Single Family Homes - The No Risk Investment! - Part 1 PART ONE
Introduction
Chapter One
Chapter Two
Chapter Three
Chapter Four
PART TWO
Chapter Five
Chapter Six
Chapter Seven
Chapter Eight
PART THREE
Chapter Nine
Chapter Ten
Chapter Eleven
Chapter Twelve
Chapter Thirteen
Chapter Fourteen
TABLE OF CONTENTS
Why Single Family Homes? 1-1
Look for Homes in the Middle 2-1
How to Find Homes 3-1
Make Your Profit When You Buy 4-1
Buy Homes! 5-1
Structuring Deals 6-1
Options and Leases 7-1
Talking with Sellers 8-1
Get It In Writing! 9-1
Renting and Managing 10-1
Financing Prowess 11-1
Advanced Tactics 12-1
Preforeclosure 13-1
Showtime! 14-1
Introduction
The object of this manual is to provide the small investor with a road
map that will guide him or her to success when investing in single family
homes. The material will be presented in an easy to understand style, so that
any person who is sincerely interested in building wealth through real estate
can proceed with confidence.
Even though this manual will give you all the tools that have proven
successful over time, only you can make them work. You must provide the
consistent effort and enthusiasm. That’s where most people fail. They don’t
take the time to fully understand the plan and then religiously put it into
practice.
Those are the first four steps:
1. Learn the plan;
2. Work the plan;
3. Work the plan;
4. and…. Work the plan!
Every person who actually does that has become successful. Anyone
who keeps at it week after week and month after month can not fail! That’s
how simple the plan is. If you will work it, it will work for you.
Don’t fall into the “burst of enthusiasm” trap. All of us get very
excited when we first learn something new and promising. We throw
ourselves into the project and just can’t get enough of it – for awhile. That
first blush of excitement soon wears off and we realize that the road to
success is not an expressway. It begins as a narrow, winding path where you
have to push yourself forward with sustained effort. This is where most
people fall by the wayside. Don’t let that happen to you!
Every journey starts with one step. Your first step to success must be
a planned schedule.
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How much time can you devote to real estate each week?
Create a schedule that targets every hour that you have available every
week. Don’t go overboard. Build a sensible schedule that you really can
stick with. Allow time for your other obligations and time for recreation.
This schedule and your ability to live with it will be the difference between
your success or failure.
You must treat the schedule as if it were a second job. If you don’t
show up for your regular job or you are constantly late to work, you will be
fired. You will fail at that job. The same is true for your investing job. If
you do not perform as scheduled you will fail.
Here’s the good news. If you will work your schedule faithfully you
soon may have no need for your regular job. Part one of financial freedom
is to no longer need a 9 to 5 job. Sure, you still must work your investing
schedule, but now you are working for yourself on your own schedule.
The longer you stick with your schedule the easier everything gets.
Because you are following the steps in this manual every week and every
month, they soon become second nature. You do them almost without
thinking. You will become expert in single family home investing. Then
everything gets easier and your wealth grows faster. That’s when it almost
seems like good deals come to you rather than you having to chase them
down. Believe me when I tell you it is a wonderful feeling. A time when
you can see real financial freedom is just a wee bit farther down the road.
It all must start with your schedule. Making serious money with real
estate is really simple. You will quickly learn the rules and techniques. Yes,
it is simple, but it is not easy. If you are not willing to work a set number of
hours (without fail) for the next 12 months stop reading right now.
You must want to succeed with enough passion that you will not quit
until you win! Anyone can do it. Success is an internal battle. You against
yourself. You can do it. You can have everything you’ve wanted in life.
You are scheduled for success!
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ONE
Why Single Family Homes?
How do you make money? You invest. You invest your time in a job
that rewards you with a salary. You pyramid that income by investing a
portion of it in stocks, collectibles, a business or any number of other profit
making opportunities, including real estate.
There are three factors that you should take into consideration before
making any investment:
A. Risk – the maximum amount you could lose.
B. Reward – the maximum amount you could earn.
C. Probability – the likelihood that you will win or lose.
Let’s take a look at your chances of success in a number of ways that
people attempt to make money:
•
You have a 1 in 76.2 million chance of winning the state lottery.
•
Your chances of hitting the jackpot on a megabucks casino slot
machine are 49,836,032-to-1 against.
•
The chance of any mutual fund outperforming the market average
is about 1-in-5.
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1
•
95% of new small businesses fail, so the odds of success are about
20-to1 against you.
•
95% of Americans will never accumulate even a fraction of the
wealth they need to support them selves in retirement.
•
Only 7 Americans in 100 ever become millionaires.
Aren’t those depressing numbers? But don’t you be discouraged
because there is a way you can guarantee your success and become one of
those 7 millionaires – invest in single-family homes!
Risk – If you follow the rules you will learn in this manual you will
reduce your risk to near zero.
Reward – You will be rewarded with a stream of income, equity
build up and tax shelter.
Probability – With hard work your probability of success is 100%.
That has been proven by thousands of other single-family home investors.
Investing in single-family homes may be the most powerful money
making vehicle available to every American. Here’s why.
1. Single family homes are everywhere. You will have no trouble
finding good buys no matter where you live now or in the future. They are
easy to buy, rent and sell. Legal and procedural details were worked out
long ago. You don’t have to blaze any new trails.
2. Single family homes are easy to manage. Most everyone has been
a renter at one time or another and he or she understands what is expected of
them. Rental contracts and eviction procedures (rarely needed with what
you will learn in this manual) are standard and routine. Single-family rental
homes are subject to far fewer government regulations than any other rental
property. That is a powerful benefit.
3. Appreciation and income can be very attractive with single-family
homes. Over the years homes have climbed in value. Some years more than
others, but historically over any ten-year period good homes in good
locations have increased in value by at least 50% and often over 100%.
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2
When you follow the formulas in this manual you will never have
negative cash flow. That means that any house you buy will at the very least
cover all costs including loan payments. Most homes will cover costs plus
leave extra cash to put into your pocket. The longer you own the property
the more positive cash flow it will produce.
4. Single family homes can provide you with some shelter from
income taxes. You don’t get as many tax advantages as you once did, but
you do get some dollar savings. Over the years the taxes you avoid are
substantial, amounting to thousands of dollars.
5. An investment in a single-family home can be easy to finance.
There are hundreds of institutions that are in the business of making
mortgage loans. You, as an investor can benefit from that required. Homes
make excellent security for loans. That gives you the opportunity to shop
for money from many different sources.
6. You can get started investing in homes without a lot of money.
You can even do it with no money if you are willing to work harder. The
cost of buying and selling can be very low when you know what you are
doing. That means more of your cash gets to work for you quicker and more
efficiently.
7. Good rental properties are in demand. Good renters want to live in
good accommodations. Renters can choose from various types of rental
properties including large and small apartment complexes. The best renters
prefer to live in single-family homes. Most are planning to buy a home
sometime in the future and are renting until they can save enough money.
These renters hold steady jobs and are concerned about their credit rating.
They are the kind of people who will be attracted to your rental good homes
and that is why your vacancy rate will be very low and you will have few
tenant problems.
You have often heard the phrase; “Your home will be the largest
investment you every make.” That may be true, but think how quick and
easy that purchase is for most people. They have a real estate agent show
them some homes. They choose one they like.
1-3
They make an offer that is accepted with a minimum amount of
haggling. Next they visit a loan broker and in a half-hours time have
provided all of the necessary information. Two or three days later they learn
they have been approved for the loan and the escrow is opened. About thirty
days later they are moving into their new home. Think about that! They
have borrowed between $80,000 and $300,000 in a total of about two hours!
Now that they have learned how easy it is to acquire “the most
valuable asset” of their life why do they stop? Why not continue to build
their wealth with another home and then two more, and just keep going?
It is only a little more complex for a person to buy investment real
estate. The basics are the same. You can control hundreds of thousands of
dollars in real estate if you understand how the game is played and have a
good system to follow. That’s how you make the big money.
Lenders want to lend you money. That’s how they make their living.
If you can show them that you know what you are doing you will get the
money. Some times the money comes from conventional sources and other
times you will find it through your own skill and experience. This much is
true – if you know how to make profitable real estate deals you will find the
money to make those deals work.
Can you make money with duplexes, triplexes, fourplexes and larger
apartment complexes? Sure, but your risk goes way up and tenant problems
multiply by the number of units. You have only a limited amount of time to
spend on your investing program. You don't need that kind of aggravation
in your first years as an investor.
Starting with little more than your own determination and skill, you
can find financial independence with single-family homes. Stick with a
winning program.
1-4
TWO
Look for Homes in the Middle
In this manual we will present a strategy for finding, buying and
managing profitable, single family rental homes. After you have read the
last page you should understand exactly how to get started in your new
business. There will be one or two questions that can only be answered
through experience. You have to get out there and put the strategy to work.
Just follow the schedule you created for yourself and put in a few hours
every week. Be persistent, that’s the secret.
Where should you begin looking for homes? The most profitable
rental home will be found in middle class neighborhoods. Most of us live in
a middle class neighborhood. America is a country of the middle class.
There are lots of us and we live a good life in the middle of the economic
scale.
I divide these neighborhoods into three categories:
1. Lower middle class.
2. Middle class.
3. Upper middle class.
I have made this division arbitrarily. To further illustrate this example
I am going to put a monetary value on each neighborhood category:
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1
1. $35,000 to $75,000
2. $75,000 to $120,000
3. $120,000 to $225,000
These price ranges are just very general examples to illustrate the
choices you have when it comes to buying homes. Prices in your area for
these neighborhoods may be more or less. Time will also have an effect on
the range of prices. Prices will increase over time, but the character of the
neighborhoods will stay about the same.
From this point on we will refer to neighborhoods by the numbers
indicated above.
When we label a neighborhood category as lower middle class
(Number One) we do not mean a crime-ridden slum area. Hardworking
families inhabit lower middle class neighborhoods. They may be unskilled
or semiskilled workers, but they hold down jobs, support their families,
make their mortgage payments and take pride in their homes.
Up the ladder one step are the Number Two neighborhoods. Workers
here have more skills and earning capacity. The homes are larger, were built
more recently and will have a more modern design. In the Number One
neighborhood you will see many pickup trucks parked in driveways. In the
Number Two neighborhoods you will see fewer pickups and more of the
cars that are popular at that moment.
The Number Three neighborhood will be in developments that have
been built in the last five to ten years. There you will find still larger homes
with more modern conveniences. More new cars will be parked in
driveways. These people have well paying jobs and many homes have
professionally landscaped yards.
Anyone of these middle class neighborhoods can be a prime target for
your home buying efforts, but you will find few in the Number Three areas
that will produce positive rental cash flow. You will soon discover a
surprising fact. There will not be a huge difference in the amount of rent
that can be charged for a good home in anyone of these neighborhoods.
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2
A good 3-bedroom, 2-bath home in any of these areas will probably
rent for from $700 to $1,200 per month. Now those figures are just for
comparison. Rents may raise or fall with the conditions of the moment, but
a good home will rent for about the same price in all areas.
You can buy a home in a Number One neighborhood for less money
than the other two and yet you can earn nearly the same amount of rent.
That means more bang for the buck. When buy houses to rent your
opportunity for positive cash flow is better in a number one area.
You will not want to pass up a bargain purchase in any neighborhood,
but your main efforts should be directed toward looking for homes in
Number One and Two neighborhoods. Homes in these areas will appeal to
the widest range of renters. They will also be affordable for the greatest
number of renters and buyers
Homes in the Number Two neighborhoods will produce less positive
rental cash flow, but they will generally appreciate in value more than
number one homes. Homes in the Number Three neighborhoods usually
will not produce enough rental income to cover mortgage payments and
other costs unless you are able to buy well below market value with
excellent terms. Your prospecting time will be better spent in the Number
One and Number Two areas.
When you are in the beginning stages of real estate investing positive
cash flow is extremely important. Number One neighborhoods give you the
greatest room for error. Since these homes generally are capable of
producing the most rental income per dollar invested you have the most
room for error. If you should slightly over-pay for a property, or find you
have to spend money for unexpected fix-up costs, the larger positive cash
flow may bail you out.
Positive cash flow means that rental income more than covers the
monthly loan payments and other recurring costs of owning the property.
Positive cash flow from every rental property you buy is essential to your
success. The best deals will not only cover all payments and costs, but also
provide you with some extra monthly cash that can be accumulated for
further investing. Think positive – positive cash flow! This document and accompanying materials are designed to provide authoritative information in regard to the subject matter covered in it. It is for illustration purposes only and presented with the understanding that the author and publisher are not engaged in rendering legal, accounting or other professional opinions. If legal advice or other expert assistance is required, the services of a competent professional should be sought. |
