Elmer Diaz

Houston, TX

Years Investing: 20

Number of Deals in 2004: 36

Career Deals: Over 200 fix and flip wholesale; over 200 fix and flip retail; over 600 apartment rentals owned; and over 200 single-family rentals owned

Units Owned: 56 single family homes; 42 apartments

Areas of Expertise: Wholesale; fix and flip; fix and rent.

Real Estate License: No (but co-owns three real estate offices)

Few investors can lose it all and bounce back, and fewer still can do it twice. But Houston investor Elmer Diaz did just that, learning several valuable lessons in the process: that making a million isn't as hard as keeping it and that neither means anything if you can't help people along the way.

Diaz bought his first house as a college student—using a student loan to make the $1,500 down payment on an FHA foreclosure—and rented it out to his college buddies. His younger brother managed the property, and Diaz leveraged the equity into two more houses and another duplex. His budding investing career took a turn for the worse, along with the rest of the Houston economy, with the 1980s oil bust. Diaz lost his first property.

"I was sweating bullets when the constable walked in to serve the papers. I thought I was going to jail!" he says. "I told him that I'd never broken the law. He smiled and said, 'There's nothing wrong. You're just one of the 250,000 people who are losing houses in Texas.'"

Because Diaz's other properties weren't as leveraged as that one, he was able to keep them, survive the loss, and thrive. Soon he jumped straight from fixing up single-family houses and renting them into working with large complexes. By 1994, when he was in his early thirties, he was a millionaire, and by 1996 he owned 600 units and 100 houses. But while he was acquiring those units, he was failing to acquire the skills that would help him manage them properly.

"I did everything backward," he says. "I should have had the systems in place before growing to this next level. You have to start by learning the building blocks of the business."

The crash came quickly. In the last few months of 1996 the haphazard way he had built his empire caught up with him. Without effective systems in place to hold contractors and managers accountable, his properties deteriorated and had high vacancy rates. His employees began stealing from him—one contractor stole enough materials to build himself a house. Diaz sustained a $50,000 negative cash flow for six months running, and finally, in December, his business hit bottom.

"I was about $4 million in debt. My personal debt was about half a million," he recalls. "I woke up on December 15 in tears and said, 'God, get me out of this.'"

Diaz never filed for bankruptcy but sold off most of his holdings and spent three years repaying debts. Diaz describes it as a painful, humbling time but one that taught him important spiritual lessons. His financial straits taught him the true value of money and its ultimate purpose: to help people. That epiphany hit him hard during Christmas 1997, when his father-in-law had a car accident and needed $3,000 to buy another car to get to work. Diaz wanted to help but couldn't until a $3,000 settlement check from an old, forgotten-about lawsuit appeared in his mailbox.

"That was a turning point for me. It showed me that when you are on the right path, money will show up," he says. "And the right path is the spiritual path. The spiritual path is helping people."

Diaz learned important business lessons as well. His downfall came because he let his business get too complex and didn't take the time to implement systems to support his real estate empire. Having grown older, wiser, and grayer since his financial collapse, Diaz now urges newbies to start as simply as possible. Rather than landlording, which requires mastering a whole suite of skills, he recommends wholesaling. By finding deals and selling them to more experienced investors, beginners can hone the most basic skill of all while they're building up their reserves.

"You've got to get good at buying houses. You've got to learn how to spot a good deal," he says. "The second thing is that you've got to learn how to evaluate what kind of shape a house is in. A lot of people get good at buying but not at understanding the mechanics of the house. They don't understand that changing that wall is not $500, it's $1,500, and that's what takes some people to the cleaners."

As investors grow their businesses, Diaz recognizes that different people will take different paths. But by the time they're ready to branch out, the wise ones will have mastered the basics. And that, he says, boils down to just one thing: buying right.

"The hardest part of this business is finding the deals," he says. "They're out there. But you have to spend a lot of time looking for those deals."

But as Diaz knows, when an investor is prepared, time spent finding deals is an investment with rewards that aren't just material but spiritual.

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