Ron Garber

Orange County, CA Years investing: 20 2004 Deals: 0 Career Deals: 30 Units Owned: 20

Areas of Expertise: Foreclosures, fix and hold Real Estate License: Yes

Many investors get their start with the help of a mentor, an experienced advisor who may say only a few words, but words with the power to push a novice in a new, life-changing direction. That's what happened to Ron Garber in 1985 when a wise mentor shared with him the "bucket theory" that set Garber on the path to total financial independence.

The theory is this: Everyone has control over three financial "buckets." The first bucket takes care of family obligations; it's the baseline with which you take care of your home, your health, your children's education, and other day-to-day necessities and monthly expenses of life. Once that bucket is full, you can start filling the second bucket: long-term investments. That bucket isn't full until it generates enough income to take care of all the needs of bucket 1 with passive income.

"Then, after you've filled buckets 1 and 2, you've earned the right to play and have toys. That's bucket 3," says Garber. "The problem is that people start backward, and because they start with the play bucket, they aren't able to fill bucket 2 and create substantial wealth by investing."

Garber does things the other way around: His problem was not thinking past bucket 1. While he earned a fine living as a top-performing RE/Max agent, he and his wife were careful and conservative financially, for example, paying down the mortgage on his own home to own it free and clear as quickly as possible. But the bucket theory made Garber realize that he needed to pay more attention to his long-term investments.

Fortunately, financial planning is something Garber takes very seriously. At the end of each year he and his wife take a cruise where they can clear their minds and focus on their futures. On that year's cruise Ron and his wife decided on a course of action. Their life—bucket 1—cost about $5,000 a month. They already had discipline from paying

off their own home, and because Garber was already working hands-on in the owned real estate market, he was in the perfect position to master foreclosures. So, they reasoned, five paid-off single-family houses in the $110,000 range would generate about $5,500 in monthly cash flow and allow them to live comfortably off the passive income.

As planned, the couple bought five rental properties and poured as much of Garber's salary as possible into paying them down. Three and a half years later they had done it: five houses, free and clear, netting a little more than $5,000 a month. As usual, at the end of that year they went on their financial planning cruise.

"Well, we've zeroed it out," said Garber. "We've done it. What do you want to do next?" His wife thought for a moment. "Let's do it again," she said.

"Once we had the model, it was easy to just say, 'Let's do it again,'" he says. "We knew what price range to buy in and how to fix them up." Now that they had a proven model, they only needed to replicate it.

But one thing was different: they now had their rental income in addition to Garber's salary, and so they could move even faster. Two years and five more paid-down properties later the Garbers embarked on their annual cruise with the knowledge that whatever happened, they could count on $10,000 a month in passive income. Once again Garber asked his wife what she wanted to do next.

She didn't have to think about it. "Let's do it again," she said.

This time it took only a year and a half to come up with five more paid-off houses. Then, when the California real estate market took off, their rental income skyrocketed along with it. Now Garber owns 20 rental properties free and clear, all three of his buckets are overflowing, and he sees no reason to buy more real estate.

"My focus became taking what I had and really shining it up and adding to it," he said. "For example, I add bedrooms or bathrooms or whatever I need to add to the value of the existing portfolio."

But that doesn't mean he's done investing. Having learned the power of systems, models, and mentors, he sold his brokerage firm to his own protégé, and applied the model he developed in real estate to buying small businesses. Like houses, many businesses are undervalued, and many have values that can be increased dramatically through small, targeted fixes to carefully researched weaknesses. Best of all, though, is the feeling that comes from knowing you've found a model that works.

"When I was a broker, I didn't trust that there was a duplicable model for my success no matter how successful I was or how many awards I won" he says. "That was a terrible feeling. So now I tell everyone that it's the models and systems that make the difference— the difference between success with a bad ride and success with a great ride."

Real Estate 101

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