Chance Brown's Real Estate Blog

Political Advocacy as a Lead Generation Tool

April 21, 2017 By Chance 1 Comment

A couple of weeks ago I was having lunch with a thought leader in the real estate industry when the conversation went down a rabbit hole on the subject of follow-up from Realtors to their clients. Better said, the conversation turned to how crappy Realtors are at follow-up. Either it doesn’t happen at all, unfortunately, or the follow-up usually is generic and uninteresting at best. Then, somehow, that segued into a political discussion, which isn’t all that unusual when we chat. It occurred to us, during the political discourse, that maybe there is a place for politics in Realtor follow-up.

I know what you’re probably thinking. We’re crazy. Politics and religion are the two things you’re supposed to avoid, right? Wrong, at least in our opinion. Here is a summary of our thoughts and why we believe that not only is it ok to talk politics with clients, but it should be an imperative for Realtors who care about their clients, the industry, and their future in it.

“The punishment of wise men who refuse to take part in the affairs of government is to live under the government of unwise men.” – Plato

First, let’s talk about politics in real estate. I’ve written about it here before because I do truly believe, in the words of our PAC Director, that “if real estate is your profession, politics is your business.” There is no other organized group, certainly not one with over a million members, that advocates at the national, state, and local levels for protection of private property rights, the promotion of home ownership, and the future of the real estate industry. Realtors are it, the only ones standing between a powerful government and a single home owner. Think about that for a minute and let it sink in. So, if Realtors are interested in providing value to their clients in an effort to combat the reputation that they just open doors and go to happy hours, why wouldn’t they use this information to their advantage? (For the record, if you are a Realtor or affiliate member of a Realtor association and aren’t investing in your PAC, you should really reconsider that.)

From a macro level, there is one glaring problem with our PAC. We raise a significant amount of money to fund our initiatives and endorse candidates that support our mission. That’s great. We even vote on fairly regular basis, kinda. But what we don’t do is use our grassroots abilities to motivate more people to vote. As a Trustee of TREPAC, I can tell you that I have had this exact conversation with elected officials. The money is great. The fact that Realtors are involved in the process is great. The inability for Realtors to take that influence and turn out the vote amongst our clients and communities is in manager-speak, “an area for improvement”.

Addressing the “don’t talk politics and religion” mantra, here’s the good news. While Realtors may endorse candidates that not everyone agrees with, our issues are almost exclusively non-partisan. So, let’s focus on the issues. Lowering property taxes, supporting sensible lending practices, promoting transportation solutions, reigning in eminent domain abuses, limiting overreach from local municipalities and homeowner’s associations, and the list goes on. None of these is particularly partisan. Republican, Democrat, Independent, or Pastafarian, it would be hard to imagine a homeowner who wouldn’t like a more transparent property tax process or who wouldn’t want to make sure their local municipality doesn’t do something crazy that would affect their property value or usefulness. I think that most people will get behind the idea that we don’t need a repeat of the irresponsible lending practices that led to the financial meltdown of mid-2000’s. Alleviating traffic congestion? Check. Making sure water, electricity, and other utilities and conveniences are not only available now and into the future, but that they are affordable too? Check. So, so far I’m not hearing a lot of controversial issues here, are you? Stick to the issues.

The National Association of Realtors, your state association, and, hopefully, your local association are all involved in this process and publish talking points, issues and legislative updates, ask for Realtors to respond to calls to action on issues, get involved in local races and generally have their finger on the pulse of issues that affect you and your clients. Do you subscribe to the updates they send out? Do you know your political advisory team(s) or governmental affairs staff or volunteer leaders, PAC trustees, association staff, and/or local Realtor leaders? If the answer to these questions is no, you should get to know them. Trust me, as one of these people, we love when agents want to know what’s going on in the world of politics. Make it a point to know the issues and the people working for you on these issues.

So, how do you use this as a lead generation tool? It’s pretty simple, really. Once you know the issues, whether you have a CRM (which you should) or are just using email, your phone, or social media, pass the info you learn to your past clients and spheres of influence. If your goal is to be seen as the real estate resource to your prospects and past clients, then be resourceful. I assure you it is better than the nothing most agents don’t send out, and it is certainly better than a dancing leprechaun wishing someone a Happy St. Patrick’s Day. This kind of information is pertinent to your client, timely, and puts you in the position of expert. Encourage your clients to contact their representatives and let their voices be heard. Send out a schedule of hearings, if available, and get your base motivated to join you in protecting the American dream of homeownership. That’s truly creating a trusted relationship. Dancing leprechauns are cool and all, but building long-term, trusted relationships is way cooler.

Why Rising Mortgage Interest Rates Are Good For Realtors

March 30, 2017 By Chance Leave a Comment

Much ado has been made over the impending doom of rising mortgage interest rates as response to the Fed raising its benchmark rate this month. If I had a dollar for every “Buy now before rates get too high” post on Facebook from Realtors around the country, I wouldn’t be rich or anything, but I could buy a decent lunch or dinner. I certainly hope, for their sake, that they result in business coming their way. However, in the big scheme of things, I think it is relatively short-sighted and they would actually benefit more from the rising interest rates they think are going to be a market killer.

There, I said it. Rising mortgage interest rates are a good thing for Realtors in the long-term.

Don’t get me wrong, I’m not advocating for Carter-era rates or anything. That would be terrible and would definitely be a market killer. What I am saying is that a return to 2001-2006 rates would be a good thing, in my opinion. So, here’s my case for higher interest rates…

Higher Interest Rates Indicate a Healthier Economy

The quantitative easing that has resulted in the low Fed rates since the economic downturn began in ’07-’08 is neither sustainable nor healthy for the overall economy. The Federal Reserve should not be in the business of essentially printing money to prop up the economy. This is not intended as a political statement, but fact based on testimony from multiple Fed Chairs and members of the Board. The fact that rates are increasing is a sign that the Fed believes the economy is on the mend.

A healthy economy should be a no-brainer for a Realtor to see the benefit in, right? The healthier the economy the more jobs created. The more jobs created, the more people who can qualify for loans. The more loans qualified for, the more sales. You do the math. In most markets there is a ratio of jobs created to how the market can handle rising mortgage interest rates. For example, for every X,000 jobs created, interest rates could go up Y% without negatively affecting the housing market. If you have the interest and a state or local real estate economist, feel free to inquire about it for your market. Regardless, a healthy overall economy typically equates to a healthy real estate economy.

Higher Interest Rates Bring More Flexible Financing Options

Let’s take a total hypothetical here. If you had the option of investing in a mortgage not that paid 4% interest or in an index fund that was currently blowing through the roof, which would you choose? Exactly. That’s one of the many reasons we have been so reliant on government-sponsored entities over the past decade. For the record, if the recent downturn in the housing market didn’t teach us that reliance on government backing is bad, I don’t know what will. We bankrupted Fannie and Freddie.

As mortgage interest rates rise, private money returns to the market. Because, historically, mortgage debt is a relatively safe bet, the returns don’t have to be as sky-high as the Dow Jones these days. As private money returns to the mortgage market, more flexible and creative loan products become available, we become less reliant on government backing, and a trickle-down effect of great things happens.

Higher Interest Rates Means More Moving

Again, let’s play a hypothetical game. Let’s just say that you wanted to purchase a home. You just got married and you are looking to start your new life together in your first home. Sure, you’ve talked about kids, but it’s still in the future for you. All you really need is a home for the two of you. In a 5.5%-7% interest rate environment, you buy a home for just the two of you. On the other hand, in a 3.75%-4% interest rate environment, for the same amount of monthly payment, you can go ahead and buy a larger home for when the kid or kids do come. Which do you do?

Higher interest rates keep that first-time buyer from skipping the first-time market altogether and moving straight into the move-up market. Now, that first-time buyer stays a first-time buyer and, in a few years, they become a move-up buyer. So, for the Realtor, that one transaction just turned into three if they play their cards right. Otherwise, in a low rate environment, the buyer buys a bigger home and stays there longer.

Higher Interest Rates Means More Inventory

Here in Houston, we have a serious shortage of home inventory. I know we are not alone in that condition nationwide. The example above should illustrate the point of this section. As more people move more often instead of staying in their homes longer, more inventory is available. More inventory leads to more level markets. More level markets lead to more opportunities for buyers. More level markets lead to healthier price appreciation rates instead of spiking prices. All of these are obviously good and lead us right back to our first point about a healthier overall economy.

So, there you have it. My take on why rising mortgage interest rates are good. I’d love to hear your thoughts.

Be Accountable

February 9, 2017 By Chance Leave a Comment

Being an entrepreneur often means being on a metaphorical island all by yourself. Not very many people understand how your time is pulled in a myriad of directions, employing skills (or sometimes lack thereof) that you didn’t know you had, and becoming a jack of all trades while only a master of one. It’s not unusual to see the tasks that you really need to get done get set aside in favor of whatever you feel needs to be done right this second. Naturally, as soon as you put that fire out, the next one pops up. The result is that you continue to delay the things that drive your business while you take care of minor things to keep your business running.

The problem, as I see it, is not a delegation problem or a time management problem. Too often, the things that are distracting you from accomplishing your priority tasks are things that require it be you and need to be done in a timely manner. In my opinion, this is an accountability issue. Generally speaking, unless you have a true partner, a business coach, or a mentor relationship in place, you are probably also responsible for holding yourself accountable for your actions. I think that is a problem when it comes to 99% of the people out there. It’s hard to come home after a 20 hour day and say you didn’t work hard or get things accomplished, even when you didn’t accomplish the things your business really needed for you to accomplish.

So, how do you, in a world of real distractions, set everything aside and focus only on the tasks that truly need to be accomplished?

You have to, as far as I can see it, find a way to be held accountable. The problem with that is most entrepreneurs also don’t really care for being held accountable and so they seek out someone who will act like they are holding them accountable, but really is just having a five-minute conversation with them. What the entrepreneur struggling with accountability issues needs is someone who will, legitimately and with a blow torch, hold their feet to the fire.

So, who is that person? It depends. I think there are more examples of who that person isn’t than who that person is. That person isn’t, usually, your spouse. It should never, in my opinion, be an employee. It usually isn’t your best friend, brother, sister, parent, or anyone else that either a) doesn’t understand what you’re really doing, and b) isn’t tough enough to hold you truly accountable. Frankly, I think that the best person for this job is a coach. Because they are independent, they can do or say whatever it takes to get you to do the things you need to do. Moreover, because you pay for them, you are more likely to get your money’s worth. It’s kind of like the difference between getting a gym membership and hiring a trainer.

The bottom line is this: if you’re struggling with achieving the things in your business that you need to do to be successful, I believe an accountability partner is the key to getting back on track. Try it for a few months and see if it works for you.

Book Review – Contagious

January 26, 2017 By Chance Leave a Comment

So, I’m a little behind on this review. There’s probably some kind of joke with the title to be made here, but it’s too late to really think that through. This was our November book and it was good. It wasn’t great, but it is worth the read, I think.

There are some solid psychology take-aways in this book that I think will help you understand consumer and public behavior more than actually crafting a message to send out. I am a huge fan of consumer behavior and economics. Books like Predictably Irrational, almost all of Malcolm Gladwell’s books, etc. are some of my favorites. This book, in my opinion, does a good job of taking consumer behavior and applying to what makes things in the social media and marketing universe go viral.

From a real estate perspective, I think the overall data is difficult to directly apply to your business. That doesn’t mean it doesn’t apply at all. You just really have to put yourself in the role of marketer and not agent to try to pull some insight that you can use. More than anything, I think you will gain some level of empathy as you craft your messages.

Hope that helps. Enjoy the book. My next review will be on this month’s book, The 12 Week Year, which I already love.

Book Review – Start With Why

November 27, 2016 By Chance Leave a Comment

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This month’s Book Club selection was Start With Why by Simon Sinek. We chose this book for October’s group because of the TED Talk. If you haven’t seen it, Sinek’s TED Talk is one of the most-watched ever and is genuinely great. Here it is:

Pretty good stuff, huh? So, we thought the book would be just as good. I hate to say that we were wrong.

It’s not that the book is bad, because it isn’t. There is valuable information in there. The problem is in the delivery. The book is at least twice as long as it needs to be. It also jumps around a bit. In fact, I had such a hard time reading it that I bought it on audio and still had trouble because things I was hearing at that time were things I had heard several chapters before, almost verbatim. I seriously, a couple of times, thought the audio was jumping around.

All that being said, there are some treasures in there. I think, if nothing else, if this book is able to get people thinking about their why and starting to really pinpoint the cause of what they do, it could help make significant progress in creating happiness for more people. I’m a huge believer in allowing your why to drive you and this book is a valuable asset in getting you to think about your why, even if it is really tough to get through.

Next month’s book is Contagious: Why Things Catch On by Jonah Berger. You can find it on the reading list by clicking here.

Book Review: The Miracle Morning for Real Estate Agents

September 26, 2016 By Chance Leave a Comment

The second book in our brokerage’s Book Club is The Miracle Morning for Real Estate Agents, an adaptation of Hal Elrod’s bestselling The Miracle Morning. On this version, he gets help from Michael Maher, Michael Reese and Jay Kinder. I swear when I ordered this for our crew I had no idea that it actually picked up the same story from our first book, Seven Levels of Communication, which I reviewed here.

Now, in fairness, while I found this book very useful, you have to take what I say here with a grain of salt. Go back and look at the time stamps on these posts. I am clearly not a morning person. If this had been named The Miracle Midnight for Real Estate Agents, it would have been perfect for me. That being said, this is a small book packed with valuable info and an easy ready because of the parable format similar to our last book.

The book revolves around a pretty simple acronym that will walk you through a very solid morning routine that is not only designed to put you in a powerful mindset for the day, but will also probably make you healthier, both mentally and physically. I can tell you that by just putting two of the items into my morning routine, I can feel the difference in how I approach the day. Oh, and it took about five minutes to do them both. Seriously, it’s that easy. Other parts of the routine I do at different times of the day and, still others, I need to work on.

Despite the fact that this story picks up after Seven Levels of Communication, I would probably recommend someone read this one first, get the routine to the habit stage of acceptance, and then read Seven Levels. I think you would be more prepared for taking on the things in Seven Levels if you were already doing the things in Miracle Morning. The mindset and attitude that will result from taking the steps in this book will make your ability to digest and execute the things from Seven Levels much easier.

In a business where it is easy to get frustrated, get complacent, and/or just get lazy, executing the morning ritual you find in this book is a nearly foolproof way to keep yourself focused and moving forward. I’ve said it many times, but your mindset drives your attitude which drives your success and this book will teach you how to start each and every day with a bulletproof mindset. Go read it and start implementing the steps today!

Next month’s book is Start With Why by Simon Sinek. Give it a read and let me know your thoughts.

Getting Ready to Get Ready

September 17, 2016 By Chance Leave a Comment

Have you ever found yourself facing a project to complete but, instead of starting, first you feel like you need to do some research, or get organized, or clean your office? Or maybe it was a personal goal like a diet you wanted to start, but you just need to get through this weekend first because you’re going to be out of town? Or, my personal favorite, have you ever been asked if you were ready to start doing (insert thing you’re supposed to be doing here) and simply answered no because you before you start you needed to do (insert thing you think you need to do first here).

At the end of the day, it’s all procrastination.

The question that matters for the purpose of this post, though, is why. Why are you putting off what you know you need to do, what you know you need to do? In my experience the answer generally boils down to one of two things, or sometimes both. The first is laziness and the second is a desire or need to have whatever the project is 100% perfect before unveiling it to the world. The first one is the easiest to tackle, so let’s get that out of the way.

Laziness

If you’re lazy and you know it clap your hands. Hopefully you aren’t clapping your hands right now, but some of you may be. So, without coming off as horribly rude, if you did, update your resume and get out of here. Real estate is a 24/7 hustle. Sustained success in this industry is not for the lazy. I hate to burst your bubble, but there are no overnight successes and HGTV isn’t waiting outside your testing center ready to give you a show as soon as you pass your licensing exam. Truth be told, we have enough lazy Realtors in the industry. We don’t need another one.

So, you can either get your ass up and go to work or get out of the way of those who do. The choice is yours.

Now, let’s get to the real point here.

Getting Ready to Get Ready

The idea of getting ready to get ready, or procrastinating in exchange for action is neither a new concept nor is it really unnatural. It’s why procrastination is such a problem for so many people. I mean, how many hundreds of books have been written on the subject? When you see people who seem to accomplish a great deal, it is usually not a natural thing. It’s usually a practiced skill, like any other skill. But there’s more to it than just having the initiative to tackle a project. Anyone can start on a project. The key is to finish your project, at least enough to launch it.

It Will Never Be Perfect

Do you own a smartphone? If you don’t, we need to have another discussion, but for now we will assume you do. Every couple of months I’m sure, like I do, you get a new update to the software on your phone, right? Of course you do. So, here’s the question. Why didn’t Apple or Samsung or LG or hopefully not Blackberry wait until every single aspect of their software was 100% perfect forever before releasing it? I mean, aren’t these updates just an admittance of failure?

No, of course they aren’t an admittance of failure. They’re a normal part of auditing systems and updating them for what is relevant at the time. Why then, do we feel like we have to have every aspect of a project perfect before releasing it? Our database has to be perfectly organized, classified, and every aspect of our follow-up system in place before we would even consider the idea of sending an email. We wouldn’t dream of publishing a website without every single last detail being perfectly in place. But why?

How about instead, as you organize and classify your database, you also call them? How about you put your follow-up program to work right now instead of waiting until you’ve written or created every single piece of content that will go out over the next 24 months? The bottom line is that it will never, ever be perfect. Ever. You will make adjustments as you go along or you will find yourself with the most perfect yellow pages ad of all time. In the immortal words of Nike, Just Do It!

You Don’t Know What You Need Until You Do

Until you start, you won’t really know what you need to do to finish. You can plan and scheme and dream, but until you get your hands dirty and actually start, you won’t know what you need to be able to finish. Dan Sullivan, executive coach and co-host of the popular 10X Talks podcast, calls it the 80% Principle. Based on all of the plans you make, you’ll probably be able to finish about 80% of your project. 80% is good enough. Launch it and then put the finishing touches on it. Seek counsel, audit, adjust, and continue to do so at regular intervals to ensure that your plan stays on track for the long-run.

Its A Marathon, Not A Sprint

I get it, you’re a Type A personality. I know. We all are. You’re a control freak. We all are. You feel like unless it’s ready it will make you look unprofessional. I get it. We’ve all been there. Remember, Rome wasn’t built-in a day and neither will your business be. Ten years from now you will likely look back and laugh at how much you worried over this stuff. The point is that if you never start the journey, you’ll never know. Sometimes the first step is the hardest, but, once you make it, each ensuing step becomes easier and easier.

Very Few Others Are Doing It

To wrap this up, let me drop a bit of unadulterated honesty on you. 90% of your competition isn’t doing it. Doing what you ask? Anything. Truly, they aren’t. Less than half of your competitors are using a CRM (and most probably aren’t really using one, they just pay for one), fewer than 10% use video, and the list goes on and on. Almost every statistic available on what agents do for follow-up and marketing is pretty embarrassing, really. So, as you sit there fretting over whether or not whatever you’re working on is good enough, just remember that 80% of anything is way, way better than 0% of nothing.

Book Review: Seven Levels of Communication

September 14, 2016 By Chance Leave a Comment

From the last post, you know that our brokerage has started a monthly Book Club. Our first book was Seven Levels of Communication by Michael Maher. As promised, a couple of times, here is my review of the book.

Bottom line: If you’re in sales or marketing, you need to read this book.

I have a general rule to judge the quality of a business book – If you can take two things out of a book and apply them to your business, it was worth the read. In the case of Seven Levels of Communication, if you can’t take a dozen tips out of this book, read it again. Seriously. It’s that good. Did I mention that I was serious? I don’t want to sit here and gush over 150 pages of paper, but this might be one of the best business books I have ever read.

First, Maher does a great job writing in parable format. The book follows a real estate agent, Rick Masters, as he transforms from a near drop-out to top producer through a coaching program that walks through the 7 Levels. I’m a huge fan of story-telling in non-fiction and Maher does it in a way that is both engaging and lacking arrogance. Honestly, as valuable as the information is, I’m not a fan of books by people like John Maxwell because they tend to be too much “Look at me and what I’ve done and you should be just like me.” This book is written from a perspective of a Coach and, as such, comes off as genuine and truly helpful.

Now, about the tips that the book gives you. The information contained in the book isn’t a reinvention of the wheel. To tell the truth, I imagine that the end product that Rick Masters becomes looks a whole lot like top salespeople from about 30 years ago. He’s more personal, caring, and doesn’t rely on technology and other new gimmicks to build his business. Instead, he relies on tried and true messaging and communication, but he does it with a plan and strategy.

The other great part of this book is that none of the strategies are really that hard to implement or expensive. The result of these strategies is a business that every agent dreams of, one built on referrals. The trick, like with everything else, is that the strategies have to be implemented with a personal touch and executed with discipline and consistency.

So, here’s the deal. I’m not going to reveal everything in the book because you really need to read it. I will tell you this, you will probably want to read it twice. Once you’ve read it once, you can go back
and take it tip by tip to implement in your business. Trust me, it’s worth it.

In conclusion, if you feel like you’re in a rut and need to get out of it, or your new to the business and want to get a jump-start, or are already producing at a good clip and want to take it to the next level, you need to read Seven Levels of Communication. Even if you only get a couple of things out of it or only implement a couple of the strategies, you will without doubt see the results in your business. You can pick up a copy on our Reading List page. Do it.

Our second book, Miracle Morning for Real Estate Agents, will be the next book review. You can also pick it up on the Reading List page.

Real Estate Book Club

August 31, 2016 By Chance Leave a Comment

In the words of Harry Truman, “Not all readers are leaders, but all leaders are readers.” I love to read, but have found that as we get busier and extra time gets harder to find, my reading time has started to vanish. So, we made the decision in our brokerage to start a book club. Now, I have to keep reading so that I can participate with our team. I’m still wishing I was reading more than one book a month, but at least I’m getting it done.

So, I figured I would invite you to participate with us. We’re already on month two, so you’ve got some catching up to do. Last month we read 7 Levels of Communication by Michael Maher. Generally when I read a business book I look for one or two things to take away from it and try to apply in life or business. Now, I could be a real smartass and tell you that I took 7 things away, but I won’t. I took way more than 7. I’ll be writing a full review soon, but this is a book you should buy today!

This month, we are reading Miracle Morning for Real Estate Agents by Hal Elrod with some help from a few others. It’s a take off of Hal’s book Miracle Morning that is designed specifically for Realtors. I’m not finished with it yet, but so far it is pretty darn good. It’s particularly challenging for me given that I am in no way, shape, or form a morning person. I need someone to write a book called Miracle Midnight for Real Estate Agents. Maybe I’ll work on that.

Each month, I’ll be writing a review and thoughts on how you can apply principles from the book. I’d love for you to join us and share your thoughts as we go through a new book each month.

In the meantime, for those of you who are eager to read more than one book a month, I created a page with a bunch of books that I’ve read and recommend. Trust me, there are a lot that were left off the list. I’ve still got a few to add, but it’s a good start. The link to the page is also in the navigation menu on the right side of the page. In full disclosure, the links are Amazon Affiliate links. They’ll help me buy more books to tell you about, so thanks in advance.

Oh, and if you have any suggestions to add to the list for the book club, hit me up.

Creating a Real Estate “401k”

July 14, 2016 By Chance Leave a Comment

Something has been weighing on my mind recently and I wanted to try to offer a solution. The more agents I talk to, the fewer, it seems, have an exit strategy for when they are ready to “retire” from real estate. I’m not talking about the traditional exit strategy discussed in many blogs that involve creating an asset that can be sold or passed down with ongoing income streams. I’m talking about a retirement investment strategy.

If you look at the statistics, the average agent is 57 years old. While there are many contributing factors to that, one of the concerns I have is that people aren’t leaving the industry because they don’t have a choice. They are literally working until they die. So, my question is, quite simply, why? Here you have men and women with a world of investment data literally at their fingertips and nothing to show for it. In fact, how many times have you posted something on social media about now being a great time to start investing in real estate? But, have you taken your own advice?

Why don’t more Realtors walk the talk when it comes to securing their financial future?

Now, before we get into the details, let me preface this with a few disclaimers. Although at one point I did have a couple of securities licenses, I am currently not a licensed financial advisor. Also, I realize there are a multitude of financing options, market variations, etc. And, yes, this is not exactly Dave Ramsey friendly. This is overly simplified, I know. So, before all of the comments, I am aware of all of these things. This is just a simple illustration.

Why a “401k” example?

I am using the idea of the 401k in its simplest form. The meaning is that this model is designed to create results at retirement or some point in the future. This is not your traditional real estate investment plan where you are taking passive income today. This is an investment plan that is designed to create assets and income in the future by using the income today to build equity. If you choose to do otherwise, you can, but I am putting this out there for the folks who are disciplined enough to follow a plan and then reap the rewards 10-20 years from now.

Additionally, the “accumulation phase” of this plan is designed to hold the real estate. That doesn’t mean, at some point, you couldn’t “sell your stocks” or “trade” for a new or better (hopefully) asset, but remember this is a plan where you can hold an asset and receive a dividend for well into the future. We’ll discuss “trading” your “stock” in the Wealth Building Phase portion of this.

Finally, much like a real 401k, this is designed to own assets. When I say own, I mean own. I don’t mean finance and be leveraged. This is where, I believe, the plan spits in the face of many traditional real estate investment plans. It doesn’t happen overnight, but it happens and you will find yourself with an incredible asset and a whole lot of money coming in monthly. So, let’s get to it.

The Accumulation Phase

So, the first step, like in everything, is always the hardest. For the purposes of this illustration, we are going to create some constants. First, every house we are going to buy is going to be priced at $150,000. Second, every house we buy is going to rent for $1500. Third, the houses we are buying need no repairs to make them “ready for move in”. Finally, we are not going to take any price/value appreciation into effect until way later. We are, for the sake of painting the picture, and for ease of math, going to assume that ten years from now the houses are still worth $150,000. Trust me, just go with it. We’ll do some appreciation illustrations later.

Ok, so let’s buy our first house. To give us a jump-start on this, we are going to put down 20% (also to make financing easier and cheaper). So, we need to save $30,000. I’m not going to lecture you on how to do this. If you want to save $30,000 you will save it. Let’s shoot for no more than one year to save that amount and we are going to save that amount every year for the foreseeable future.

One year has passed and you now have $30,000. So, you drop your 20% on the first house, hereafter referred to as House 1. At a loan value of $120,000, your note is roughly going to be (assuming 3% taxes, $1500 insurance, and a 4.5% rate) $1150. That leaves you with $350 each month in profit. Instead of, like many investors, taking that profit, we are going to put every penny into the mortgage. Based on that overpayment, we would pay off House 1 in 14 years and 9 months. Not very sexy, but stay with me because it gets better.

In the meantime, we are saving another $30,000 in a year. So, year two begins and we buy House 2. Same numbers as before. Instead, however, of paying the additional $350 to House 2, we are going to pay it on House 1. Now, our payoff of House 1, with a $700 overpayment each month, goes down to just over nine years. Still not showing up on MTV Cribs (yes, I’m old), but the light at the end of the tunnel is more realistic.

Third year, same story. Our payoff on House 1, overpaying by $1050 each month, is less than four years away. And so the story goes. $30,000 a year. One new home a year. Every year.

Here’s where it gets better and why you have to see the long-term payoff on this. Let’s say that year 6 we pay off house #1. Now, we transfer all of our overpayment, and now an additional $1000 ($1500 less taxes and insurance) to house two. So, for the record, that’s $1000 plus (5×350) $1750 for a grand total of a $2750 monthly overpayment. House 2 gets paid off in less than 3 years. House 3 comes next, nearly 9 years from buying house 1. You now have 2 homes that you own and 7 financed, but not for long. So, 2,000 (from House 1 and House 2) plus (7×350)$2450 for a total of a $4450 payment each month. House 3 is paid off in a matter of months, not years. And so the dominoes fall. You can continue to purchase and payoff very quickly from this point forward.

The Wealth Building Phase

So, let’s say it is year 10 from our start. We now own 3 homes outright and another 7 with notes remaining. The great news is that we can literally pay off the remaining 7 within a couple of years, if not sooner. So, let’s stop saving our $30,000 a year in year 12. At this point, we will own (or be very close to it) 12 homes outright for a total value of $1,800,000 ($150,000×12). As a bonus, that asset is paying us (after property taxes and insurance) $12,000 a month. Do I have your attention now?

So, you can make some choices: either continue to buy, trade up on some of your “stock”, or sit back and enjoy the rewards of your hard work and discipline. The awesome part is that you can do whatever the hell you want because you have the asset and the security. For me, my choice would be to continue building wealth. Even in “retirement” I would still do it. Now we are getting into the legacy department, and that is for another day.

Picture this, though, at $12,000 a month, not saving an additional dime of your income outside of the 401k, you could buy a home a quarter and have them paid off in next to no time. So, instead of having 15 homes in year 15, you could have 20. In year 20, instead of having 20 homes, you could have 44. Looking at that, using the same numbers, you would go from a $1.8 million asset in year 12 to a $6.6 million asset and cashflow monthly of $44,000 instead of $12,000.

Oh, and by the way, since we stopped saving our $30k a year in year 12, we just bought and paid for 32 houses without investing a single penny of money into the 401k. That’s $32,000 a month and $4.8 million for free in an 8 year period.

Appreciation Models

So, using our illustration above, we have invested a grand total of $360,000 (12x$30,000) and have a $1.8 million return with a $144,000 a year dividend. Not too shabby, right? So, let’s look at what this might look like with some realistic appreciation models in place.

I live in Houston, TX, where we generally have conservative appreciation. Since my other assumptions are using our market as a model, we’ll stay here. We run a roughly 4% appreciation rate historically. So let’s assume that our value and our rental rate appreciates 4% annually. This will obviously affect our payoff in a positive way, but might also affect our taxes negatively. Let’s focus on the end result though, because, after all, we are in a 401k mentality. In year 15, House 1 is worth $270,000 and your rent is $2700. I’ll let you take the math from there, but you get the picture.

So, there it is. Yes, I know it isn’t perfect, but it makes the point. Should you also invest in other things like stocks? Yes, you probably should. Like Warren Buffett says, though, “Never invest in a business you can’t understand.” You understand real estate. Go get rich in it.

Here’s my challenge to you. Tomorrow, I am going to go to my bank and open up a separate account. I am going to start saving my first $30k tomorrow with the goal of buying my first rental property next year. Will you join me?

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