at your earliest convenience if this is something you are interested in pursuing. The letter went out on a Monday, by Tuesday it was delivered and on Wednesday I got a phone call. One week later, the owner got his check and I got an apartment complex for $35,000. In that week before closing I had a tough dilemma to solve. I was very tempted to call several investors that I knew and offer them the chance to buy the property for $50,000-$75,000. When the seller and I signed the Purchase Agreement, I gave him $1000 earnest money. Imagine if I would have flipped this deal to another investor for $75000! I would have been able Adams / 10 Tips and Tricks / 7 to make $40,000 just for being willing to go down to the city offices and search the tax records and to commit $1000 of my money. This is a perfect example of how, real estate can generate you tens of thousands of dollars just by being willing to go out, be proactive and offer people money for their properties. Investors who think “in the box” wait for a deal to come up on the market. Millionaires know that the best deals are waiting to be found by proactive, positive and polite inquiries. Key Points to Remember  Public Tax Records can reveal a lot about a property.  Search records to find addresses that are different for the physical address and the mailing address  Search records to find owners that have owned properties for a long time  Politely and proactively reach out to these owners and offer them a specific amount for their property  Consider going by the investors’ home and leaving a letter with a hand written note so your letter isn’t viewed as junk mail  Develop a network of investors who you can flip deals to for a quick profit Adams / 10 Tips and Tricks / 8 Chapter Two – USING HAND DELIVERED LETTERS TO GET DEALS In 2002 I found a website that charged a small monthly fee to give you information on properties that were in foreclosure. This website tracked lenders who filed foreclosure proceedings against homeowners who were more than 60 days behind on their mortgage 3 Stages of Foreclosure payments. I quickly learned that many investors like  Pre-Foreclosure: Owner is behind on myself would send a letter of interest to homeowners their mortgage payment who were in pre-foreclosure stage in order to see if a deal  Foreclosure: Property is auctioned could be worked out to buy the home BEFORE the off at public auction  REO: Property is property was foreclosed on by the bank and sold at not sold at auction, goes back to the bank (Real Estate Owned) auction. and is usually listed with an REO broker I wracked my brain to think of a way to differentiate MY letters from the ones that other investors were sending to homeowners in pre-foreclosure. I decided that the best method would be to actually try and personally contact the homeowner and see if I could connect with them and convince them to work with me to sell their home. In today’s real estate market, most homeowners who are in pre-foreclosure stage are upside down on their homes. This means they owe MORE for their mortgage than what their home is worth. Back in 2002 however, the market was going up in value at a record pace in California. There were some areas of Riverside County where I lived, that the values were increasing 4-6% Adams / 10 Tips and Tricks / 9 in value PER MONTH. I knew that I just had to get a deal under contract and the rapid appreciation in the market would handle the rest for me. Searching the foreclosure website I paid a subscription to, I found a home near me that the homeowner only owed $60,000 to the bank. They were two months behind to the bank and there was a good chance they would lose the home in a couple more months. I drove by the home and could tell just from the exterior of the home, and what I knew about the neighborhood that the house was worth over $100,000. The next day I put together a letter similar to the one I outlined in Chapter 1. But instead of mailing the letter, I took it to the house. When I knocked on the door a 6’2” 300lb+ Hispanic man answered the door. He looked mean and NOT happy to see me. (Drawing on my two years spent in Venezuela as a missionary) I cleared my throat and said, “Hello, I am sorry to bother you… my name is Aaron Adams and I wanted to come by and offer you $60,000 cash for this house.” Somewhat, surprised, he stared at me for a good ten seconds and said (in broken English) “you are not selling nothing?” I immediately switched to Spanish and repeated my offer. Once my Spanish came out, within 5 minutes I was invited in the house, seated, drinking a soda and outlining my offer. One of the first questions I was dying to find out was WHY they hadn’t just thrown the house on the market for $70K and listed it for a quick sale. They explained that after losing their job, they kept thinking they were going to be able to get caught up on the mortgage. By the time they starting going through all the mail they had received from other investors like me, they were so Adams / 10 Tips and Tricks / 10 confused, they thought they were going to be scammed and had pretty much just decided to let the bank auction the property off because they had some friends from their church who had lost a home to foreclosure and had actually been sent a check AFTER the auction because the home had sold for MORE than they owed for the payoff + penalties + fees. They figured it would be the least complicated way to get out of the whole situation. Over the next week, I met with this family no less than 10 times. Although they agreed to sell me the house for $65,000, they also hit me up for money to rent a U-Haul, to hire someone to help them load up the truck and even asked me to give them money for first and last month’s rent for their new apartment they were going to be renting! At first I was mildly irritated but quickly reminded myself that the big picture was most important and after spending $15K on the house, I was going to be able to sell it for $120,000 easily. By developing a personal relationship with the homeowner, a bad situation was fixed, their credit was saved, the homeowners walked away from the deal with a little cash in their pocket and I ended up with a house that cleared me a little over $25,000 when all was said and done. I am sure that my competitors who sent them mailers may have wondered why their fancy postcards, letters and graphics didn’t result in a deal. They very well may have been willing to work a deal out face to face, but I was the only one who showed up on their doorstep, took the time to find out how I could help THEM get what they needed and ended up with the house. Over the years, I have ALWAYS found that my BEST deals have come from face to face encounters with motivated sellers.