The Book That Changed My Life

We are just wrapping up a few projects and I see that our pipeline of properties is starting to get a little low. I decided to go check out some properties that have been sitting on the MLS for a while and see if I might be able to find a couple of diamonds in the rough. Typically the properties out here where I invest are in completely distressed condition. They require tons of work, so I will only really dig deep when I need the inventory.

One of the properties I went into had trash strewn all over the place. It looks like they moved out in a hurry and left a lot of stuff behind. I went down in the basement and there I saw it. The first educational program I had ever bought. 

Carlton sheets no money down system. The joys of being 17 trying to convince people to give me owner financing brought back some memories. Anyway I tell you this, because it reminded me of a book that really changed my life and the way I view real estate. The book is William Nickerson’s How I turned $1000 into a Million in Real Estate – in My Spare Time.

This book was the basis of my real investing career. The book is written in almost a how to fashion with plenty of examples along the way explaining his whole methodology. Nothing is held back in this book. The book I read was the original one which was written in 1959, so a lot of numbers were very different and there were some interesting excerpts about civil. Also a lot of the material is dated, but the two main principles remain the same:

Add Value

Every example property in the book has some sort of value add proposition. Before every purchase, he is figuring out his exit strategy. His exit strategy is all based around his ability to improve the performance of the property. Whether it is through raising rents up to market levels or rehabbing the properties, so that he can then raise rents further, everything is done with the idea of selling the property in the end. I’m not sure many investors start with the end in mind.

Even I can be guilty of that. I’ve been investing now for close to 12 years now and I have gone into it with such a long time horizon that I haven’t completely worked out what I am going to do with the 150 units I have acquired over the years. At some point I am going to have to sell some of them and pyramid into bigger buildings to make it easier on my heirs. This brings me to the other principal of pyramiding.

Pyramiding

As I said, Nickerson starts with the end in mind. He does this because his plan is to increase the value of the property and then roll that value into the down payment of the next property, a larger one. After he increases the value of the 2nd property, he has his eyes on rolling that value into a 3rd property, an even larger one. Eventually he pyramids his way into a million dollar building, when he started with just a $10,000 one.

My plans are similar to this in the sense that instead of continually rolling into larger and larger buildings; I have been focusing on accumulating more and more smaller buildings. I have been doing this with the value I’ve created by stabilizing those buildings and refinancing out or selling them to other investors. I find that in Chicago, there is a lot of value to unlock in the less than 6 unit buildings. Once you get above 6 units, sellers seem to think that you will pay what the potential value of the property is. It is very common to find commercial buildings to be valued on what their potential rents are not what their current rents are. (If it was that easy, why doesn’t the seller just raise the rents? But that is a topic for another post.)

To sum up the whole book in just 2 points is a major disservice to the book. There is plenty of actionable advice, but again a lot of it is dated. You have to look at it from an idea perspective. Instead of combing through the classifieds looking for property, maybe you look on craigslist. The idea is still the same, execution is a little different.

If you are a beginner and want a great book to help you with great ideas, I would highly recommend Nickerson’s book. It changed my life and possibly yours too.