You've got to listen to AM radio. You'll learn the lingo. You'll be able to talk to all the mortgage brokers. Just by understanding a few basic facts your intelligence level will seem higher than it is.
I started listening to AM radio. After a while I kept hearing the Cutaias over and over again. I thought: You know what? I'd like to go down and see what they have to say. This was around 1999 or 2000.
I made an appointment, and brought in my portfolio of properties, closing statements, my expenses, and income reports. Anthony Cutaia's top man laid it all out for me. He was well dressed, very young, energetic. You could tell he knew what was going on.
All my mortgages relied on fixed rates because I didn't know any better. The income was from rentals and quite minimal, just enough to keep the properties alive and make a couple of bucks. (At that point the properties weren't appreciating like they are now.) Cutaia's colleague laid it out for me: ''You have to accumulate these properties because down the road they're going to appreciate.''
He put it to me this way: How many properties can you afford to have that cost you $50 a month? And how many properties can you afford to have that make you $50 a month? Obviously, you can afford a lot less properties that cost you $50 a month than make you $50 a month.
My main goal at this particular point was the monthly income. My main goal was that I wanted to make $2,500 to $5,000 each month from these properties, basically through rents. I really didn't grasp the fact that they were going to quadruple in value in the early 2000s, and they did.
What the strategies that the Cutaias taught me enabled me to do with these variable rate loans and these interest-only loans and the businessman's loans was to cut my payments in half. That gave me more monthly income, which made my debt ratio flip so on paper I could afford as many properties as I could find. And that's what I did. Having a lower debt ratio also meant that I could get a lower interest rate on my mortgages.
Mortgage lenders don't care how much you owe; they care what you pay. If you owe $20 million and your payment is only $5,000 a month, as opposed to owning $10 million of property, with a $10,000 payment a month, they don't care how much you owe—they only want to know how much of a payment you're responsible for every month (your debt-to-income ratio). I thought my goal was to pay my properties off so I could retire— was I mistaken!
The Cutaias made me realize that I didn't want to pay off my properties—and neither should you! What you want to do is make your monthly income better by lowering your payment. You have more cash flow. If you're paying $1,000 for a property that is bringing in $1,200, you're only making $200; but if your payment goes to $500, you're making $700 a month.
You're not paying off your property. Instead you put the cash into more properties, knowing that down the road they're going to appreciate.
Property is better than the stock market. In a perfect world $10,000 will control a $100,000 property. In stock, $10,000 buys you $10,000 worth of stock. So if that property goes up 10%, you're making 10% on $100,000 and you're leveraging the rest. If your stock goes up 10%, you're only making $1,000. So properties are much better in the long run.
As properties appreciate in value and develop equity, you should pull that equity out of the property using an interest-only mortgage, keeping your payment reasonable. Look into an option mortgage or a businessman's loan. Don't forget negative amortization. Use all the strategies you've been reading about in this book.
That appointment with the Cutaias' top man changed my life. Here I was with three properties—against the wall because my payments were so high, my monthly income was not that great (according to the people I'm trying to get more loans from), and the income I'm generating from my job and from the properties is not enough to afford more properties.
The Cutaias helped me realize why this was: because of the kind of loans I was getting. Before all I thought was find the right property. It doesn't matter what it takes to get the property, just get it. I didn't realize you could pay $1,000 a month on a normal fixed rate loan. With this other type of loan, the New Smart LoanTM, my payments would drop in half. Sometimes less than half, which leaves me able to purchase more properties, which I did. I pulled the money out of these properties and bought more properties.
Some were single-family homes, multiple units. I had two triplexes. I had a couple of condos down on the water. Mostly I bought and held them and then as property values went up I took more money out—I refinanced with the Cutaias on these lower interest loans and took the equity money out and bought more property. I had my 20% down payment from equity of the houses that I owned. Here's how it worked. I would get an appraisal of a property after I had held it for a while and would take it into the Cutaias. I would tell them I wanted to refinance a particular loan based on this new value. Typically you get a 80:20% loan-to-value or a 70:30%, depending on whether it's the primary residence, an income property, a condo—there are a whole bunch of stipulations.
So with a property that has a value of $300,000, I could pull out 70% of that; I'd have a loan of say $250,000 and I only owed $100,000 or $150,000 on the property. They would cut me a check for the difference between what I owed and its new value, which in this case might be $100,000—enough to buy another property or two.
When these new strategies were laid out for me, when I brought my properties in for the first time, it was like somebody threw a switch. I just understood it. And some people never understand it. When I try to explain the strategy to other people who are in similar positions, they just don't understand it. They don't understand: ''You mean you don't pay off your property?'' I reply: ''No, paying off your property's not the goal.'' They can't grasp that.
The fixed rate strategy and the pay-off-your-house-early strategy—those are all myths that banks, and our parents and grandparents, have taught us, ever since forever. And that's what the bank wants us to do. Make double payments on that mortgage. Pay it down. But you're giving the bank money and then in order to get it back you need to refinance, which means paying the bank more money—or else selling the property.
There is a way to have the money you would have given to the bank available for your use, by using your own coffers, by taking responsibility for your own money and your own actions. You refinance the house, but you don't run off to Europe and buy shoes and watches. It requires discipline. You have to reinvest back into more property. When you really focus on it and look at it, it is borrowed money based on the equity of your properties. You are leveraging your properties in order to get more money so that you can buy more properties.
In a nutshell, I went from $300,000 in properties (which would appreciate at 10 percent a year—$30,000, not bad) to $1.3 million worth of property (appreciating at that same 10 percent— but now $130,000 per year, even better).
Don't get me wrong. It's not a get-rich-quick scheme. This is a get-rich-slow scheme. And it works. It is plain and simple.
Does my yearly income go up? I wouldn't say my yearly income goes up. But my net worth went up tremendously. A lot of it's not liquid. It's wrapped up in properties. Which to some people doesn't really mean wealth, but to me it does. I have an automotive wholesale business. I still have my painting business. I do the rentals. I try to have fun. What I focus on now is how to make money not by what I have to do, but something that's going to bring me a little bit more pleasure, a little bit more enjoyment as I age.
Nine times out often the mortgage person or the banker that you are dealing with has no clue about this type of wealth-building process. They just don't grasp it themselves because they've been taught by people who don't know very much either.
This program is for someone who is comfortable using properties to create wealth—you may live in a home for 30 years and create wealth that way.
I've been told I'm building a house of cards, that I'm borrowing money against my property so that I'm going to end up with more debt than I'm going to be able to generate on income, etc. I'm taking all this money and who knows what I'm doing with it and it's all going to implode. People make statements like that because they don't fully understand. You can lead a horse to water, but you can't make him drink.
How hard is it to find property?
It's becoming increasingly harder now that property is appreciating so much here in Palm Beach County. When I started back in 1991 and 1992 property owners were begging you to buy properties off them. I was primarily buying distressed properties because those were the only things I could afford—$30,000, $40,000, $50,000 properties. I had saved up 20% on those and that's what I could afford at the time. I hear people saying, oh if
I had known this at the time, I would have bought all the property I could in Palm Beach County.
That's what I did do. I did buy all the property I could. It wasn't as much as I would have liked to purchase, but it has worked out wonderfully. It's harder to find reasonable property today because you're paying at the high end of the scale for them. You can't find a $300,000 property because it needs a roof, painting, windows. You can't find them for $150,000 either. You're paying top dollar and there are bidding wars out there. The reason: That same property, if you hold on to it for a year, will be worth $350,000 next year. That's $50,000. And you don't have to do anything.
Dan and Gayle Gile: They Began by Helping Dan's Mother-in-Law, and Then Amassed $3 Million in Real Estate Equity
Dan and Gayle Gile came to Florida from New York in 1998 to start a new life. Both had a background in the hair industry and, accordingly they became distributors in that industry. Gayle was born in Brooklyn, New York. Even when she lived in New York she had an interest in real estate. She owned a beauty salon in Brooklyn for 20 years.
Once in Florida, she and her husband rented an apartment for $750 a month for their first year, but they wound up purchasing a home in Lake Worth, Florida, for $164,000.
In 2000, Gayle came across Anthony and Susan Cutaia by listening to the radio as she did every day. She came across the Cu-taias' program, ''Talk about Mortgages.'' She was immediately taken with their approach. She decided to give their strategies a try.
EXPAND YOUR THINKING—USE THESE WEALTH-BUILDING STRATEGIES TO REACH MORE THAN ONE GOAL.
In the beginning, when the Giles began to realize that it was quite feasible to purchase real estate, they thought only of helping Dan's mother move from Oklahoma to Florida to be closer to them. As Gayle noted: ''We did not think of using our real estate for wealth creation. We purchased a condo for her in Delray Beach, two bedrooms and two baths. It cost us $33,000. We took out a $27,000 mortgage, taking some of the equity from the refinance money from the $164,000 home. We paid only $210 a month as a mortgage payment. We had put 20% of the total price down. We learned that if we followed the Cutaias' method, we could create wealth.'' Again Gale: ''I am the type of person. I'll go for it. If I understand it, I'm not afraid. I've been telling relatives: You can do it too. They could have refinanced. But I'm the only one doing it.''
One year later the Giles refinanced the condo that they had bought for Dan's mother. At the time it had appreciated to $80,000. Then they took $60,000 in cash from the refinancing to put toward the business that they were setting up.
By this time the Giles were really into buying real estate.
The Giles were also renting a 500-square-foot condo, part of a condo park for which they were paying $600 a month in rent. They decided to purchase their own condo for their distribution business. Dan noticed a sign that went up for a property in Del-ray Beach, announcing that the Congress Commerce Center, a condo park, was going to be built on the site. That condo became a warehouse and educational center for their beauty business. They were also teaching all phases of the business from the condo.
Dan and Gayle went from the purchase of one property to another.
They took equity from their Delray condo and purchased one of the planned units—each at 3,000 square feet—for $324,000. That was in 2003. That unit, just three years later, is now worth $700,000. While shopping for mortgages at this time, they realized that it wasn't easy to get a small business loan; but they eventually got one through the strategies in this book.
Conscious of the boom that was occurring in south Florida and the fact that builders were building beautiful homes there, the Giles decided to sell their home in Lake Worth, which they had bought for $164,000, and by now had appreciated to $400,000. They found a much larger home in Boynton Beach, for which they paid $400,000. They took the $400,000 that they had acquired by selling the Lake Worth property and put 20% of that sum down in order to buy two condo apartments on the Bay in Latana, Florida. They still had enough left over to buy another condo in Delray Beach for $234,000.
The result of all this buying and selling is that the Giles have close to $3 million in net worth today. They started in 2000 with maybe $100,000. Gayle noted: ''We had no real estate assets at that time. I was lucky that the state of Florida made it easy for someone like us to get into real estate. In New York, we would have had to start with $1 million to set up the business, to purchase a home, anything like that. Houses there are $700,000 to start. My $400,000 house is now worth $700,000. We took equity from our Boynton Beach home and bought another condo for $247,000.'' In the interim Gayle met a neighbor at the first house in Lake Worth. Gayle recalled: ''We started talking. She knew everybody from the ground up. She usually tells me what's good in real estate. She gets me to a property before it goes to the public; then I send all the details to my mortgage broker. They tell me if it's a good vehicle. And if it's not worth it, they tell me so. If you can't collect your rent, you don't want to buy it. In certain neighborhoods, the value isn't there, not as much as in other areas.''
Gayle and Dan have not been tempted to sell any of their property. They have now acquired enough properties—and have made enough money from these properties—to perhaps buy one large property that will produce enough income for their retirement. Gayle is 54 years old and Dan is 45.
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