What type of investor are you?

Most people do not understand the importance of determining what type
of investor they are. It is one of the most important concepts you should learn; your profile will govern how you invest your time, energy, and money from now and into the future.
To help establish your profile, examine your aspirations, which are based
on how you answer the following questions. (No one but you will know
your answers, so be honest with yourself.)

• Why are you doing what you’re doing?
• Why did you take the risk?
• Why did you spend the money?
• What are you going to do with it?

I ask this question at seminars all the time: “Why are you doing this?” The
typical response is, “I want more money.”
There’s a reason why you are doing this... why you are sitting there reading
this, and spending your time learning how to become a real estate investor. Why are you doing what you are doing?

I would like to share a story with you. When I was a young boy my father
worked extremely hard; combined with many long hours, we did not see
him very often. There was a time when we lived in Boise, Idaho, and his
job was in Salt Lake City, Utah, where he worked six days a week, 12-hour
days. On weekends he would make the six-hour drive home to Boise. He
would sleep in his car on the way so that he would be able to spend all day
Sunday with us. He did this every week for two solid years. I recall that as
a little kid (I was only six) that I really respected my dad for that. I
remember thinking: “That’s amazing that my dad would make that
sacrifice.” I recall another time when I was older and in high school, I was
on the high school wrestling team. I had wrestling practice and a meet
every week; my father usually missed them because of his work. He had
to make sure we had food, shelter, water, and an education. It’s my guess
that many of you sitting and watching me are thinking, “Yeah, I had to
miss my daughter’s ballerina recital just last week and that killed me
inside.”

I shared my father’s story with you because I need to make this perfectly
clear: achieving your financial goals will be tough. Any investor who has
been investing for a while will tell you that you’ll always go through tough
times. No matter what you do, there will be something that is tough for you
to deal with and overcome. You will experience rough times that will seem
almost impossible to get through.

If money is the only motivation you have, it will leave you empty. But if
you have deeper motivations – like freedom, time to be with your family...
all those things that mean more than just money – they will help make you
successful. These motivators will force you to wake up in the morning
earlier than ever before; they will help you work later than you’ve ever
worked before; they will help you work harder and be more effective than
ever. That’s why understanding yourself, understanding why you are doing
what you’re doing and being honest with yourself, are the most important
things you can gain from this learning.

The "Money" Box

Let’s talk about one more thing in The Box; let’s talk about lending. I call
it the “Money Box”. Here’s another thing that people don’t understand,
and it’s a true fact everywhere: The Money Box is made up of lots of
different traditional and non-traditional lending institutions, such as banks,
seller financing, private money, and people’s own money. The Money Box
provides us with an understanding of types of lending institutions that
thrive in a given market. Knowing that information can tell you what’s
going on in the market and how to structure your strategy.
For example, we are currently in a credit crisis (2008). Thus, the banks’
guidelines have become extremely stringent and they have scaled back
their lending practices. According to the Money Box, since the banks are
scaling back, another institution within The Box will step up and make
money available. Seller financing, for instance, may become more
available, or private money; or buyers may bring a larger amount of money
for the down payment. You need to understand that there are never holes
in The Box; someone or some institution will always be there to make
money available. The market always wants to meet equilibrium.
To give you an example of this, in the 1980’s, seller financing was very
popular. Why? Some people needed to get rid of their homes. Interest rates
were too high for buyers and it was difficult for them to qualify, so seller
financing came in and filled the gap. In a credit crisis like the one now
(2008), the banks have scaled back their creative loan programs. Hence,
other people and/or institutions are filling in the gaps and providing money
to borrowers. In a credit crisis, seller financing and private money are
usually the first entities to lend money. Personal cash usually takes a little
longer to come in.
As far as strategy goes, the Money Box helps you determine that if banks
are being tight, and you don’t want to bring in personal cash, you ought to
look at seller financing or private money. There’s always a way to get
financing in any market; it doesn’t matter what the market is doing. If
banks are taking the vast majority, then use banks because their interest
rates may be more attractive than other financing options. And if banks are
scaling back, use other financing means.

The Box Simplifies economic laws.

Now let me provide you with an example of how The Box can simplify the
economic laws. The Box can be used to understand rental versus
ownership in the market; I call this the “Housing Box”.
The Housing Box represents the fact that people always want to have a
roof over their heads. In the Housing Box, people can only get a roof over
their heads in one of two ways:
1. Ownership
2. Renting
Obviously there is the homeless population; but generally speaking,
people either own their houses or rent them.
As we focus on ownership and renting, realize that no matter what happens
to you in your life, you have a choice: you can either own your home,
condo, etc., or simply rent – that’s it! After that there’s nowhere else to go.
That, in essence, is what the Housing Box consists of. The wonderful thing
about the Housing Box is that no one can go outside of it.
Why is the Housing Box important to understand? In boom time, when
salaries are going up and people are buying a lot of houses, ownership
takes over.
You’ll see property ownership take a bigger space of The Box and renting
will take a smaller space of The Box. What this means is that you’ll have
a soft rental market, yet a strong sales market. In other words, it will be a
seller’s market. But, since nobody is going outside The Box, renters will be
moving over to the ownership pile – it’s a good time for people to start
owning property.
Now what does this scenario tell you about the strategy you should follow
as an investor? It is a great time to sell; it’s a great time to flip houses. Buy
multiple properties, fix them up, and sell them. Another way to look at it
is to assume that there are many houses in foreclosure (like in the 2008
market when this manual was produced). If people are being kicked out of
their houses, they’ve got to go somewhere for housing, so they can either
own or they can rent... period! There is nowhere else to go. Consequently,
the rental market will start to take over.
You will see the shifts; supply and demand is basically all we’re talking
about. The Box is never going to change. No one goes outside The Box. So
when you see foreclosures out there, you now know where the market is
going. You should know that in the Housing Box when there are a lot of
foreclosures, renting will take over ownership. Therefore, there’s going to
be more demand for renters. Where there’s a higher demand for renting,
the price of rental properties goes up.
In this case, renting takes a bigger space of The Box and ownerships takes
a smaller space. So it tells you where to put your money (rental properties).
It tells you what strategy to get into, and that is key. Again, The Box helps
us understand simple economic laws; economic principles that will help us
decide what strategy we should move into.

How "The Box" works

Now you know the four sides to The Box. Today we are going to look at other ways The Box works. The Box serves three important functions:

1. As stated earlier, The Box defines the principles and rules that
govern real estate investing; it defines your parameters. It
teaches you what works regardless of market conditions and
location or individual – it is dummy proof and market proof.

2. The Box helps simplify economic laws. Let me explain: The
market behaves according to economic laws. These laws, in
most instances, tell you where the market is going. You need to
understand where it’s going in order to become a more savvy
real estate investor. There is always a way to take advantage of
the market; there is always a place where you can make money,
no matter what the market is doing and where it’s going. Even
in the Great Depression there were areas that investors could
have taken advantage of and profited from. You need to
understand the ebbs and flows of the real estate market and how
to navigate them.

3. The Box keeps you safe because you know the principles and
rules governing real estate investing. It is not the “flavor of the
day or year”. Rather The Box encompasses what has worked for
years and what has made millions and millions of dollars for
individuals. It will do the same for you and in a secure fashion.
Isn’t that a comforting feeling? It really is. It helps us take risks
in markets where people are running scared. The Box is your
safety net, your warm blanket on a winter day. All you need is
to stay inside The Box, follow the principles and rules, and you
will win. I have proven this time and time again.

The Box Does Three Things:
1. Defines the principles and rules of
investing.
2. Helps you understand economic
laws and principles.

Monday we will talk about examples of how The Box can simplify the
economic laws.