Starters, Estate Builders and Enders

There are three stages of real estate investing: Starters, Estate Builders and Enders. Do you know which stage you’re in? Many flippers and wholesalers think they’re Estate Builders when, in fact, they’re actually running a highly taxed retail business – they’re not real estate investors! (Saying this is sure to ruffle some feathers, but read on before you call me a liar.)

As the stage implies, a Starter is someone who’s just getting started in real estate. He usually knows little about contracts, rehabbing, landlording or how to creatively structure and fund a deal. He’s been to the closing table less than six times. We’re talking about someone who’s wet behind the ears!

An Estate Builder may still be new to real estate, but his focus is different from a Starter’s. An Estate Builder’s deals are structured to increase the investor’s monthly mailbox money! Mailbox money is money made when your capital assets are working for you instead of you working for your capital assets. Examples of capital assets are rental property and notes.

An Ender has been investing in real estate for decades. He’s very experienced at creatively constructing deals. Many Enders cut back on the number of rentals they own in exchange for simpler-to-manage capital assets like notes, options and master leases.

The easiest way to determine which stage you’re in is by looking at the real estate documents you use most often. If you primarily use purchase and sale contracts and assignment contracts, then you’re either a Starter, a wholesaler or a flipper. If leases, master leases, notes and options are your documents of choice, then you’re an Estate Builder. Enders mainly use notes, options and master leases.

Another way to figure out your stage is by looking at your tax return. If you pay Social Security and Medicare tax on most of what you earn, then you’re not an Estate Builder or an Ender. Rental and interest income doesn’t get hit with Social Security and Medicare tax!

As for folks who primarily wholesale and flip: They’re not investors, they are businesspeople…the same way a grocer who buys a can of beans for $1 then sells it for $3 is a businessperson. Think of it this way: If a wholesaler or flipper gets hit by the proverbial bus, what happens to his income? It stops then and there, right? But what if his primary source of income comes from rental property and interest payments, would the rental income and interest payments suddenly stop coming in? Not a chance! My point: An investor’s income doesn’t stop when he dies, but a businessperson’s does!

When talking to Starters, many offer to pay me to be their coach or mentor. Coaching and mentoring programs are the big-dollar, hot-ticket items being sold to Starters at the many real estate investing dog-and-pony shows traveling from city to city these days. Starters, you don’t need to pay for a high-dollar mentoring program to be successful.

The best way to learn about real estate investing is by getting out there and talking to sellers. But what if a seller accepts your offer? What do you do then? How do you structure and fund the deal? Easy answer. Partner with an Estate Builder or Ender!

Think about it: Estate Builders and Enders have the experience and funds to make the deal happen and make sure it’s safe. A Starter has the time and energy to do the running around and grind work. It’s a match made in heaven.

Where do you find Estate Builders and Enders? You’ll find them at your local real estate investors’ meetings. Just be sure to do your due diligence to make sure the person you’re gonna choose is honest and easy to work with – you verify this by asking other investors what they think about your potential partner.