Author name: Erion Shehaj

I help professionals achieve financial freedom through real estate so they can live life on their terms. The ideas I write about come from my 20+ years of experience as a real estate broker, investor, and guide. I’ve helped clients purchase over $300 million in real estate assets to build their wealth. More importantly, I’ve been through different economic cycles and watched patterns emerge. I know what works and what doesn’t for busy professionals with demanding careers. I consider it my job to cut through the noise, eliminate the overwhelming options, and present you with a clear, proven path forward. Too many successful people never achieve financial freedom because they’re paralyzed by options or chasing the next shiny strategy. I am originally from Albania, a rugged country on the Mediterranean sea in southern Europe. I came to the US as an exchange student in 1999 and was the first member of my family to go to college. I believe that we best appreciate opportunities by way of contrast. Growing up in a totalitarian and communist country was not easy – but it has also provided me with a unique perspective that I utilize to spot opportunities and help my clients apply to reach financial freedom. My work isn’t about get-rich-quick schemes or building “empires” that become second jobs. It’s about using real estate as a tool to engineer the life you truly want—where work becomes optional, time belongs to you, and your finances support your values rather than dictate your choices.

How to be successful

Success is simple. There are a handful of time tested principles that when followed consistently over long periods of time will inevitably cause you to succeed at anything. The funny thing is I’m not about to tell you anything you don’t already know. So then, why do successful people make up such a small percentage of our society? Because while these principles are painfully simple, they aren’t by any means easy.

Success
Photo Credit: Alosh Bennett via Compfight

Success Principle #1: Figure out “why”

If you open a business because you just want to make lots of money, you usually don’t. People that just want their jeans to fit a little better don’t lose weight and keep it off in the long term. The Why is the driving force behind your actions that will push you through when you get stuck. When I meet with a real estate investor for the first time, the first question I ask is why they want to invest. Their first reply usually has to do with semantics: I want another stream of income or I want to build some wealth or I want to take advantage of this market. But when I ask them to dig deeper they find that they’re doing it because if this succeeds their daughter’s college will be taken care of or because they’ve always dreamed of traveling the world with their spouse someday or because they don’t want to end up relying on Social Insecurity (h/t Dave Ramsey) like their parents had to.…

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Numbers never lie. Or do they?

Today’s post addresses a common misconception that costs inexperienced real estate investors thousands of dollars over the long term. When analyzing investment properties, investors have a compulsive need to oversimplify the decision-making process down to a single metric. If the cashflow on the property is X, then it’s a good property. Or if you get X amount of built in equity, you’ve gotten a deal. Because in the end, numbers never lie, right?

A tale of two properties

Let’s say you’re considering two potential investment properties for acquisition. The first property costs $105,000, has $4,100/year positive cashflow and $9,519 Net Operating Income. The second property costs $130,000, has $2,831/year positive cashflow and $9,526 Net Operating Income.  Which one is the best investment property to buy? When I pose this question to investors that are just getting started, they almost always pick the first. More cashflow, higher returns on investment, a numerical no brainer. There are several reasons why that’s the wrong decision to make. For starters, an analysis that considers only the “what” without regard for the “why” always yields flawed answers.

Einstein said that “if you judge a fish by its ability to climb a tree, it will live its whole life believing that it is stupid”. Put a different way, if you’re measuring the wrong statistics, you’ll get to the wrong conclusion. More than looking at the amount of cashflow, a smart investor looks at the reasons behind the difference in cashflow. Could it be that the property yielding less cashflow is in a better location/neighborhood than the other?…

Numbers never lie. Or do they? Read Post »

Smart Leverage or Perpetual Leverage?

There comes a point in the life of every long term real estate investor where he has to make a critical choice. He has been cruising along assembling this great portfolio of real estate investments when he reaches a fork in the road. The question is, do you go left or right? That decision can be the drastic difference between losing everything or retiring early. Do you know which way to turn?

Options

Creative Commons License Photo Credit: Frans Persoon via Compfight

Case and Point

Let me paint a picture for you to illustrate exactly what I mean. Let’s say that it has been a good year for your real estate investing aspirations and you have been able to purchase three solid investment properties with all the right qualities. Properties were rented out within weeks of hitting the market, they are cash flow positive and you are enjoying the sweet fruits of success. You purchased them with 20% down and took advantage of never-before-seen low interest rates to leverage your capital and increase the value of the assets you control. This is where you see the fork in the road that presents you with two choices. If you turn left, you purchase more properties, leverage your capital even further and pursue an increase in positive cash flow until you reach your desired income level. If instead you turn right, you use the positive cash flow from the properties along with additional capital of your own to pay off the mortgages on the properties in your portfolio.…

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Getting an early start

Martin came to us referred from a personal friend and previous client of ours in the fall of 2009. He was in his late twenties, had graduated from college with an engineering degree about five years back and started working for a national consulting firm in the East Coast. He was a saver who had heard about the benefits of real estate investing in Texas, had a well defined set of goals, as most engineers do 🙂  but was looking for a pathway to achieve them. What follows is a case study of the Blueprint investing strategy I crafted for him, the execution of that strategy and most importantly the results it produced. If you identify some of yourself in these lines, it is my hope that this story can shed some light into what’s possible with a well structured, long term investment strategy and flawless execution.

Recalibrating his aim

On our first phone call, all he could talk about was cash flow. “I want to buy four investment homes in the next two years, rent them out for positive cash flow. I want to build enough cash flow, so I can do whatever I want and live off the cash flow”.  You get the gist. So, we had to have a come-to-Jesus meeting. We started focusing on the “Why  and When” rather than the “How”. It was immediately evident that Martin wanted to put together a solid portfolio of real estate investments that would produce enough cash flow at some point in the future to make him financially free.…

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Why foreign investors should flock to Houston real estate?

Government efforts to shore up the U.S economy after the global recession of 2008 have brought about a unique economic climate that’s extremely favorable to well-capitalized foreign investors. The substantial fall of the U.S dollar along with an ample supply of great investment properties at bargain basement prices have been turning investors’ heads towards the US for a couple of years now. But a strong local economy that produces good paying jobs and healthy tenant demand, the ever falling U.S Dollar and superior affordability make Houston the place foreign real estate investors should look into first.

Strong Houston Economy

The ultimate foundation for long term real estate investing is a healthy supply of great tenants. But one can’t be a great tenant without well-paid stable employment. Texas leads the country in jobs creation with over 251,000 private sector jobs created just in the last year. About 1000 people move to Texas every day due to plentiful job opportunities, low cost of living and low taxes. Smart foreign investors can strategically invest their capital in properties that will satisfy the demand from this inward migration thus insuring great returns on capital and minimal vacancies.

Parachutist Dollar

Take as an example an Australian investor with 500K of Australian dollars in capital to invest. On January 1st 2006, that capital could have purchased $368K worth of  real estate in the U.S. Today that same amount of capital can purchase $530K  of real estate, or 30% more. Or put differently, this Australian investor could purchase the same asset for 30% less than a U.S…

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Why Equity Doesn’t Matter

If you were to ask a thousand aspiring real estate investors what is the key to a successful real estate investing strategy, I am certain that over 70% of them would say: Buy low, sell high. That answer reflects a very common misconception that the primary key to success in long term real estate investing is the amount of initial equity you get by buying the property below its current market value. Or put another way, “you make your money when you buy the house”. I am sure you’ve heard that one before. Well, in this post I will show you why (initial) equity doesn’t really matter when you are a long term investor. Not only that, but I will prove to you that chasing equity might lead you down the wrong path.

Using the wrong measuring stick

The first issue with using initial equity as a criteria to select investment properties is that it doesn’t align with your goals. Comparing the purchase price of the property to its current market value is only useful if you intend to flip the home two months from now. In other words, current equity is a short term indicator when your focus is long term. Your primary concern should be what that property will do in 5, 10 or 15 years not what it’s doing right this second. Quick arithmetic problem for you. Investor A purchases a property 20% below its current market value in a subpar neighborhood that over the next 10 years will only see 2% annual growth.…

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Decidere

For the past week, I’ve been reading a terrific book by Tim Sanders called Today we are rich and  I can’t seem to put it down. The book is a goldmine of brilliant ideas that mostly came from his Grandma’s sage advice. But what I want to focus on in this post is when he explains what it means to make a true decision:

It’s important that once you’ve made a decision, you don’t give it another thought. The word decision stems from the Latin word decidere, which means “to cut off.” Making a real decision “cuts off” all other options or alternatives. Once you’ve made your decision, there’s nothing left to do but execute (emphasis mine)

Sanders, Tim (2011). Today We Are Rich (pp. 83-84). Tyndale House Publishers, Inc.. Kindle Edition.00

Sanders seems to be channeling his inner Tony Robbins that in Awaken the Giant Within said:

Part of the problem is that for so long most of us have used the term “decision” so loosely that it’s come to describe something like a wish list. Instead of making decisions, we keep stating preferences… Making a true decision means committing to achieving a result, and then cutting yourself off from any other possibility.

 

Robbins, Anthony (2007). Awaken the Giant Within (pp. 38-39). Free Press. Kindle Edition.

People often fail to make a decision and act on it because they’re afraid of making a bad decision. Know this: Even worse than making a bad decision is making no decision.…

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How to find a great investment property

Last week, I was having lunch at Houston’s in the Galleria with an old friend that I hadn’t seen in a while. After some catching up, he revealed that after 15 years of two steps forward three steps back, his retirement had grown by just $10K. Not good. So, he was strongly considering investing in real estate long term (good call!) but just didn’t know where or how to start. That’s all the invitation I needed – The notepad was out and over the next two hours (that felt like 15 minutes) I laid out what I thought was the right strategy for his goals. I could see the “gears” in his mind spinning faster than the RPMs on a Maserati. It all made sense to him. Then he asked THE question: How do you find a great investment property? It’s a great question I get every single time with an investor that’s just starting out. The following is my response to that question.

At the heart of it, the answer is based on supply and demand. Essentially, you are trying to purchase an asset (supply) that will generate rental income based on how desirable it is to prospective tenants (demand). So the answer will depend on the answers to the following questions:

What are tenants looking for in a property to lease?

Try putting yourself in a tenant’s shoes for a moment. Why are the reasons you are making the move from an apartment (or living with family) to a home?…

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The Real Math of Flipping Homes

Real estate investors usually catch “flipping fever” because they believe that’s the fastest way to make the most money investing in real estate. To paraphrase some of our past clients with this “condition”, investing in real estate long term is just too little, too slow. Instead – they argue – they would rather make the big bucks now and double their capital in a flash by flipping homes. Turns out, those bucks are much smaller than they appear.

I could try to talk you about the pitfalls of flipping homes till I am blue in the face and still I couldn’t match the story that the numbers tell.

Optimistic Scenario

It’s a beautiful day, birds are chirping, grass is green and nothing ever goes wrong. You find and purchase a property according to the formula commonly used by investors that flip homes: 70% of After Repaired Value (ARV) minus the cost of repairs. Property’s market value after $14k in repairs is $120K and your purchase price is $70,000. You complete the rehab on time, on budget and now the home is ready to be placed on the market for sale. Since fortune is on your side, an end user falls in love and buys your flip for full asking price closing 90 days later. So let’s do a little math:

The Real math of flipping homes
Optimistic Scenario in Flipping Homes

So let’s recap: If you buy the property for the exact right price and rehab it on time and on budget, sell it for full asking price in 60-90 days with no concessions or hiccups whatsoever, your after tax profit is about $15K.…

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How to buy your first investment property

How to position yourself to buy your first investment property

In this series of posts, I will show you step by step, how to buy your first investment property. Consider this your guide to find the right investment property for you, analyze it in depth and invest in it the right way. First, we will discuss the preliminary steps you need to take to set the correct expectations and position yourself for your first acquisition. This is absolutely necessary considering the amount of misinformation and marketing doublespeak that’s you have probably been exposed to as we all have.

Myths and Misinformation

Truth: The majority of what folks “know” about investing in real estate comes from infomercials, reality shows and other get rich quick “proven systems”. Sad but true. Let’s quickly debunk some of the common myths propagated in them.

Best way to profit from investing in real estate is to flip houses

What usually attracts people to flipping houses is speed. The prospect of making money fast by rehabbing and reselling a distressed home is irresistible. I get that. But have you noticed how all the home flipping reality shows have all of a sudden disappeared from TV? That’s because very few people are making any money flipping houses ever since the market turned. And therein lies the rub. The problem with flipping houses is that it’s very sensitive to market conditions – when the real estate market is up, people make money. When it’s down, people can lose everything. Ever wonder why all these gurus are selling books and tapes when they could make millions flipping houses?…

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