How to take $1,000 and begin to turn it into $4.7 million

First in a 4-part series

Wrong decisions give you right experiences

Once you’ve built a personal fortune, you’ll never again be satisfied with just getting by.

When I moved from New York to Florida, I had to figure out how to rebuild my fortune – and do it quickly. What followed is a valuable lesson in how I took $1,000 and began to turn it into $4.7 million in just 18 months, and how you can do it, too.

But truth be told, I didn’t always make the right decisions along the way.

You see, when I was planning to move to Cape Coral, which was on the verge of a population boom, I came across a very enticing offer. A Realtor had a deal on 12 lots for $24,000 that sounded good, so I gave him a deposit and began selling my properties in New York.

Though I was charging forward at full speed with plans to move, I decided to back out of the lot purchase in Cape Coral.

Up until that point, all of my successes had occurred when I controlled my own investment – that is, when I saw the property, knew the market firsthand, and negotiated the deal either by myself or with a real estate agent.

Even though the Realtor in Cape Coral had been introduced to me with a strong referral from a close friend, that fact was that I barely knew him, and I was getting ready to send him a sizable down payment on lots I had never seen that were far away.

My first big mistake …

I decided that the Cape Coral lots were just too risky, so I forfeited my deposit and canceled the deal. Big mistake. The broker found another investor for the same lots, who sold them again nine months later for $60,000 – a $36,000 profit.

I may have made a bad decision, but I also knew for sure there was plenty of money to be made in Florida. Let me repeat that: Although I knew I made a bad decision, I knew at that point there was money to be made in the Cape Coral market.

I’m telling you this part of my story so you know that successful people make mistake, too. The difference is that they don’t quit because they make a mistake; they learn and keep going. That’s what you have to do as an investor.

I’ve studied the life stories of many successful people, and they’ve all made their share of mistakes.

But a mistake doesn’t mean you’ve failed …

They’re proof that making a mistake doesn’t mean you’ve failed; it just means you have to find another way, take a different action, and produce a different result. Mistakes give you the experience to make better decisions the next time.

Gail Borden’s first attempts to concentrate foods resulted in a "meat biscuit" that was consumers denounced as inedible. He tried later to condense milk. Early efforts produced burned, foul-tasting broths, but Borden finally found a technique that worked. Even so, consumers were slow to buy it and the company failed. His second company grew into one of the world’s food giants. Gail Borden died in 1874 and on his tombstone are the words, "I tried and failed; I tried again and again, and succeeded."

Fred Smith, a student at Yale University, presented a unique idea for a business on his term paper. His professor gave the paper a C. But Smith took the concept he outlined and turned it into one of the greatest entrepreneurial success stories our time: Federal Express Corporation, now known as FedEx.

My second big mistake …

I’d love to tell you that my decision not to invest in the 12 Cape Coral properties was the only mistake I made, but it wasn’t.

I turned over my New York rental properties to a manager who I later found out was ripping me off royally. It took me almost a year after I moved to New York to find a buyer, but I did. At the same time, I was still trying to figure out how to prosper in sunny Florida.

Let me tell you, going in a matter of weeks from comfortable financial independence to worrying about how I was going to support my family was emotionally devastating. I felt as if I didn’t have a choice so I took a job selling vending equipment on commission. I spent three months getting nowhere fast.

So I got a real estate license thinking I would have an "in" in the local market and I could present my own offers and sell some properties for the commission. My low and no-money down offers were being rejected as fast as I could make them. The properties I was trying to represent as a real estate agent were vacant lots – not an area I had much expertise.

I finally got fed up enough to figure out what my problem was. I had been flailing away at things I didn’t know much about and that hadn’t made me much money. I had gotten off track. I refused to recognize that the market in New York was different than the market in Florida. Just like the market 2 years ago is different from the today.

Once I realized this I mapped out a plan to make the most amount of money in the least amount of time.

I set long-term goals, and then broke them down into monthly increments. I made detailed to-do lists outlining the daily and weekly tasks that were necessary to reach those goals. I developed a plan that would turn $1,000 into $4.7 million in just 18 months.

You’ll see how you can follow the same plan, regardless of where you are, and start building your own personal fortune immediately.

Action items:

1. What is your long terms goal? (How much money do you want to make and in what period of time?)

2. What are your monthly goals? (What milestones do you need to meet each month to reach your goal?)

3. What tasks do you need to achieve each week to reach your monthly milestones?

4. What tasks do you need to achieve each day?



Next: Part 2 in this 4 part series, How to take $1,000 and begin to turn it into $4.7 million


How to take $1,000 and begin to turn it into $4.7 million

Second in a 4-part series

Note: Making money in a slow market is not new but it’s at a time just like this when I made a fortune in real estate and I hope my experiences will help you build your own wealth. In part 1, I discussed how easy it was to get off track, but once I had a plan mapped out I was ready to take action. See part 1 to determine how to create your own plan.

Lesson #1: Start building your line of credit right now

We’ll discuss credit in detail later, but I want to make this point now: you need to build your credit rating and establish relationships with lenders, and you need to start today.

Whether you have good credit, bad credit, or no credit, I’ll share more advice to establish and strengthen your credit rating and expand your personal line of credit – that is, the amount of money you can borrow (either secured or unsecured) to use to build wealth.

Once I established my creditworthiness, plenty of institutions were happy to lend me money. You can do the same thing – even in today’s market.

Lesson #2: Never stop looking for your next opportunity

While I was building my banking relationships after I moved from New York to Florida, I was also busy looking for property. I found a run-down, four-unit apartment building with an asking price of $75,000. Other similar properties nearby were appraised much higher, so this was clearly a good investment.

I bought the building with a 10% down payment. The seller was willing to hold the mortgage, and sellers don’t typically require as high a down payment as a conventional lender does. I immediately had the property cleaned up and painted and some minor repairs done. A little bit of new landscaping provided a finishing touch. I paid for this work using a line of unsecured credit I had established.

A month later, I had the property appraised at $130,000. I applied for a new mortgage based on the improved value. At the time, banks were willing to lend only 75 to 80 percent of a property’s appraised value, so I was able to get a loan for $106,000 (81% of the appraised value).

I used that money to pay off the original mortgage of $68,000 (which was the asking price of $75,000 less my down payment and the credits I received at closing) plus the $5,000 in signature loans that paid for the fix-up.

My new monthly mortgage was $815.04; my rental income was $2,000 a month. Even after paying the additional expenses of taxes, insurance, water and sewer, trash collection, and so forth, the building produced a positive cash flow. The bottom line is that I now had some independent income – money that would come in month after month without me having to go to an office every day – and I had more than $33,000 in nontaxable cash to use as I pleased.

I used that run-down property that plenty of other people had overlooked to achieve a financial goal and provide the capital to do more, and it was easy.

I was definitely back on track.


How to take $1,000 and begin to turn it into $4.7 million

Third in a 4-part series

Note: Making money in a slow market is not new but it’s at a time just like this when I made a fortune in real estate and I hope my experiences will help you build your own wealth. In part 1, I discussed how easy it was to get off track, but once I had a plan mapped out I was ready to take action. In part 2, I talked about the importance of building a line of credit and to never stop looking for deals.

Lesson #3: Banks are not in the foreclosure business

You’ve probably heard that the best form of advertising is word mouth. Well that’s true in every business, especially real estate. When you provide a service that people need – and you do it ethically and well – deals will come to you.

That’s what was happening to me, I’ve seen it happen to my students, and it will happen to you if you follow my plan.

A fellow I met through the real estate office I worked in told me about a lady who owned a home in Cape Coral that was being foreclosed. Her husband had abandoned her and disappeared without a trace about a year earlier. The memories she associated with the house were pretty horrible, so she moved out. Her son moved in with several other guys who also had several dogs and cats. They young men made payments for a while, but eventually stopped and moved out.

The property was disgusting – perfect!

Its condition was a classic example of cosmetic distress. Animal excrement was on every bit of carpeting, garbage was strewn everywhere, the rooms were still full of junk and the lawn was overgrown and out of control. It was perfect!

The next step was to meet the owner. She was very open with me. Her parents had loaned her $14,000 for the down payment, and she currently owed $22,000 on the mortgage. The savings and loan was about 6 months into foreclosing, so it wouldn’t be long before she lost her entire interest in the property.

And because her former husband’s name was on the deed, she put the house in the hands of the court, which had appointed a court master to act in good faith for her.

Her primary concern was recouping the $14,000 here parents had loaned her. So I made an offer to take care of the of the $22,000 existing mortgage either by assuming the old one or getting new financing, which would stop the foreclosure. I would also pay her $14,000 in the form of a second mortgage over 20 years at 11%.

On the second mortgage, there would be no payments for 2 years, and not interest would accrue during that time because I needed time to pay for repairs to the house to make it livable. She accepted the offer, and the court approved it.

The bank loved it too. The house was in such disgusting condition they would have to sink about $10,000 into it before it could reasonably expect to put it on the market. The market was slow then too so the bank would probably have to hold it for quite a while before it was sold.

Here is something you need to know about banks and other lending institutions: they are not in the business to foreclose on property. They don’t want to foreclose, and they will work with just about anyone in a good-faith effort to avoid foreclosure.

After several meetings with the branch manager we made a deal. He gave me a new $30,000 mortgage. With the proceeds, I would satisfy the old $22,000 old mortgage and $5,000 toward the legal fees the bank had incurred. The branch manager also gave me $3,000 from the loan proceeds to fix up the house. It was so nice, my wife and I moved in.

It’s not unusual for a buyer to walk away with cash from a loan like this one. This is actually common. The key was that I figured out the numbers ahead of time. I knew what the house was worth in its present state, what it would be worth after I fixed it up, how much those repairs cost, and how the monthly mortgage payments would fit with my debt-to-income ratio.

When I went in to talk to the banker, I was able to give him all this information before he asked and show him why this was a good deal for everyone.



5 Questions to ask when analyzing a property – before you talk with the banker

1. What’s the property worth in its current state?
2. What will it be worth after I fix it up?
3. How much will the repairs cost?
4. How much are the monthly mortgage payments?
5. How will the mortgage payments impact your debt-to-income ratio?


How to take $1,000 and begin to turn it into $4.7 million

Last in a 4-part series

Note: Making money in a slow market is not new but it’s at a time just like this when I made a fortune in real estate and I hope my experiences will help you build your own wealth. In part 1, I discussed how easy it was to get off track, but once I had a plan mapped out I was ready to take action. In part 2, I talked about the importance of building a line of credit and to never stop looking for deals. And in part 3, I talked about how to work with the bank on a foreclosure.

Lesson #4: Seller financing and discount mortgages (short sales) are the best tools to use in a down market

Remember I was telling you about the apartment building I bought?

I purchased it by assuming the existing mortgages and asking the owner to hold a mortgage. The purchase price was $198,000. I put up about $4,000 in cash and got credited for $12,000 down (an easy technique I’ll show you later); assumed a first mortgage of $42,000, a second mortgage of $67,000, and a third mortgage of $45,000; the seller held a fourth mortgage of $32,000.

It was a good deal but I wasn’t altogether happy with the terms of that fourth mortgage, which required semiannual payments of $5,000 each. As the due date of the first payment on that mortgage approached, I was strapped for cash because of the problems I was having with selling my New York properties.

I approached the bank that held the first mortgage about refinancing the entire $186,000 I owed, but it was willing to lend me only $145,000. So I offered to buy out the other mortgage holders.

The second mortgage holder had 22 years left on his note. I offered him $45,000 in cash to settle the $67,000 debt.

While he considered the deal, I offered the third mortgage holder $30,000 to cancel the $45,000 debt. And I offered the fourth mortgage holder $18,000 for his $32,000 mortgage. I didn’t think they would all agree to my proposals.

To my surprise, they all agreed to discount their mortgages for cash rather than taking the payments over the next 20 or 30 years.

Suddenly my profit increased nearly 6-fold

I took the new mortgage, paid off the three junior mortgages, and immediately made $41,000 profit in equity just by asking for discounts. When I later sold the property for $209,000, my profit was $64,000 instead of just $11,000, thanks to those discounts.

This technique is called discounting mortgages, which simply means the mortgage holder is willing to accept cash payment of less than the total mortgage to settle the debt in full.

Many sellers – especially those middle-aged and older – do not really want to be long-term mortgage holders. It might have sounded good at the time, but after a year or so of receiving payments, they’re happy to "take the money and run."

You get the cash to pay them off by refinancing the property with conventional mortgage money, which you’ll obtain either after improving the property if it was distressed or after other loan money becomes available.

I use seller financing and discount mortgages as a strategy when I buy, especially during down market cycles. When the market is slow, sellers are motivated to hold mortgages to sell their property. When the market loosens up, they would often rather have a lump sum of cash than payments over the years.

Whenever I purchase a property with seller financing, I make a note in my calendar to follow up in a year or so and offer a discount.

You’ll generally have more success with discounting mortgages when dealing with a private or individual lender, but don’t assume this technique won’t work with a bank. Many will consider it, especially if the loan is shaky and the property is at risk of being foreclosed.

This technique is known as a short sale – essentially the property is being sold for an amount that is "short" of what’s owed on it, usually because the loans on the property are greater than what it can be sold for. You’ll never know unless you ask. The worst that can happen is that you’ll get turned down.

The best, of course, is that you’ll make a handsome contribution to your personal fortune.



Action item:

- Whenever you purchase a property with seller financing, make a note on your calendar to follow up in a year and offer a discount.

Russ Whitney story is proof in becoming financially independent or build a nest egg so you can enjoy your retirement years.If you want to learn first hand from Russ Whitney. Visit us at: http://russwhitney.com/