If you’ve ever wondered what it’s like to be a professional real estate investor, Jon’s blog will be helpful. Jon runs 4 real estate companies, managing a total of $50 million in real estate. He does this all while living with Spinal Muscular Atrophy, a degenerative neuromuscular disease. In this guest post, Jon shares answers to ten questions. Read more from Jon on Real Estate Mega Book.
You call investing your profession. Can you elaborate on what that means?
Sure. For most people, investing in real estate is something you do part-time. It’s important, but it’s far from the center of your life. For me, it’s a career. I’m working on something related to real estate at least 10 hours per day, seven days a week. It’s much more like running a business than “investing” in something.
How did you get into the real estate business?
It’s like The Godfather.
Remember how Marlon Brando is this brilliant mobster and Al Pacino is this clean-cut guy that loves his father but hates what he does? But then his father gets in trouble and he has to come in and help? And that he ends up staying?
That’s what happened to me. Except, my father’s not a mobster, he didn’t get shot, and he’s still in charge of the family. He is, however, just as brilliant and has over 30 years of experience. I also jumped into the business to help him, foregoing my career as a novelist (ha!).
More seriously, it’s a family business, and I’ve been at it since birth. As a child, I was in charge of emptying out the vending machines, and my responsibility has kind of grown from there. Now I’m the Chief Operating Officer and watch over six different developments.
I did rebel for a couple of years and get a degree in English, but that ended when I found out what English teachers get paid. I’m not cut out for the starving artist gig.
So, what do you guys invest in? Any hot tips?
You can make money on just about anything in real estate if you know what you’re doing. That’s the key. Knowing what you’re doing. The reason my father and I do so well is we’ve been doing this for a long time, and we’ve had an excessive amount of education. Over time, you just start to understand how things work and how to make money.
As far as specifics go, we’ve done just about everything: fixer uppers, foreclosures, luxury homes, rentals, apartment buildings, one trailer park, shopping centers, developing neighborhoods, and developing large mixed-use projects. It just depends on what’s available, what the market is doing, and what we’re trying to accomplish.
There aren’t really any hot tips. On the other hand, if you’d like to understand how it works, I’ve got some pretty cool stuff on real estate investing at my blog.
What’s your basic strategy? Buy low, sell high?
Actually, no. In my opinion, “buy low, sell high” is a classic myth. It’s far too simplistic. For instance, you can make money on “buy high, sell higher.” The common variable is the creation of value, where you take a piece of real estate and take specific action to make it more valuable.
Land development is a good example. We recently bought half of an entire neighborhood of houses on a high-traffic road in Mississippi. If memory serves, we paid almost double the appraised value for the last one or two houses. But it didn’t matter. Since we bought it, we’ve rezoned everything, the road has expanded to a four-lane, and we’ve improved the front of the property. Those properties are worth 2-3 times what we paid for them.
It’s a classic example of “buy high, sell higher.” You can read more about the project here.
Does that kind of thinking apply to smaller investments like houses?
Sure it does. There are certain timeless principles in every industry, and value creation is one of them in real estate.
Take a fixer-upper, for instance. In just about every market, you can buy one for its full present value, fix it up yourself, and sell it for a higher price. By repairing it, you’re actually making the property more valuable.
If you really think about it, it even applies to preconstruction property. By purchasing a house in the preconstruction stage, you are helping the builder get financing. You’re creating value for him. In return, you get a discount.
If I’m working a full-time job, is it still possible for me to make money in real estate?
Absolutely. You’ll just have to make sacrifices. In most cases, finding and managing a good real estate deal takes a lot more time than other investments. If you make the decision to invest in real estate, then you’ll need to find time for it on your schedule. Usually, that means eliminating something else, such as television, time with your friends, or even time with your family.
For example, a good friend of mine just recently retired from Wachovia to invest in real estate full time. He’s in his early 30s, but he’s been working on it for at least 3-4 years now, buying distressed houses and renting them out. For him, the hardest part was giving up time with his family, but now that he’s retired, he can spend time with them whenever he wants.
You just have to ask yourself, “Am I willing to sacrifice now to reap the benefits later?”
Why do so many people regard real estate as a get rich quick scheme?
For several reasons, I think. You see lots of infomercials of gurus selling courses, and everyone knows someone where something has turned out badly. I also think it’s due to a general lack of understanding, not because people are financially ignorant, but because real estate takes more money and time than most people have available. Because of their inexperience, it’s easy to make false assumptions.
It’s also my personal opinion that real estate is somewhat of a get rich quick strategy. Consider the above story about my friend retiring after spending only three or four years investing in real estate. It’s actually a fairly common occurrence. Personally, I don’t know of any other investment vehicles that consistently work as fast… if you know what you’re doing.
Then again, I’m biased.
What do you think of gurus like Robert Allen and Robert Kiyosaki?
Well, I think you have to take them separately.
I respect Kiyosaki for his books. They’re brilliant. Not because they’re accurate, but because of how they make people feel when they read them. Rich Dad, Poor Dad has convinced more people to analyze their finances than any other book in the last 10 years. For that, I applaud him.
Do I think he’s a good real estate investor? No. His investment strategy is overly simplistic.
I have a little more respect for the investing prowess of Robert Allen. I’ve researched him, and he’s actually done some of the things he’s talked about. Where he goes wrong, in my opinion, is he makes people believe nothing down is a strategy for the beginner. Any experienced investor will tell you it’s actually an advanced strategy, and you’re better off being able to make a cash down payment.
Still, I would love to meet both of them. From the perspective of writing books and building a publishing empire, they are two of my heroes.
Are there any books or courses you do recommend?
Not yet. I’ve read about a dozen real estate investing books over the last year, and in my opinion, none of them come anywhere close to giving people the depth of information they need to successfully invest in real estate.
For courses, I’m not really up to who’s good and who’s not. I’ve never had the need to pay $1,000 for a specialized course. Usually, I just find someone that’s already doing it and ask them to tell me how. Then I go out and do it.
I do, however, recognize the value of such courses, and I plan to produce a couple in the future. Until then though, I can’t recommend anyone.
Is that why you started your blog? To give people the depth of information they need?
That’s one reason. Sites like yours are great for teaching people the basics of personal finance, but there’s not yet a dominant blog on real estate investing. Real Estate Mega Book was built to fill that void.
Plus, I don’t think anyone has successfully articulated how real estate works. So, I’m going to give it a shot. Unlike most of the other educators out there, I’m not going to promise anyone that I’ll make them rich, either. If I can help you understand how it works, I think getting rich will take care of itself.
Updated February 6, 2012 and originally published April 5, 2007.