Yet that’s what many real estate investors do when they spend every penny their rental properties make, or when they sell as soon as a property has appreciated to just a fraction of its potential.

Sure, they’re better off than if they had never invested in those properties to begin with. But they’ll never get rich that way.

Instead of spending every penny a property makes for you, save it. Instead of selling as soon as a property has some equity in it, use that equity – and the money it made for you – to buy another property. That’s how you maximize your profits. If it’s making you money, let it keep making you money.

In his bestselling book Automatic Wealth, Michael Masterson says: “Here’s a promise: If you haven’t ever invested in real estate but you start this year, you’ll be glad you did. If you keep investing – buying at least one new property a year (which will be easy once you get going) – you will be a real estate multimillionaire when you retire.” Of course, Michael cautions that you don’t want to buy just any real estate. You have to do your homework and “buy right.”

Invest in real estate the way a farmer invests in his land. Plant your seeds. Let them grow. Keep an eye on them, giving them a bit of water and fertilizer here and there and doing some pest control. Then – when the “season” is ending in that market area or you’ve got a dozen houses that are making you rich – reap your rewards.

[Ed. Note: For more insider strategies for getting started as a real estate investor, sign up for real estate expert Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

For a unique, nearly automatic way to make money in real estate during the ongoing foreclosure boom, check out the Bandwagon Raiding Machine.]

One way I do it is by negotiating the financing terms I want at the same time as I negotiate price.

Let’s say I wanted to buy a certain property for $200,000. If I can convince the seller to provide financing at a reasonable rate, I’d probably be willing to pay 5 percent more just to avoid the hassles and fees involved in finding and securing a lender. To avoid having the seller say “no” to my offer, I would say something like this:

“The best I can do is $200,000 if I have to go to a bank for financing. They’re going to require me to prove the rental income, pay for an appraisal, and do a ton of paperwork to qualify for that loan. So if you’ll accept my $200,000 offer, I will close on the date you want.

“But if you are willing to provide at least 70 percent of the financing, I can offer you $210,000. And I would still be willing to close on the date you want.”

By giving my seller these two options, I make him feel like he is in control of the outcome of our negotiation… even though either one would be a great deal for me.

[Ed. Note: For more insider strategies for getting started as a real estate investor, sign up for real estate expert Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

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He just turned 32, and says he is happy to keep working for the next 30 years or more. But as his sister, I worry because he’s saved only a few hundred dollars for his retirement. So I decided to help him.

Here’s the plan I came up with – and it’s one you might be able to use too.

By taking on some odd jobs on weekends (people are always asking him to build fences or help with kitchen renovations), I think he will be able to save enough money to get into real estate within the year. All he needs is 10 percent to put down on a beat-up house that he can buy for, say, $200,000.

For a couple of years, he can live in that house while fixing it up and continuing to save money. After turning the house into a property he can rent out for about $1,400 a month, he can then buy another beat-up house that he can fix up and live in permanently.

Assuming he adds about $25,000 in value to his investment property and it appreciates by 4 percent each year, in 25 years he will own a place worth $576,743. And his tenants will have paid off the mortgage for him! It’s almost like having someone else put $1,900 a month into his retirement savings account! ($576,000 divided by 25 years divided by 12 months = $1,920)

Even if the property doesn’t appreciate by 4 percent every year (which has historically been the average), his tenants still will have paid off his mortgage in 25 years. Plus, he will be enjoying the rental income he gets each month – and that rental income will keep increasing.

Of course, he also will have paid off his own home by then… giving him more than $1 million worth of property that he can cash in for his retirement.

My brother has already sold one of his cars, pocketing a few thousand dollars from the proceeds, and has begun to save about $500 a month just by having one less vehicle to insure and maintain. He’s also done a few weekend jobs that have added up to about $1,500. At this rate, he will be ready to buy his first property in less than 12 months and start his retirement plan in earnest.

[Ed. Note: For more insider strategies for getting started as a real estate investor, sign up for real estate expert Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

For a unique way to make money in real estate –-taking advantage of the foreclosure boom - check out the Bandwagon Raiding Machine here.]

I was having fun playing this little game until my new Australian friend witnessed me in action, bargaining for a beautiful hammock. As I was walking away because the vendor wouldn’t lower her price a little more, my friend said, “You realize that you are getting all worked up over what is about 10 cents. At home, you would pay 50 times that much for a hammock like that, so this is a great deal.”

I suddenly felt a bit silly. But it helped me learn an important lesson that I try to remember when doing real estate deals.

As soon as your negotiation becomes about winning, it becomes emotional… and good judgment goes out the window. If you’re not rational, you are much more likely to enter a bad deal for the wrong reasons. And you’re quite likely to miss out on a good one.

I was trying to win by “buying at the same price as a local,” just like many people negotiating real estate deals try to win by selling at the absolute highest price or buying at the absolute lowest price.

Instead, figure out what would be a good deal for you before you enter the negotiation. If, for example, a house is listed for $325,000, anything under $300,000 might work for you. So if you can negotiate the price of that house down to, say, $295,000, consider it done. Don’t feel that you have to try to force the seller to take just a little bit less. Leave the emotion, specifically the desire to be a “big winner” in every deal, out of it.

[Ed. Note: For more insider strategies for getting started as a real estate investor, sign up for real estate expert Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.]

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That’s not the only way we allow low-value objects, goals, or priorities to distract us from more important things. We interrupt conversations with family members to comment on silly commercials on television. We check our Blackberry in the middle of a workout. And we allow e-mail to interrupt higher priority activities on the job.

I call it shiny penny syndrome.

Early in our real estate investing days, shiny penny syndrome nearly cost me and my husband our investments. We’d been working on buying good quality cash flowing properties in good neighborhoods and were doing just fine, but we suddenly stopped and started moving toward different options. We saw all those shiny pennies and thought we could turn them to gold nuggets.

In “The Problem With Fire,” I described how we started chasing no-money-down deals, flips, and property assignments. It turned out badly. Meanwhile, we lost our focus on what had been working for us.

It’s a good thing to consider your options, but don’t let them distract you from what’s been working for you and helping you achieve your goals.

If you have an investing strategy that is working for you – stick to it. Master it.

Though there are plenty of ways to make money in real estate, the optimal route is to find a strategy you like and get really good at it. Stay focused and become a specialist in your investing niche and you, too, will find your wealth grow very quickly.

[Ed. Note: For more insider strategies for getting started as a real estate investor, sign up for real estate expert Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

Losing focus in your personal, social, or business goals? Achieve all you want in life with ETR's Total Success Achievement program. Learn more here.]

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When you think about real estate investing, my guess is that you don’t immediately think “direct marketing” as well. But direct-marketing skills are essential to almost every aspect of real estate investing… from finding motivated sellers… to buying a property… to finding your ideal buyer… and more. In fact, mastering direct marketing can help make practically every step of the real estate investing process more profitable and a lot less risky.

I discovered this on the plane back from a recent trip to Austin, Texas, while reading Dan Kennedy’s The Ultimate Marketing Plan. I was flipping through it looking for the useful big idea of the book. I’d expected to find an idea I could apply to my Internet business, but instead found applications to my real estate investing endeavors.

When my husband and I were new to real estate investing, we had loosely defined goals. (I wrote about that in my article “The Problem with Fire.”) Our lack of clarity led us to buy properties because they generated a lot of positive cash flow or because we could get the deal done with no money down. That didn’t always work out well for us.

In fact, one of our no-money-down, positive-cash-flow properties turned into a complete nightmare – landing us in court to defend fire code violations, dealing with a property manager charged with manslaughter, and having 3 of 6 units vacant for more than six months. What started out as an investment that put $1,000 per month in our pockets turned into a $30,000 lesson in what NOT to do.

Had we focused on some fundamental marketing principles before buying that property, we’d have never considered it.

Here are three of the rules that you can apply to your real estate investing ventures:

Direct-Marketing Principle #1. Find the Starving Crowd

As a real estate investor, one of the biggest risks you’ll ever have to deal with is carrying the costs of a vacant property. Empty units can suck the profit from a property in a single month, and consecutive months of vacancies can sink you.

How do you minimize this risk? You figure out who your most likely prospects (tenants) are and what they are hungry for. It’s a brilliant way to approach finding low-risk properties to buy.

You can do this fairly easily by visiting open houses and chatting with the realtors or calling a few property managers in the city. Ask them about the houses that people are buying – and why they’re buying those houses. Ask them about must-have features. Ask them about the people who are renting. Ask where people in the neighborhood usually work, and what attracts people to that area. You can even ask about rental rates and popular apartment buildings in the neighborhood.

Then walk around and chat with people in coffee shops and parks. Find out where they work, what they like about the area, and other general information. And pay close attention to apartment buildings with no-vacancy signs. What size units do they have? Where are they located – near a subway or bus stop, across from a park or something else that might be drawing tenants? Do they have any special amenities?

Finally, you can go online and read the ads people are posting. You can even call some of them and ask questions. Find out what features everyone highlights. Be curious.

Pretty soon it will become apparent what it is that tenants in the area are hungry for – maybe 2-bedroom units with dishwashers, or 3-bedroom homes near George Washington High School, or 1-bedroom condos off Granville Street. That’s the kind of property you want to buy.

Had we done more research before we purchased our six-unit disaster, we’d have realized that a crowd of drug users, drug dealers, and other shady characters were happily occupying that entire block. And we’d have considered how, even if our property was fixed up nicely, the neighboring properties would deter good tenants from renting from us. Instead, we made the mistake of focusing on the fact that we could strike a deal that enabled us to buy the property for no money down.

Direct-Marketing Principle #2. Develop a Unique Selling Proposition (USP)

As Michael Masterson says, “The feature or benefit you decide to promote with your USP does not necessarily have to be unique to your product, but it does have to seem like it is.” When you apply this principle to investment real estate, it means that you don’t have to find a property that has some feature no other properties in the area have. But you’d be wise to ensure that any property you are considering has appeal. The more appealing it is to your starving crowd, the higher the rent you can command, and the easier it will be to sell at a great price in the future.

So find the USP for a property before you buy it. Imagine yourself placing ads to attract tenants, and even imagine yourself selling it in the future. What will you say about it? Is it positioned for perfect sunset viewing? Is it a short walk to fabulous shopping? Does it sit on a peaceful and beautiful street? Does it have a gorgeous yard that brings a country feeling into the city?

If you’re looking at a property and you can’t find or create a USP for it, you could find yourself struggling to rent it if the competition for tenants gets tough. Worse, you could lose money when you go to sell it (like I did when I bought a condo unit in North Toronto several years ago).

Direct-Marketing Principle #3. Focus on Benefits Not Features

When you write an ad to attract tenants to your property, base it on the juicy USP you created – and include plenty of additional benefits that tenants will enjoy by living there.

The typical ad – “2 bedroom apartment on Granville Street, dishwasher, washer/dryer, hardwood floors, and full en-suite bathroom in master suite available July 1″ – is all features. Instead, you want to focus on things like the spectacular view from the terrace and the apartment’s easy access to award-winning schools and the best nightlife in the city.

In “What Clayton Makepeace Knows About Selling Your House in This Market,” I said that it’s important to appeal to the positive emotions that might make someone want to buy your house. That same emphasis on your prospect’s emotions is true of rentals.

So why not try to attract the best tenants at the highest price by describing how convenient and comfortable your apartment will be for them?

Apply the above direct-marketing techniques to your real estate investing efforts, and you could see a big difference in your profits.

[Ed. Note: Times may be tough, but real estate investing is still a great way to bring in extra income. For expert advice on making money as a real estate investor, sign up for Internet Money Club member Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

Direct marketing, as Julie points out, can help you supercharge your success in more ways than one. For direct-marketing techniques that will work with many of your online efforts, check out ETR's Internet Money Club Independent Learner Edition. We'll give you a 10-pound "playbook" that includes everything you need to go from idea to fully functioning Internet business. Learn more right now.]

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The most recent Housing Opportunity Index – released by the National Association of Homebuilders and Wells Fargo Bank – shows that almost 73 percent of homes sold in the first quarter of this year were “affordable.” In order to qualify as “affordable,” the total costs of a home (mortgage, taxes, etc.) must not exceed 28 percent of the median family income (currently $64,000).

A few factors contributed to this jump in affordability, and it is a bit of a good news/bad news situation.

Plummeting home prices are a major factor in affordability. Unfortunately, the recent drop in prices is primarily due to foreclosures, which means that someone had to lose their home for it to become affordable for someone else. And until foreclosures slow down, prices won’t stabilize.

Another factor is record low interest rates, which hovered near 5 percent for a 30-year fixed loan at the end of the first quarter. This is good for individuals who qualify for those loans, but many who need a lower rate to be able to stay in their homes don’t qualify.

I think the housing market will find its true bottom by the end of the year, when the Obama administration does something to tackle the last roadblock: the vast number of homeowners who are currently underwater.

While there are still obstacles in the housing market, it seems like now is a great time to buy. Sure, prices may come down a little more, but the drastic drops appear to be behind us (and trying to time any market perfectly never works). If you find a home you like, at a price you like, don’t second-guess yourself. Interest rates won’t stay this low forever, and neither will prices.

And if you are looking for the country’s most affordable large city, check out Indianapolis. It has topped the list for the last 15 quarters.

[Ed. Note: Detroit native Christian Hill is an active follower of the real estate markets, the auto industry, and practically every other investment vehicle under the sun. You can catch his insightful commentary and advice for free in Investor's Daily Edge. Click here to find out more.]

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It looked more like a tool shed than a house. I had visions of constant repairs and never-ending tenant troubles. But my husband told me to do a reality check – because there were a lot of reasons to like the deal.

Four years later, that property – a large chunk of land in an emerging area – has more than doubled in value, and the rent has covered all the costs. We’ve yet to put a single dime into it.

It’s easy to get thrown off by the appearance of a property, your emotions, or what the media is saying. Here are four ways to avoid making that mistake:

Reality Check One: Who is Your Target Market?

I couldn’t imagine myself living in that little shack – but I was not the target market for that rental. The tenant who lives there loves the large yard. He doesn’t mind the exterior appearance because it’s cozy inside and the rent is cheap for the privacy and space he enjoys.

If the property is a good fit for your target market, it doesn’t matter if you wouldn’t live there.

Reality Check Two: Are You Emotionally Involved?

Emotions weren’t involved in this particular purchase, but it’s something to be wary of. If, at any point in the negotiations, you feel that you can’t walk away from the deal, you need to take a step back and review everything! When your emotions are involved, you can’t make rational decisions.

Reality Check Three: Are the Numbers Really What They Say They Are?

In this deal, the numbers sold me. The rent covered all the expenses and left a small cushion for surprises. But make sure the numbers are what the sellers say they are. Get copies of the leases to verify rents. Check market rental rates for the area to make sure the current tenants aren’t overpaying. And make sure you obtain copies of the bills you’ll be responsible for (taxes, utilities, insurance, etc.).

Reality Check Four: Are You Judging the Book by Its Cover?

Many opportunities are missed because a property makes a negative first impression. The best deals are often those that look rough but can be easily rehabbed. Granted, our little shack needs to be completely rebuilt to maximize its potential – but had my husband allowed me to judge it strictly on its looks, I would have missed a deal that has (so far) grown our net worth by $100,000.

[Ed. Note: Real estate expert Julie Broad can show you how to create your own million-dollar real estate portfolio with her new program. Find out how to get hands-on coaching and step-by-step instruction right here.

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Our tenants can easily figure out that we’re bringing in nearly $4,000 in rent per month ($1,000 positive cash flow for us) from this property, so they may think we’re being stingy when we refuse their requests for improvements. It’s a business though, so we grant tenant requests only if spending the money will generate more revenue or reduce our costs.

We consider a few things:

• What are the costs of not doing the renovation or upgrade? (Is the tenant likely to leave – and what will that cost us if they do?)

• Is there another way to address the problem?

• Can the expenditure be delayed?

If the expenditure seems to make sense, we do a final calculation:

Total Cost of the Upgrade or Renovation / New Money Earned (or Money Saved) each Month = Number of Months It Will Take to Recover Our Costs

As a general rule of thumb, if you can recover the cost of items under $1,000 in 12 to 18 months, the money will be well spent.

In the case of the blinds, the tenant wouldn’t pay more rent to help cover the cost. And since only custom blinds would fit the large windows in that unit, it would take years and years to repay the expense… even if they did pay us more rent. Instead, we agreed to pay for dry cleaning the curtains, which cost less than $100. We’ll get no direct return on this investment – but since the tenants wanted the “dirty curtains” replaced, this will keep them happy.

In the case of the toilet, we decided that getting rid of the grungy old one would not get us higher rent but it would make it easier to attract and keep good tenants in that unit. And by replacing it for the current tenant (instead of waiting until they moved out), the tenant’s father (an experienced plumber) would install it for free. Plus, we’d be replacing a water guzzler with a low flush model that would qualify for a $75 water conservation rebate from the City of Toronto. The formula of benefits looked like this:

$250 minus $75 rebate = $175 Cost of the Toilet

$175 / $10/Month in Water Savings = 17 Months to Pay It Off (not including the $80 saved on installation)

This made replacing the toilet a very appealing use of our cash.

Just remember – real estate investing is a business, and you need to get a return on any money you spend… even if that return is simply in cost savings.

[Ed. Note: Real estate expert Julie Broad can show you how to create your own million-dollar real estate portfolio with her new program. Get all the details here.]

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The problem with pursuing “passive income” is that you’re telling yourself you don’t have to do any work to make that money. Keith Cunningham, author of Keys to the Vault says, “The label becomes the experience. Using the word passive for anything means that you are going to do the least to get the most.” Trying to build wealth through passive income is like trying to get six-pack abs without working out. It isn’t going to happen.

When you buy a property, hire a property manager, and then do nothing more than deposit the rent money into your bank account, you’re setting yourself up for trouble. We know! As I mentioned in my articles “The Problem with Fire“ and “An Easy to Prevent Scam, “we had a property manager steal rent money from us, we were featured in the newspaper as owners of “local crackhouse,” and we were fined in court for fire code violations. All of these things happened to us early in our real estate investing career because we had been in pursuit of passive income. We worked hard to find the properties, bought them, and then passively let things fall apart!

Now, my husband Dave reviews all the bills and talks to our property managers on a regular basis, and we both carefully track and monitor the money that gets spent on each building.

Listen, I’m not saying you have to treat real estate investing as a full-time job. It really doesn’t require a lot of time and attention. It takes us less than five hours a month to actively measure, monitor, and adjust to maximize our profits and minimize our struggles. And since we stopped considering real estate to be a passive income stream, we’ve been sleeping better… and making more money!

[Ed. Note: Real estate expert Julie Broad can show you how to create your own million-dollar real estate portfolio with her new program. Get all the details here.]

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