Two weeks ago I had my monthly meeting with Damon. Instead of the Chinese buffet, I decided that we should go to a steakhouse. I figured that it would be too difficult to log buffet food into Loseit’s calorie counter, so an established business be easier. Wrong! Their menu didn’t even have the calories for stuff like most do, and I ended up having to use foods from other restaurants that were similar to what I ate. I ended up eating over 5,000 calories worth of garbage, so that part of the dinner sucked. But everything else? Mind blowingly awesome!
Damon once again brought up having to take out a loan to repair his Vacancy Bank property, and again I protested that it didn’t make sense. Then he told me the full story. Damon had a bunch of credit card and student loan debt that was ruining his credit. So, after buying his Vacancy Bank property for 10K, he looked for the contractor who would give him the highest estimate. The highest estimate he found was for $40,000, which he then brought to a private lender to get a loan for that amount. Due to his bad credit, he had to go to the private lenders who lend to risky people at high interest… in his case, 29% interest rate. He took the $40,000 and used $13,000 for property renovations, and the rest to pay off his student loans and credit cards. With a better credit score, he’s now looking for a refinance of the $40,000 rehab loan. If he can get a cash-out refi at a lower rate based on a higher value on the property (he expects the property will be worth $60,000 after renovations), our dear Damon would be all set. The new loan would pay for the old loan, and give him $20,000 which would cover the money he paid out of pocket and yield an immediate profit! Credit cards paid off. Student loans paid off. Credit rating higher. And $20,000 to cover the original $10,000 he used to buy the property, plus an extra $10,000 to do with what he wants!
Wow. I was… wow. I told him that was the best thing he’s ever told me. I mean, how cool is that?! To put in 10K and get 20K back in a year’s time?! Wow! There are, of course, the variables that need to be taken into consideration:
This, my dear blog, is it. My light bulb moment. When I wrote that post in March about feeling that I was going too slow in my real estate journey and wasn’t doing enough… this is what was missing. I don’t need to work harder. I’m already working two jobs and am practically killing myself, yet I was actually willing to work a THIRD JOB. I was… I am Poor Dad. I just realized that. In Kiyosaki’s famous “Rich Dad, Poor Dad” book, I would be considered the guy who worked harder instead of smarter. Damon’s actions are an example of working smart, and making money the way I’m supposed to. Real money. Real wealth building. No more having to work 72, 80, or 120 hours a week. This is the type of investing I want to do… with the risks that people like me were born to take. I’m so excited about real estate investing again, and doing it the way all the rich people do it. Start off with 10K and get 20K back. Invest the 20K and get 40K back. Beautiful! Now I know why Bob Rogers (real and fake) found my plan to pay off the properties as strange. After all, why use my own money and spend hundreds of thousands of dollars when 10K can build a real estate empire??
I would have done things a bit different. With no debts on my record, I would have taken $30,000 out. 13K would have paid for renovations, while the other would be used for another investment opportunity. I clearly have the advantage of good credit (725) and enough money to buy a couple of cheap fixer-uppers. But I’ll take my time and watch how things go with Damon’s situation. I also told him that I’ll give him my portfolio in November’s dinner to see what moves he would make. If our dinners continue to yield this level of quality information, I’ll definitely be a smarter investor and may be able to retire even faster. Easily, this was the best dinner we’ve ever had.
P.S.: After August 11th, my mind is kinda screwy. It's tough to... focus on anything. I've been trying to write posts for the last two weeks, but I can't focus like I used to. I would sit down and stare at the screen, daydreaming about this or that. And I'm far behind. Today, for example, is November 1st and I haven't done my Food or Real Estate reports for October yet. I haven't paid my mortgages yet like I traditionally do on the 1st of every month. Ugh! By the end of this week I should be all caught up. It's been hard getting my mind to focus on a single thing, but I'm slowly adjusting to life after that day.
Damon once again brought up having to take out a loan to repair his Vacancy Bank property, and again I protested that it didn’t make sense. Then he told me the full story. Damon had a bunch of credit card and student loan debt that was ruining his credit. So, after buying his Vacancy Bank property for 10K, he looked for the contractor who would give him the highest estimate. The highest estimate he found was for $40,000, which he then brought to a private lender to get a loan for that amount. Due to his bad credit, he had to go to the private lenders who lend to risky people at high interest… in his case, 29% interest rate. He took the $40,000 and used $13,000 for property renovations, and the rest to pay off his student loans and credit cards. With a better credit score, he’s now looking for a refinance of the $40,000 rehab loan. If he can get a cash-out refi at a lower rate based on a higher value on the property (he expects the property will be worth $60,000 after renovations), our dear Damon would be all set. The new loan would pay for the old loan, and give him $20,000 which would cover the money he paid out of pocket and yield an immediate profit! Credit cards paid off. Student loans paid off. Credit rating higher. And $20,000 to cover the original $10,000 he used to buy the property, plus an extra $10,000 to do with what he wants!
Wow. I was… wow. I told him that was the best thing he’s ever told me. I mean, how cool is that?! To put in 10K and get 20K back in a year’s time?! Wow! There are, of course, the variables that need to be taken into consideration:
- Damon has to have a good contractor who can finish the repairs on schedule. Every month that place doesn’t get refinanced is a month he has to pay another $1,000 payment on the 29% interest rate loan.
- While Damon seems certain the property can be assessed for $60,000, I’m not so sure. The area isn’t all that great, with two crumbling buildings in the area bring the values down. I think the place would be worth 50K which would give him his 10K back, but nothing else. His profits will have to come from the rental income, which will first have to pay back the money he spent on the high interest loan.
This, my dear blog, is it. My light bulb moment. When I wrote that post in March about feeling that I was going too slow in my real estate journey and wasn’t doing enough… this is what was missing. I don’t need to work harder. I’m already working two jobs and am practically killing myself, yet I was actually willing to work a THIRD JOB. I was… I am Poor Dad. I just realized that. In Kiyosaki’s famous “Rich Dad, Poor Dad” book, I would be considered the guy who worked harder instead of smarter. Damon’s actions are an example of working smart, and making money the way I’m supposed to. Real money. Real wealth building. No more having to work 72, 80, or 120 hours a week. This is the type of investing I want to do… with the risks that people like me were born to take. I’m so excited about real estate investing again, and doing it the way all the rich people do it. Start off with 10K and get 20K back. Invest the 20K and get 40K back. Beautiful! Now I know why Bob Rogers (real and fake) found my plan to pay off the properties as strange. After all, why use my own money and spend hundreds of thousands of dollars when 10K can build a real estate empire??
I would have done things a bit different. With no debts on my record, I would have taken $30,000 out. 13K would have paid for renovations, while the other would be used for another investment opportunity. I clearly have the advantage of good credit (725) and enough money to buy a couple of cheap fixer-uppers. But I’ll take my time and watch how things go with Damon’s situation. I also told him that I’ll give him my portfolio in November’s dinner to see what moves he would make. If our dinners continue to yield this level of quality information, I’ll definitely be a smarter investor and may be able to retire even faster. Easily, this was the best dinner we’ve ever had.
P.S.: After August 11th, my mind is kinda screwy. It's tough to... focus on anything. I've been trying to write posts for the last two weeks, but I can't focus like I used to. I would sit down and stare at the screen, daydreaming about this or that. And I'm far behind. Today, for example, is November 1st and I haven't done my Food or Real Estate reports for October yet. I haven't paid my mortgages yet like I traditionally do on the 1st of every month. Ugh! By the end of this week I should be all caught up. It's been hard getting my mind to focus on a single thing, but I'm slowly adjusting to life after that day.
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