Deconstructing the Myth of Financial Independence:

A Deeper Look at ‘Pieces of the Puzzle’ Theory

Operating on ‘Level III’ Thinking

Written by Robert Feol, for the Baltimore Real Estate Investor’s Association

‘Chance Favors the Prepared Mind…’

– Louis Pasteur

Sitting at my camp in the Adirondack Mountains, having done my radio broadcast from the actual property(not a studio), and based on the massive response I have been receiving from the listeners, has me thinking today about the true cost of financial freedom, which I believe, is THE reason that people look at real estate investing as an avenue of exploration.

True, you may have someone who is ‘looking for a career change’, or ‘another source of income’, or ‘to keep themselves busy’; but in my experience, and comparatively speaking, people recognize the potentially lucrative nature of real estate investing, and explore it with that end in mind.

Now, the fact that I was able to actually purchase a vacation home in my favorite place on Earth is a true mystery in itself, as I was never the guy who was supposed to have a vacation home to begin with.  Suffice to say, knowledge of solid negotiation, owner financing, creative deal structuring, multiple parcels on one property, and a bit of ingenuity with newspaper advertising, and voila… here I sit and write this.  Oh, and about 700 deals under my belt too…an important part of the equation, for certain, but had I not done that first deal so long ago, then I would not be writing this, and would probably be teaching music at a summer camp for the Memphis City School District.  Which brings me to the point of this essay.

For people who are looking at real estate investing as a long term investing strategy, the road which lies ahead of them can seem daunting.  After all, owning one rental property may seem like a massive hurdle to the new investor– how then, could they ever own FIVE rental homes?   Five homes can come across as insurmountable, to say the least, to a new investor, and at times be discouraging.  But, what if I told you that there is a secret way that an investor can suspend disbelief AND in doing so be successful?  And what if I told you I would share it with you here?

I am firmly convinced that to succeed in the world of real estate investing, you must FORGET ALL THAT YOU HAVE LEARNED ABOUT FINANCE, BANKING, AND REAL ESTATE. You must unlearn your reality that creates artificial boundaries of success measurements.  And, more simply out, you must begin to accept that everything you are told on television is a lie.

Radical, yes?  Perhaps. ..but if you allow me to illustrate the above ideas in practical terms, you just might find yourself *cough* actually agreeing with me.   For simplicity’s sake, let’s review some fundamental ideas in the world of real estate investing, basic ideas and elements that all investors, regardless of experience, must grapple with.  We will assign arbitrary levels of thinking to each analysis, i.e., Level I, Level II, and Level III.  Think of each level as progressively more complex, and therefore, more profitable than the previous level.  Your goal then, ideally, would be to become a Level III real estate investor.  Can you do it?  What level are you on?  Let’s find out!

Theorem 1:  To invest in real estate you need cash or excellent credit.

Level I Investor: I (do/do not) have cash or excellent credit, therefore I (can/cannot) invest in real estate.

Level II Investor: I have good credit, so I should go searching for the best rate and get the ‘best deal’ from a bank where I can hopefully(crosses fingers) get approved for a loan.

Level III Investor: The banks, and the fractional reserve banking system based on fiat money, is a total and complete farce to begin with, supported by the Federal Reserve, which has is nothing Federal about it, as it is a conglomerate of private bankers.  Why would I beg for their permission when I can use private lender’s money, give them a better rate of return, and control my own investing destiny?  Private lenders are what I need to find to fund my acquisitions.

Theorem 2: You need experience to be successful in real estate.

Level I Investor: I (do/do not) have experience in real estate, therefore I (can/cannot) succeed as a real estate.

Level II Investor: My cousin, who is bankrupt, invested in real estate…maybe I can ask him his advice and see where he went wrong, and try to learn from his mistakes since I have no experience and am unlikely to succeed without help.

Level III Investor: That is the most ridiculous thing I have ever heard.  How can you get started in real estate investing if you need experience to do so?  What, all successful real estate investors were born with knowledge of doing deals?  Hmph…here is a better idea…why don’t I seek out other successful investors and ask for some direction, while I real books and attend my local REIA group meetings?  There’s a SOUND plan…

Theorem 3: You are allowed to own only 4 houses.  That’s the rule.

Level I Investor: I wonder if I could ever own even one house!

Level II Investor: I guess I should make the first 4 houses I buy good ones, because after that I probably can never buy any more investment homes.

Level III Investor: What a stupid $%^&*% rule?  Who made up this idiocy?  Who is anyone to tell ME, living in a capitalist society, how much of anything I can own?  I will find my own way – I hear there are people who own THOUSANDS of homes, so do they not have to follow certain rules?  I wonder if I can talk to one of them and figure out how they didn’t have to follow ‘the rules’…

Theorem 4: To own rental property, you have to love midnight calls from tenants who need their toilets fixed.

Level I Investor: I hate midnight calls from tenants, and I don’t know how to fix toilets, so if I buy an investment property I might fail!

Level II Investor: I hate midnight calls from tenants, and I don’t know how to fix toilets, but I guess I can learn and ‘tough it out’ for 30 years until the home is paid off.  Hopefully, I won’t go bankrupt in the process.

Level III Investor: I hate midnight calls from tenants, and I don’t know how to fix toilets, but it’s a good thing my property management company takes midnight calls AND knows how to fix toilets!  Obstacle…ELIMINATED!

Theorem 5: Investing in yourself and your real estate education is of paramount importance to your success, and is directly correlated with it.

Level I Investor: HOLY $%^&!  This ‘guru’ wants $697 for a bunch of binders and a cd set?  I don’t have THAT kind of money!  What a scam! These REIA groups are rip off artists!  I’m out of here!

Level II Investor: HOLY $%^&!  This ‘guru’ wants $697 for a bunch of binders and a cd set?  I don’t have THAT kind of money!  I’ll just figure it out myself!  What a gyp!

Level III Investor: HOLY $%^&!  This ‘guru’ wants $697 for a bunch of binders and a cd set?  I can’t believe he would give all his information away so cheaply!!! If I make this investment in myself I can add another tool to my toolbox, in my never ending question to become an all encompassing ‘transaction engineer.’  I better get in line before it is sold out!

Now, some readers might argue that there are many more levels and variations on these themes, and while I wouldn’t necessarily disagree with the idea of infinite possible variations here, I would simply say that in your daily experience as a real estate investor, and as a human, you are either assisting to either construct the reality which is reinforced to you each and every day through mediums such as television, mainstream news, radio, and newspapers, or you are DECONSTRUCTING THE REALITY PRESENTED TO YOU AND CREATING YOUR OWN REALITY.

My CPA and I recently had a discussion about the fact that whenever I am approached in business by someone, they always have an angle which involves using my abilities in real estate to their benefit, while disguising it as being for MY benefit.  I think the same thing also applies to you in your daily journey with real estate investing – ask yourself this – ‘qui bono?’, or rather, ‘who benefits?’  The government, for example, keeps telling us that the economy is in horrible shape, while Wall Street bankers are seeing ‘golden parachute’ types of retirement packages with government bailout money!  Is the economy really that bad?  Or is there a method behind the madness?  And the same thing applies to your real estate investing – are you REALLY only allowed, to own 4 homes, for example?  Is that really the rule?

Are you assisting to construct someone else’s reality?

Or are you deconstructing the reality you are presented with, to build your own?

What level of thinking are YOU operating on???