“How I Turned $1,000 Into Five Million in Real Estate in My Spare Time” by William Nickerson is an oldy but a goody, frequently cited by investors familiar with older works as an influential and actionable book for forming their investing strategies. Although aspects of finance, law, and expected behaviors have changed since this book was originally written, there are also many timeless pointers that can get your mind working on applying his principles to your own approach to real estate investing and wealth creation.
The book’s main thrust centers around how someone with a relatively small amount of initial funds plus a regular reasonable monthly savings program can lever up their net worth significantly and quickly through real estate investing. In a nutshell, here are some of his main tenets:
- Buy cosmetic fixer properties at a discount from market value that is much greater than the actual cost of repair
- Buy properties that are undervalued due to low current net income, with that situation either caused by lax owners, low rental rates due to property condition, or higher than normal expenses that can be mitigated
- Fix up the properties, ideally using either second mortgages or lines of credit, or else by re-investing cash flow back into a property
- Increase rents to market levels based on property improvements, providing what the market demands, and increasing the quality of the property’s community / tenants
- Sell the now higher value property only when ready to immediately reinvest the funds into a larger property or multiple properties
- Repeat (he calls this “pyramiding”), each time using as much financing as possible and increasing the overall value of property being controlled and improved
Nickerson is also a big proponent of combining creative financing with trades. He proposes trading one property and its equity as down payment for the next larger property, for instance. He even encourages three-way exchanges, where a third independent buyer/seller combination help all of the trades successfully occur. He also advocates using loans that an experienced investor may own as a type of tradable collateral, and similarly describes ways to leverage untapped equity in properties (especially after the property’s market value has been increased significantly beyond its value at time of initial purchase).
In addition to his wealth building approach, he also touches on many of the fundamentals that any real estate investor should be aware of. He explains his principles through specific tangible examples that tell stories along the way. Covered topics include:
- Property selection
- Property improvements
- Working with contractors
- Tenant showing, interaction, and screening
- Collecting rent
- Handling rent raises and evictions
- Hiring and managing an apartment manager
- Tax saving techniques (some outdated)
- Operating under government regulations and rent controls
- Avoiding mistakes and bad investments
Nickerson’s first edition of this book was titled “How I Turned $1,000 Into a Million in Real Estate”, and he later followed that up with a “Three Million” edition. The final version from the early 1980s is for “Five Million”. The original book is apparently old enough to now be available for others to freely publish on their own. So be aware that there are many bootlegged versions out there, including on Amazon.com, and they may not actually be the latest edition even if titled so. I read an original 1980 edition and it was 577 pages long. However, on Amazon you can purchase bootlegged versions with the same title yet they are listed at 282 pages and customer reviews include complaints about their bootlegged copy quality. So be sure to determine the authenticity and completeness of the product you are purchasing when getting this book.
Also, be aware that the book includes some outmoded recommendations and perspectives. His Ozzie and Harriet view of gender roles would be considered sexist clichés nowadays, for instance. Some of his policies would violate fair housing and other laws. Financing flexibility, tax laws, and price points have changed as well. So just be sure to keep all of that in mind, especially if you are a novice investor who may not already know which recommendations you should “filter out”.
Nonetheless, there are a lot of great pointers and approaches that are worth the consideration of any active investor. The combination of approaches, comprehensive topics, and overall creativity provide a great blueprint for someone interested to combine near to medium term flipping with the advantages of cash flow properties, all for longer term net worth acceleration.