INTRODUCTION

My name is Michael McLean and I am the author of this book. My partner is Nick Cipriano and he is the co-author of this book. We are both 38 years old, both went to the same school and have known each other for the past 30 years. We were raised in Sharon Hill, Pennsylvania, a small suburb just ten minutes from Southwest Philadelphia. It was in this section of Philadelphia where Nick and I went to work.

From 1997 to 2004 we purchased, repaired, and rented out over 300 homes. Ninety-nine percent of the homes we rented were to low income families. All along the way we gathered valuable knowledge, all of which I intend to pass along to you. This is something I think you must know; between the two of us we only came into this game with $34,000.00. Not much money, but we both had something as valuable as money, a burning desire to be wealthy. Notice I didn’t say more valuable than money, because in our world there is nothing more valuable than money. Here’s how it all got started.

After graduating high school in 1984, I took a job as a maintenance man in an apartment complex. The apartment complex was in Philadelphia and consisted of 400 units. I didn’t really know much, but I knew that I had the common sense to pick the job up. I ended up staying with this job for 10 years. Along the way, I learned some valuable knowledge, although very basic. The bigger jobs, such as HVAC, service panels, and sewer line replacements were all subbed out to contractors. Other things such as installation of locks, toilets, stoves, floors, outlets, light fixtures, painting, etc. were all part of my basic every day duties.

After working at this position for 10 years, a close friend of mine had pulled some strings and got me into the laborers union. This position paid a lot better and provided better medical benefits. However, I must admit, this work was ten times harder than what I was used to. But, oh well, you gotta go where the money is! It didn’t take long for my first unlucky break in this field. While into my second week on the job, I fell off a 30 yard dumpster and broke the L1 vertebrae in my back. The injury sounds worse than what it was, however, I was not able to return to this position. I suffered no permanent injuries but remained on workman’s compensation for 2 years due to weakness in my lower back. After 2 years I was bought out by the insurance company for $34,000.00. After the lawyer took his 20%, I was left with $28,000.00.

After receiving my settlement, it was time to get back to work. The only thing that I knew was maintenance so I answered several ads in the local paper. Within one week, I was hired as a maintenance manager of a property consisting of 120 units.

I still had $28,000.00 and knew I had to build some type of business with it. But what? What could I put my money into that if it didn’t work out I could sell the business and or materials and recoup some of my losses. Real estate was the answer! I knew that stocks and bonds could fail, but real estate was just as it sounded, “real”. You can see it, you can touch it and you can be proud to say you’re the owner of it! But how? How was I going to buy property with only $28,000.00 and where? Where could you buy property this cheap?

I remembered a friend of my brother’s telling me that his mother had died and he was selling her house. He only wanted $18,000.00 for it because it needed work and it was on a small street in the city. After kicking this idea around for about a week, I decided to give him a call. He told me to meet him at the property on Saturday morning. When I arrived, I was already too late. His brother had sold the house to a local investor for $14,000.00. An Agreement of Sale had been signed and there was nothing he could do.

Getting into my truck I was disgusted. Disgusted at myself for not pulling the trigger on this deal a week sooner, disgusted and thinking I may not get another shot at a handyman special so cheap. It was while pulling off the street that a break came my way. I noticed in a window of a house on the street a ‘For Sale by Owner’ sign. I wasn’t going to wait this time. I parked my truck and called the number on my cell phone. The owner of the home lived around the corner and said he could be there in 10 minutes. Within a half an hour of my phone call, we had a deal for $10,000.00 ($4,000.00 lower than my brother’s friend’s house) and a signed Agreement of Sale. Finally, I was in business.

After officially taking possession of the house in July of 1997, I began working on it on the weekends and every night after leaving my job at the apartment complex. I was excited and looked forward to getting there and completing the project. After three weeks it was ready to be rented. I ran an ad in the local Philadelphia paper and had over 100 phone calls. About 60% of these calls were from people saying they had Section 8 packets. I was not familiar with this program, so I bypassed all Section 8 callers. This was mistake #1!

A local minister had called me and told me he had the $550.00 rent and $550.00 security deposit. He wanted to move into the property by August 1st. Great, I thought!

On August 1st, I met the preacher at the house. He told me he came up $150.00 short because he had to help somebody out at his church. He said, “Don’t worry. If you give me the keys today, I will have your $150.00 by the 3rd.” I was anxious to get the property rented and took him at his word. Mistake #2.

I’ll tell you this – I never received another dollar from the so-called preacher. Turned out, I was dealing with the devil. I didn’t know the first thing about how to get him the hell out of my house. Eviction was a foreign word to me. I did know that this was eating me up. Eating me up because I couldn’t kick down the door to my house and drag him out by his throat. He had rights, I was told. In any other industry, if you are using someone’s product without paying for it, it’s called stealing. If you don’t pay your gas, phone or electric, they shut it off. If you don’t pay your car payment, they repossess it. But in real estate, you have to pay money to get someone thrown out. That’s just the way it is.

By the beginning of September, I received my 2nd break. The police had raided the preacher’s house (my goddam house) and arrested him on robbery charges. I wasted no time taking repossession of my property. The preacher only had several pieces of furniture and two bags of clothes. One of the officers told me he wouldn’t need the clothes where he was going. He would be issued an orange jumpsuit with numbers on the back. I took great pleasure in driving his furniture and clothes to the local dump. Something else had also happened. I now had a bad taste in my mouth about the real estate world. I no longer wanted to be a part of it. After owning the home for only 2 months, it was now back up for sale. I went to the local hardware store and bought a ‘For Sale’ sign identical to the one that was in the window when I bought the house. After pulling up to my house, I noticed the man that had bought my brother’s friend’s house doing work on it. I thought that if he had paid $14,000.00 for one on the same street, he would certainly buy mine for the $10,000.00 that I had paid. I knocked on the door and we began to talk. He laughed when I told him that I had had it with the real estate game. He said he would certainly buy the house for $10,000.00 but he had a question. “Why are you selling it?” I told him I didn’t feel like getting beat for rent ever again. “Have you ever heard of Section 8?”, he replied. I told him yes, but I wasn’t quite sure what it was. He told me it was a government program in which the tenant lived in the house and the government pays the rent. It’s the only way that he would rent a home. I was either nuts, stupid, or deep down, I still had a burning desire to succeed in this business. Anyway, I was back in the ring and ready to take another swing.

Once again I ran an ad for a house for rent and received many phone calls. This time I bypassed the private industry and only accepted the Section 8 calls. After gathering information on Section 8 housing, I rented the house to a Section 8 tenant on October 1, 1997. Never will I rent a home any differently in a low income area. I receive my rent on time, every time. It worked out so well that on November 15, 1997, I purchased my second rental property for $15,000.00. By December 1st, 15 days after the purchase, this house was up and rented to a Section 8 tenant. That made two on the payroll.

If you’re good at math, I guess by now you figured out that I had very little capital left. The two properties had cost me $24,000.00. Renovation and closing costs had eaten up the remaining $4,000.00 of my $28,000.00 settlement, leaving me with a fat zero in my savings account. However, I was quite happy with adding a guaranteed $1,350.00 to my monthly income. The first house I purchased rented for $700.00 per month and the 2nd rented for $650.00 a month. But, now I had a dilemma. I craved real estate and was sick to my stomach whenever a good deal passed by, and many did. I had to figure out a way to get my hands on more money to close these deals, but how? Where? That’s when my phone rang!

“Hello, Mike. What’s up? It’s Nick.” “Yo, what’s goin’ on Nick?” “Ah, nothin’ much”, he replied. “But, listen – I was talking with Wayne O (a mutual friend of ours), and he told me you own two...