Book Summary: Manny Khoshbin’s Contrarian Playbook (Part 1)

Along with growing our wealth from the stock market, @tunaman222 and I plan to obtain real estate licenses and purchase income properties.  We plan to open a joint corporation and build a real estate career from it.  This will allow us to take the next step in obtaining financial freedom.  To begin this career we first need to educate ourselves in the real estate industry.  This leads us to our book summary.

I stumbled across this book through YouTube.  As a car enthusiast, I found great car videos by Manny Khoshbin.  A self-made millionaire from commercial real estate.  Since I liked his real estate content, car content, and personality I decided to purchase his book!  I mean who doesn’t want to be worth millions and drive one of a kind supercars…..

The book is called “Contrarian Playbook, How to build your $100 million real estate portfolio from the ground up”.  Yes, that’s a mouth full but you get the picture.

Initially, I need to define the word contrarian.  A contrarian is someone who takes the opposite viewpoint or rejects the majority opinion in economic matters.  Manny starts off by explaining why he thinks real estate is the way to go for making millions.  In fact, he quotes the famous Andrew Carnegie…

“80 percent of all millionaires made it through real estate”

After the first 15-20 pages what I have learned is that your mindset towards real estate can make or break your career.  Especially staying as a contrarian and not falling into the pit of speculation.

Do not be a Speculative Investor (Stay as a Contrarian).  A speculative investor is one that speculates, easy enough.  Basically, they get caught up in the possibilities of new buildings/properties that could blow profits out of the water.  Sure they sound nice but the already established income property with existing tenants and a historical record will always triumph in the end.

Manny also stresses the importance of making your money on the BUY! Buy discounted properties and negotiate for a lower price.  Then you can easily add value to a discounted property.  Fully rent out the building.  Followed by selling when the market is high!

Manny divides his strong investment strategy into 12 different sections.  He calls this…

The playbook

  1. Power Up
    • Set your goals
    • Get Smart, Get Credible
    • Use your resources
  2. Make your money on the buy
    • Select your property type (Residential)
    • Select a winner (Residential)
    • Select your property type (Commerical)
    • Select a winner (Commerical) 
    • Negotiate from strength
  3. Stay in the game
    • Add value to your properties
    • Actively manage your properties
    • Actively manage your portfolio
    • Expand your horizon

Last but not least… DREAM BIG. It is totally okay to have ambitious goals that most people think your crazy for having.  Who cares, it’s your life.  If you dream of living in Fiji with a pair of Tesla Shorts then go out there and get it.  By building a powerful real estate career anything will be possible.

Note: I crossed out two chapters from his playbook.  This will be explained later in the summary.


The Playbook

1. Set Your Goals

Set Long Term Goal: By 40 years old have a real estate portfolio worth $100 million

Set Short Term Goals: These should build up to your long term goal (subjected to change)

  1. Get a real estate license
  2. Pay off all debt
  3. Own an income property before 25 years old
  4. Own 3-5 properties by 28 years old
  5. Real estate portfolio worth $1 million by 30

2. Get Smart, Get Credible

Knowledge is power! To be taken seriously by lenders and banks, you need to obtain great knowledge of the market and have good credit.  A great credit score is required for a real estate career.

You will need to monitor news sites daily.  Constantly feeding your mind data about local, state, and national markets.  Knowledge is power in the real estate world.  The more you know and the faster you know the more likely you are to land a deal of a lifetime.

Understand the cycles of the market is also extremely important.  From the image below you can the trend in a typical real estate market.  Just like buying stocks, buying real estate holds the same principal.

IMG_2200

Buy low and sell high!  Perfection is not possible, so don’t over-analyze the situation because chances are you will miss out.  If you have done your research you will know when the market is in the “trough” and when the market is at its “peak”.

The Contrarian idea is that you are knowledgeable enough to see these peaks and valleys before the crowd decides its time to “buy” or “sell”.  By the time the crowd is telling everyone it is too late! Remember! It is not about perfection, it is about adding value to your portfolio by negotiating a great deal and making your money on the buy! Buying in the trough and negotiating for a lower deal is the ideal goal!  Using websites like Zillow or MLS can show you market trends on properties over the last 10 years.  Highly recommended by Manny.

A few initial “dont’s”… don’t buy a property in a location where the population is decreasing or where there is high unemployment.  People move to where the job market is big.  Look for areas with growing commercial areas and growing job markets (more on this later).

The next step is to go deeper.  Using Zillow or other data sites start analyzing the data available, numbers like…

  • Home Value Index
  • List Price
  • Sale Price
  • Price per square foot (Manny’s favorite data point)

You will also want to start reaching out to local bankers and real estate agents! They will know the information that you can’t find online.  Introduce yourself and talk about your interests in the market.  Try to find out all the hidden secrets within the town.  Don’t forget the agent makes money off the sale too! He is also looking for business.  That being said you also need to see the property with your own eyes.  The internet can be deceiving and hide surrounding areas that are undesirable and NEVER  CHASE A PROPERTY IN A BIDING WAR!

Getting your real estate license will also aid in making your career successful.  Therefore, you can represent yourself when buying properties and keep your best interests at the forefront.  This will be a huge advantage in building your portfolio.

Lastly, you need to establish your credibility.  This refers to personal and financial credibility.  Personal credibility happens before forging amazing relationships with other investors and lenders.  You need to fully educate yourself in the market you want to enter.  You want to come across as knowledgeable, stable, and trustworthy in the local market.  Then you will be able to create connections between banks and real estate agents.  Once these relationships are formed it is important to keep the success going and live up to your word.  Financial credibility is simple, have good credit.  Start building your credit now (A post coming soon on credit cards and having good credit).

Unless you come across as both reliable and informed, you are not going to be taken seriously by the lenders, agents, brokers, and other industry professionals.


3. Use Your Resources

Your real estate career will only be as good as your resources and how well you use them.  Your resources pertain to three sections.  That is the collective knowledge and experience of your team (lenders, real estate agents, other industrial personnel), your financing options, and the unique tax considerations.

Use Your Resources! | Go, Leader, Grow!

Your Team!

  • Bankers and Mortgage Brokers
    • When trying to jump through financial loops these individuals will make a huge difference and make your finances go smoothly
    • At first, go to all the lenders and have them compete with each to see what’s the best deal you can get!
  • Real Estate (RE) Agent
    • Even after getting your real estate license, a RE will know (and have access) to the ins and outs of the local demographics.  Such as crime rates, school districts, and commercial buildings
    • They will also help with paperwork and negotiating strategies.
    • Find an agent that wants to help you/connect with you and has experience
  • Tax Advisor
    • A good tax advisor will show you the ins and outs.  They will be your greatest advantage in increasing profits
  • Property Inspector
    • A good property inspector will reveal hidden damage in properties.  This will allow you to negotiate for a lower price.
  • Contractors
    • Once the inspection is complete contractors will alert you what the costs of repairs and maintenance will be.  Good for negotiation

Importance of Financing Options

Using your cash, house, cars, or your 401k to leverage in the real estate world is your best bet to grow quickly.  The notion through this blog is to have zero “debt”.  You don’t want to owe anyone money because then you have to make payments on this borrowed money.  When it comes to real estate is it best to incur some debt when buying properties.  That is where leveraging comes into play.  Buy showing the bank your house, salary, savings, investments, 401k, or any other objects of monetary value, the bank will feel more secure in loaning you thousands of dollars.  This will result in a smaller down payment for the property and lower interest rates on your mortgage loan.

So instead of using cash to buy one property don’t be afraid to incur some debt and purchase multiple properties with your cash and some borrowed cash.  To do this you will put down payments on new properties and then pay the rest with loans from the bank.  This way you can divide your cash and own several properties, all with a steady income.  This cash flow will then help you pay the loan payments while you use your 9-5 job salary to beef up the property (you’re adding value to the outside/inside so the property can be sold for a profit!).  Once the property is beefed up you can sell the property, pay off the loan, and collect your profits.

There are two kinds of mortgages you can take out from a bank, adjustable or fixed mortgages.  Adjustable are appealing because they often offer lower initial rates, but over time the rate will fluctuate and result in an higher average rate.  A fixed loan has a fixed interest rate.  You generally want to stay away from any mortgage with less than five years fixed.

If pulling together enough money to pay for your first down payment is an issue, then an FHA (Federal Housing Administration) government loan program is a possible option for you to pursue.  These loans are exclusive for first time home buyers.  FHA loans can actually be used for any property with 4 units or less.  FHA loans typically have low down payments and offer a variety of low and fixed-interest options.  The downside is you need to pay for PMI (Premium Mortgage Insurance).  This can be between $80-$200 a month.  There are also VA loans for veterans.

Seller financing is a good way to keep the closing process quick and not involve the bank.  This has the lowest loan costs and quickest processing time.  The process consists of you and the seller.  This is good for purchasing a property.  This is not great for when you are selling your own properties.

On a side note your cash can play a significant roll in your plans.  It is best to have cash when the trough comes in the market and banks are lending out less money to the public.  You will be able to capitalize on deals others can’t.

Tax Benefits and Considerations!

1031 Exchange: this allows you to defer paying tax on capital gains from the sale of an investment property by reinvesting those proceeds into another like-kind investment.  Either one of equal value or greater value.  As long as you keep reinvesting you will avoid taxes.  You must identify this within 45 days of closing and purchase another property within 180 days.

Real Estate Investment | Life's Shortcuts - Stuart, FL

So, if you think about it and use an example from Manny… in 1999 a friend of Manny put a down payment of $1,200 on a building worth $65,000.  She sold it and bought a 4 plex building.  Then sold that and bought a 6 plex building.  Then finally sold that and bought a 12 plex building.  By 2005, she had made $770,000 on her $1,200 without getting taxed in the process!

Lastly, you need to be aware of depreciation.  All buildings have a gradual loss of value from wear and tear.  This is itemized as an expense on your income taxes.  This is important because it will lower your taxable income and increases your cash flow!  Cost segregation can shorten the basis of calculating dedication, this accelerates your timeline, reduces your taxable income, and increases your cash flow in the short term.


Bottom Disclaimer: To those who read the book and noticed I left out parts pertaining to commercial real estate and are disappointed about it… Commercial real estate comes after a solid base is created in residential properties.  Therefore, since I am a beginner, I skipped those chapters and will come back when the time is right.



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