On one street, I noticed a for- sale sign that was up longer than most. It looked old. Jog- ging past it one day, I ran into the owner, who looked troubled. "What are you asking for your house?" I asked. The owner turned and smiled weakly. "Make me an offer," he said. "It's been for sale for over a year. Nobody even comes by anymore to look at it." "I'll look," I said, and I bought the house a half hour later for $20,000 less than his asking price. It was a cute little 2-bedroom home, with gingerbread trim on all the windows. It was light blue with gray accents and had been built in 1930. Inside there was a beautiful rock fireplace, as well as 2 tiny bedrooms. It was a perfect rental house. I gave the owner $5,000 down for a $45,000 house that was really worth $65,000, except that no one wanted to buy it. The owner moved out in a week, happy to be free, and my first tenant moved in, a local college professor. After the mortgage, expenses and management fees were paid, I put a little less than $40 in my pocket at the end of each month. Hardly exciting. A year later, the depressed Oregon real estate market had begun to pick up. California investors, flush with money from their still-booming real estate market, were moving north and buying up Oregon and Washington. I sold that little house for $95,000 to a young couple from California who thought it was a bargain. My capital gains of approximately $40,000 was placed into a 1031 tax- deferred exchange, and I went shopping for a place to put my money. In about a month, I found a 12-unit apartment house right next to the Intel plant in Beaverton, Oregon. The owners lived in Germany, had no idea what the place was worth, and again, just wanted to get out of it. I offered $275,000 for a $450,000 building. They agreed to $300,000. I bought it and held it for 2 years. Utilizing the same 1031 exchange process, we sold the building for $495,000 and bought a 30-unit apartment building in Phoenix, Arizona. We had moved to Phoenix by then to get out of the rain, and needed to sell anyway. Like the former Oregon mar- ket, the real estate market in Phoenix was depressed. The price of the 30-unit apartment building in Phoenix was $875,000, with $225,000 down. The cash flow from the 30 units was a little over $5,000 a month. The Arizona market began moving up and, in 1996, a Colorado investor offered us $1.2 million for the property. My wife and I considered selling, but we decided to wait to see if the capital-gains law will be changed by Congress. If it does change, we suspect the property will go up another 15 to 20 percent. Besides, the $5,000 a month provides a nice cash flow. The point of this example is how a small amount can grow into a large amount. Again, it is a matter of under- standing financial statements, investment strategies, a sense of the market and the laws.