Jan 23

Important things you need to know before buying multi-units in low income areas

Multi units in low income areas

Multi units in low income areas

Many will preach that multi units are a shortcut to financial freedom.  Multi units are desirable as they are perceived to generate multiple income streams under one roof. While generating multiple income streams, there is still only one tax bill, one insurance bill and even if not 100% occupied they still generate income.

When purchasing multi units, consider the area you are investing in. It has been my experience that when investing in low income areas, multi units lose desirability unless rented well below single family rents.  Finding multiple, matching personalities in low income areas are always a challenge therefore, creating high turnover and high vacancy rates. Before purchasing multi units in low income areas, consider these key factors.

 What are the local rent rates for single family houses?

If you can rent a house for the same amount that you can rent an apartment, most people will choose the house.  People want their space, they don’t want to deal with other personalities when they can afford a single family home for the same amount they can pay for an apartment.

Separate Utilities

You want a multi-unit with separate utilities.  In some areas, single family homes have been converted to multi-units. Most times the owner will separate the electric, but not the water or gas. Maintenance tends to be higher on these types of properties. The systems were not built for multiple family use, often times if the building is at full occupancy the water heater will have a hard time keeping up and so forth. There is less maintenance on buildings with separate utilities.

How low is low-income?

Keep in mind that most low income areas, are people living off of government assistance, local assistance or work a minimum wage job.  In most cases a person collecting social security is collecting a minimum of $700, which is not a lot. If a person is working a minimum wage job, chances are they are only clearing $1,200 a month. Would somebody bringing in this type of income be able to rent your unit?  Do your rents reflect affordability for minimum wage employees? In my low income area, 90% of my clientele collects social security. I need to offer affordable apartments that somebody on social security can afford.

Location, Location, Location!

If you are buying multi units in low income areas, try to pick good areas. If you offer quality, affordable units in good areas, you will most likely fill your units first, keeping vacancies low.

Appliances

In my investment area we do not have to supply a refrigerator or stove with our rental units. Most of the tenants travel with them when renting single family homes. When renting apartments, people expect them and I recommend supplying them. Apartments with appliances will rent quicker than apartments without. If there is enough room in the basement, you could install a coin operated washer/dryer for an extra income stream and it is a good selling point for prospective tenants.

Adding value to your rental unit that is in a low income area, such as including free wi-fi may put you above the rest. Even renting below market value will fill vacancies quicker.  When I say below market value I mean $5-$25, which really is not a whole lot, especially if it retains a tenant for years to come.

Multi units can be very lucrative, and I feel they work better in some markets better than others. I rent mine for $25 below market rent and have extremely low turnover.

Happy investing

Jan 16

Why are single family homes a good investment?

Investing in Single Family Homes.

Investing in Single Family Homes.

Beyond the basics of why single family homes are a good investment!

Single family homes are a better investment than stocks, mutual funds, bonds and gold!  You know the obvious reasons, tax advantages, appreciation, cash flow, leverage; there is no need to reiterate what others have said.

Here’s the real reason why I like investing in single family homes.

I have found single family homes to be 95% more desirable to renters than duplexes and multi-units. It has been my experience in my real estate market that people like their space and if they can avoid having a neighbor above or next to them, they will opt for a single family home over duplexes or apartments. I find single family homes more desirable to rent and easier to sell.

Most of our investments are buy and hold.  Our goal has always been to have enough rental property to support the life style we desire. Once a single family home has been purchased for pennies on the dollar, rehabbed and rented, they tend to be low maintenance. Your rehab is the key to minimizing maintenance. Fixing things properly and using the right materials will maximize profits and your investment for years to come.

Once a tenant has been placed in your single family rental, really the only time you hear from them is for a maintenance call or to give notice that they are moving. You make sure your tenants pay rent every month, write a check for taxes and insurance and that’s it. It’s like purchasing an ATM that spits out passive income every month.  Once we have one ATM set up and cash flowing, we can concentrate our efforts on another, without the management headaches of tenant drama.

Quality single family homes at or below market value are extremely desirable to home buyers.  Fix n flips are crucial to your real estate investing business as they build cash reserves, which fund other fix n flips or purchase more buy and hold properties.

Renting single family homes can generate an amazing return, in a down market. When investing in real estate, investing in a market where rents have not taken the same hit as property values is extremely important. For example, houses may have declined in value, but rent rates remain the same, they have not decreased. What happens if you want to cash out in 5 years and house prices have not increased the expected 5% per year?

Your all in cost of the single family home ws $100,000, for the past 5 years, it has cleared $15,000, after all expenses, this is your profit. In 5 years you have already made $75,000.

Are you losing money if you sell the investment for $100,000?

Are you losing money if you sell the investment for $90,000?

“I would say that single family homes are cheap now. If I had a way of buying a couple hundred thousand single family homes… I would load up on them, and I would take mortgages out at very, very low rates. So it’s a very attractive asset class now.”

~ Warren Buffett

Could billionaire Warren Buffett be wrong?

Single family homes are lucrative, viable, income producing investments. The population is not declining and the demand for single family homes is not disappearing anytime soon.

To learn more about REO properties, download our book, Building Wealth Through Real Estate: 3 Letters Every Real Estate Investor Needs to Know-R-E-O, only on amazon.

~Happy Investing

Jan 14

Why should you hire a mentor?

The road to success...hire a mentor today!

The road to success…hire a mentor today!

Knowledge is never free!

Whether investing in real estate alone or hiring a mentor, you will pay for your education one way or another. Hiring a mentor is the quickest way to reach financial freedom without compromising any more of your time and money than is necessary.

Investing in real estate is easier than you might think. It can be overwhelming, as there are so many niches to pick from, fix n flip, rental properties, wholesaling, tax liens, etc-etc. There is a lot of free advice out there, but really not enough to get you started investing in real estate. When seeking the advice of colleagues, you will most likely get different answers to the same question. This only leaves you more confused and asking yourself, “Who is right?” In most cases, doubt and fear will handicap you from taking the first steps to investing in real estate. Here are some reasons why you can benefit from hiring a mentor.

It’s much easier and quicker to learn from somebody else’s mistakes.

Most of the active investors have tried and failed. They have reanalyzed their business many times to implement systems that work. There is no need to reinvent the wheel in any business, take note of what other people in your industry are successfully doing, implement that strategy and put your own twist on it. A mentor can give you the foundation in which you can build your business, once you have the basics, you can tweak it to your own liking.

A mentor can keep you focused on your goals.

In this business, it is easy to lose focus. Many new investors work hard for 2 weeks and give up when they don’t see quick results. Building wealth is a process, not a race. You should set measurable goals and hold yourself accountable for reaching them. A mentor can keep you focused and help you master your strategy. By sharing your goals with a mentor, they can keep you motivated to climb the ladder of success, and surpass your peers.

Having a mentor will keep you on track to managing your time and maximizing your profit.

Your mentor can help you put together a business model that will best manage your time and overhead, allowing you to achieve the best profitability when investing in real estate. Working with a good mentor will help you overcome your concerns and give you the confidence to get more deals done. If you take one piece of advice that you implement into your business that saves you thousands of dollars, than the advice you sought was well worth the cost of the mentorship.

The people that hire mentors for investing in real estate have a better success rate than those going it alone.

There are so many opportunities in real estate, why wait to get started? Hire a mentor today and start building wealth, not only for you but for future generations in your family.

Dec 28

Landlording and the unavoidable eviction…

Landlording-The unavoidable eviction!

Landlording-The unavoidable eviction!

Landlording  and the unavoidable eviction…

When I tell people that I buy cheap houses, fix them up and rent them out, known as the buy and hold strategy, people usually light up and I hear a lot of similar responses, “Oh, I have always wanted to do that! The thought of fixing houses and giving people a chance when no one else will and making it easier for someone to put a roof over their head, has always appealed to me. You are so lucky!”

Before you become a landlord, ask yourself this one question:

“Could you evict a single mother with 4 kids, on Christmas?”

If you answered NO, landlording is not for you!

It may sound harsh, but the reality of owning rental properties is not all rainbows and butterflies like most guru’s and Hollywood reality shows, lead you to believe.  Dealing with tenants is not far off from dealing with children. You must set the rules (a lease), and follow through with consequences when those rules are not followed (eviction). I don’t know many people that start a business to do people favors, most people start a business to make money.

Most landlords hate filing for eviction because it cost them money and my response to that is, “I’m glad you can afford to support them!” By not filing an eviction on a tenant that is not paying rent, that is exactly what you are doing, supporting them.  Would it be acceptable for someone to steal merchandise from a store?  Absolutely not and it is even less acceptable for tenants to skip out on paying rent.

Landlording needs to be run as a business, controlling income and expenses. Some of the tools that have helped me minimize loss, I have implemented from Mike Butler’s, Landlording on Auto-Pilot: A Simple, No-Brainer System for Higher Profits and Fewer Headaches. I give my tenants a welcome packet that explains normal wear and tear and the life expectancy of items in the house, such as sheetrock, paint, light fixtures, carpet etc. and point out that if they are destroyed during their tenancy that the cost to fix or replace the item will be deducted from their security deposit. I also like, and incorporate his move out check list into my business. Not only do I mail this for tenants who give notice but also mail it to tenants who are being evicted. I must say it is a great tool for minimizing turnover costs. I give my tenants a notice on the effects an eviction can have on their credit score for non-payment of rent. This seems to encourage tenants to give proper notice, which helps to keep expenses down.

This is a business and you will have expenses, evictions are one of them.

When I do a lease signing with my tenants, I sum up the lease in two sentences, “if you don’t pay, you don’t stay!” and it’s really as simple as that! I also tell them, “you understand how hard it is to support one family, well if rent is not paid, do not expect me to support yours, the eviction paperwork will be filed on the 3rd if rent is not received by the 1st.” Most tenants understand and are not surprised when the eviction paperwork shows up on their door on the 4th.

Not every market is the same. I happen to invest in areas where it takes no more than 40 days to evict a tenant who is not paying rent. Between court costs, loss of rent (2months), and turnover costs you are looking at a $1,600 loss if you file the eviction right away; add another month’s rent for each month you wait to file. At a $1,600 loss do you really want to wait to file an eviction?  Don’t be afraid to set rules and follow through with consequences. A tenant can always pay the rent and court costs before the court date, cancelling the eviction. Most times that is all it will take to ensure they pay on time in the future.

Remember to set rules, have consequences and follow through with them. Evictions should not be avoided, and are a key component to running a successful real estate business.

~Happy Investing!

Dec 12

ADVICE FOR BEGINNERS INVESTING IN REAL ESTATE

Follow these rules

Follow these rules

ADVICE FOR BEGINNERS INVESTING IN REAL ESTATE

Investing in real estate has caught the eye of many and enticed a few to play the game. There is money to be made as seen on the tv shows, however what they don’t show you is the learning curve beginners must go through before cashing in on that big payday. Following are some tips to help keep you on the road to investing in real estate and will help make the road a little less bumpy.

REAL ESTATE INVESTOR’S ASSOCIATION AND NETWORKING

The best education I’ve ever got was from any REIA meeting I’ve attended.  That’s where you will find your beginners to the much experienced, investing in real estate. Whatever niche you pick, wholesaling, fix n flip, buy and hold, REO’s find the people that are successful in those areas and copy what they are doing, learn from their mistakes. Rest assured they have made some along the way, find out what works and what doesn’t.  I ‘ve approached many investors in REIA meetings that were willing to answer questions and give advice.

INVESTING IN REAL ESTATE BASICS

When investing in real estate, the rule of thumb is to run it like a business. Whether wholesaling, fix n flipping, or buy and holding,  you will need to have basic knowledge of income and expenses; profit and loss; tax deductions, know how to manage costs and so forth. A good accounting software such as quickbooks can help you keep all of your record keeping in order and insure you get all of your tax deductions. Your numbers extend further than your real estate deal. Be aware of the whole picture. Robert G Allen’s, Ultimate Real Estate System is among one of my favorite and most informative product from a guru. It is filled with some great basic information that is useful for beginners. I have found most of Robert Allen’s material to be no fluff and lots of substance.

MAKE OFFERS

Get in the habit of making offers- if you are not making offers, you are not in the game.  It irritates me when newbies look at retail prices on the mls and won’t even go look at a property because of the price tag.  They fear the number they have in mind would never be accepted, well, you will never know the answer if you don’t ask the question. In this business you will need to get over your fear of rejection fast! Get the offers in and you will be surprised what banks, estates and even motivated sellers are willing to accept.

PICK A FARM AREA AND BECOME AN EXPERT

Trying to get a grasp on different neighborhoods at once can be overwhelming. Pick a farm area, learn the market well and once you have mastered it then move on to another area.

DON’T GIVE UP

Rejection is very frustrating for most and the number one reason new investors will quit. Make an effort to keep moving forward, whether looking for motivated sellers or making offers on REO properties, eventually things will start coming together and you will start finding those diamonds in the rough!  I always like to reflect on a saying from Alan Cowgill, “some will, some won’t, who cares…someone’s waiting!”

SET REALISTIC EXPECTATIONS

Most newbies investing in real estate are entering the game after seeing some infomercial from the late night real estate gurus promising overnight riches. Puhleaze! Don’t fall for this trap! Set realistic expectations for yourself and realize there will be many learning curves to work through and building wealth through real estate takes time. Seriously, if investing in real estate were that easy, everybody would be doing it!

Good luck, and happy investing!

Oct 24

Wholesaling Real Estate for Quick, Low-Risk Profits!

Wholesale your way to wealth.

Wholesale your way to wealth.

Wholesaling Real Estate for Quick, Low-Risk Profits! 

If you’re looking for an opportunity to build wealth using investment real estate, but you have no capital or credit, then wholesaling properties may be the perfect strategy for you. Getting started with wholesaling real estate is easy because when you wholesale houses you don’t need a real estate license and you don’t need a lot of money. All you need is the ambition to jump in with both feet, and the knowledge it takes to close the deals. The more ambitious you are, then the more likely you’ll succeed.

 What is Real Estate Wholesaling?

When you wholesale houses, what you’re doing is putting homes under contract and then assigning or selling that contract to another investor. You never actually own the property, but you have the right to buy the property by virtue of your contract, as well as the right to sell that contract because you’ve inserted the phrase “and/or assigns” after your name as the buyer.

Controlling real estate in this manner requires very little money. Usually, you offer a token security deposit of $10-$100 as consideration in exchange for the seller agreeing to an assignable contract. Homeowners willing to work with a wholesaler are usually sitting on a property that is distressed in some way. Either the property needs a lot of expensive repairs or the homeowner is behind in payments and facing foreclosure.

How to Get Started Wholesaling Real Estate

A wholesaler is building wealth by turning over contracts for distressed property as quickly as possible. The truth about real estate is that no matter what’s wrong with a property, an investor will buy it if the price is low enough. Your job as a wholesaler is to do two things well, 1) find distressed properties, and 2) build a network of investors ready and willing to purchase those properties on a moments notice.

Essentially, you’re a middleman between buyer and seller in your using your specialized knowledge about the market to bring the two of them together. Few sellers are savvy enough to sell their own property, especially if there any distressed situation. And no investor can possibly know about every distressed situation that arises in the marketplace. That’s why if you keep your ear to the ground you can make a lot of easy money searching for real estate wholesaling opportunities.

For example, if you find a distressed owner of a property worth $80,000 in salable condition in your able to put that home under contract on contingency for $40,000 you can turn to your network of real estate investors and sell your contract for $45,000 in just a matter of days.

Unlike “fix and flip” deals, you have very little risk in the transaction because you don’t actually own the property. You own the contract which is nothing more than the right, not the obligation, to buy the property. You’re not obligated to go through with the transaction under any circumstances because you always insert a contingency clause that allows you to back out of the deal if you’re unable to find an investor prior to the closing date for the property. Your total risk in the transaction is your security deposit.

It’s essential that you have a contingency clause in every contract to protect yourself. Contingency clauses can be any one or more of the following:

  1. Purchase is subject to business partner’s approval.
  2. Purchase is subject to a satisfactory well/septic tank test.
  3. Purchase is subject to a satisfactory roof inspection.

Because of the low risk and high return nature of wholesaling real estate, it’s a great way to build cash reserves until you can afford to move up to buy and hold strategies, which is where you build wealth through passive income.

Oct 08

Understanding Cash-on-Cash Return

Understanding cash on cash returns

Understanding cash on cash returns

Real Estate Investing for Beginners: Understanding Cash-on-Cash Return

One of the most popular measurements used for real estate investing for beginners is called the cash-on-cash return. This metric is simply a percentage used to measure the return on cash actually invested into a rental property. It’s useful for predicting the financial performance of an income property for the first year of ownership.

A lot of people investing in real estate pay close attention to this rate of return because it gives them a simple way to compare the profitability of a number of investments at once. While the cash-on-cash return is very useful to real estate investors, it’s not quite as handy as once thought because the formula fails to consider the time value of invested capital. Consequently, the formula is limited to only measuring the first year of cash flow for an income property, and ignores any future cash flow.

How Does Cash on Cash Return Work?

You calculate the cash-on-cash return by dividing your before-tax cash flow by your acquisition cash investment into the property, and then express the result in terms of a percentage. Here are the definitions for the terminology:

First-year of cash flow — This is how much money a property generates during its first operating year.

Acquisition cash investment — This is how much money that’s been invested to acquire any property and prepare it for tenants. It includes the down payment, any loan points paid, escrow fees, title fees, property inspection, appraisal, plus maintenance and repairs.

Let’s Look at an Example

Let’s assume that you want to purchase a six unit apartment building that earns $1,000 per month in rent per unit. Your estimated operating expenses for the first year are $30,000. You plan to take out a new loan using a $125,000 down payment and pay $3,000 in loan points to end up with monthly loan payments of $2,000. And finally, your estimated closing costs come in at $2,500.

In the above example, you’ll have to make a number of computations to determine what your cash flow and acquisition cash investment will be for the first year before you can calculate your cash-on-cash return. Here are the calculations you have to perform:

  1. Gross Rental Income: (6 units x $1,000) x 12 months = $72,000
  2. Net Operating Income: $72,000 – $30,000 = $42,000
  3. Mortgage Payments: $2,000 x 12 = $24,000
  4. Cash Flow for the First Year: $42,000 – $24,000 = $18,000
  5. Acquisition Cash Investment: $125,000 + $3,000 + $2,500 = $130,500

 Cash-On-Cash Return Formula:

First-year of Cash Flow /Acquisition Cash Investment = Cash-on-Cash Return

$18,000/$130,500 = 13.79%

 

With the specific cash-on-cash return of this real estate investment of 13.79% in hand, you’re able to compare it with comparable properties, or alternate ways of investing your capital, such as in T-bills, or you can even decide if the resulting cash-on-cash payback meets your minimum return on investment requirements altogether for passive income.

Oct 06

Positively cash flow your rental properties….

Keep tenants from moving on the fly!Positive cash flow is the key to successful buy and hold investment properties.

As a buy and hold investor you want to maximize your cash flow by keeping tenant turnover at a minimum. Finding good tenants is a process that starts with how you advertise your rental property. I find that most of my rental prospects come from craigslist, therefore I write my qualifications in the ad:

  • Must make a monthly rent equal to 3 times the rental amount
  • Must not have any prior evictions
  • Must pass criminal background check.
  • Only neat, clean, responsible people who pay their rent on time need apply.
  • Must have first month’s rent and security deposit to move in.
  • Pets considered on a case by case basis. Application Fee of $25 per person.

This keeps my phone calls of non-qualifying tenants to a minimum.

Keeping your properties well maintained plays a key factor in keeping tenant turnover low, not too many people want to rent from a slumlord. Patch holes in walls, make sure doors open and close properly.  Respond to maintenance calls in a timely fashion.

Keeping your rents in line with the rest of the market will keep your phones ringing. Setting boundaries with new tenants giving them a sheet on the life expectancy of household items, such as light fixtures, doors, paint on walls, and carpet. Set an expectation of how the property is to be turned back over to you.   My units are clean when we do the lease signing and I set the expectation then and tell my new tenant, “this is how my last tenant left the house when they moved, all I had to do was show it, this is how I expect you to leave it when you move.”   Put a move out “to do” list in your lease under the security deposit section.  My list contains 25 things the tenant needs to have done before they get their security deposit refunded. For example, they must have carpets professionally cleaned and provide a receipt, supply me with a forwarding address and must provide a 30 day written notice of planned move out date, to name a few. If the consequences are spelled out your chances of keeping turnover costs low are extremely good.

Tenant turnover can suck up all of your cash flow if not handled properly and nobody wants to get stuck with a $3,000 turnover bill.  Getting tenants to give proper notice is key to keeping turnover costs low, and getting the vacancy filled as soon as possible. Often times I have had a unit rented before the old tenant has left and don’t miss out on a month’s rent.

Buy and hold properties can be very lucrative and produce positive cash flow on a monthly basis, however it is very important to run them as a business and not just a part time hobby. Every successful business has a good employee manual as every successful landlord should have a tenant manual,  starting with rental advertisements to rental agreements. Set rules in the beginning and keep your rental properties in the black.

Sep 28

Investing in Real Estate for Passive Income

Build Wealth through Real Estate

Build Wealth through Real Estate

Many people start investing in real estate because they believe it is the easiest and quickest path to financial freedom.  Why invest in real estate? Who doesn’t want an income stream that allows us to work less while still being able to enjoy the lifestyle we desire? Investing in real estate is an incredible way to build wealth and is anything but quick and easy. When building wealth through real estate investments, you want to accumulate enough cash to purchase buy and hold properties to generate enough passive income to support the lifestyle that you desire.  What is passive income?

The Wikipedia definition of passive income is as follows:  an income received on a regular basis, with little effort required to maintain it. Buy and hold properties are the key to building wealth through real estate investments. There is some work involved in the beginning, but once your investment property is purchased, fixed and rented, it’s like having an ATM that will spit out money every month.  Remember the definition of passive income, An income received (rent) on a regular basis (1st of the month), with little effort required to maintain it. (collect rent every month). Why invest in real estate? Obviously having a steady income stream every month is extremely desirable, but there are other benefits to investing in real estate such as tax benefits, leverage, appreciation and depreciation to name a few.

Investing for passive income through the buy and hold strategy is just one of the ways you can invest in real estate.  Whether you want to quit your job and invest in real estate full or part time, you should educate yourself on all aspects of the business through books, blogs, podcasts, mentors and networking at your local REIA group with individuals who are in the business.   Many people only stay focused on the Hollywood, romanticized dream of quick riches and ease of investing in real estate, that they forget that it’s a business and should be treated like one.  You want to have a strong foundation on the industry for your business to thrive.  Not only do you want to have a strong foundation on investing in real estate, you will also want to have a strong business plan, a mission statement, goals, financial forecasts and exit strategies.  If you are not business oriented than investing in real estate is not for you. Most people fail in this business due to lack of preparation and planning, don’t be one of them.  To help build your foundation I have compiled a list of books that have been the most beneficial to me in my investing career.  Most are quick and easy reads that will give you some great insight into the world of real estate investing. ~Happy Reading.

Sep 16

Investment Real Estate…

Investment Real Estate...show me the money!

Investment Real Estate…show me the money!

Is it for you?  Is investment real estate as glorified and sexy as the guru’s make it out to be? I’m sure many of you have seen the infomercials promising quick cash, wholesaling or flipping houses. Hollywood glorifies house flipping with their tv shows but fails to give you real numbers.  How much is fluff n buff and how much is reality?  If investment real estate were that easy and that glorious, everyone would be doing it, right?  How many of you have bought some kind of educational program from a late night infomercial guru, only to get the information, read it over and still have no starting point, and are left more confused and disappointed with the lack of results?

I’ll be the first to raise my hand!  When the real estate market went kaput in 2008 and a wave of foreclosures swept the nation, I could see the opportunity that presented itself.  I knew there was money to be made but knew nothing about investment real estate!  I started educating myself with books and searched for information on the internet, at the time there wasn’t much on the web about investing in real estate.  My journey began! I spent the next two years learning everything I could about investment real estate. I spent well over $40,000 on educational courses.  Yup, you read it right, over $40,000 and the best piece of information that I took from those classes were…get involved with your local REIA! Our local REIA is where I found like-minded individuals to network and share my trials and tribulations with

. It’s where I got my best education for a fraction of the cost of those late night infomercials.

I’m here to save you thousands of dollars and show you how to get started in real estate investing.

I will give you a road map on how to get started investing in real estate, and empower you to take control of your financial freedom. There is no other vehicle I would rather use to build wealth than real estate investments.

I bought my first investment property for $5,000, less than the cost of a new car.

I will show you how you can too!

I will show you how to build your real estate empire even if you are starting with little money in pocket. I will give you real information, make you do real work and give you real results for a fraction of the cost of any guru! I hope you enjoy my blog!