Seldom do I recommend that buying a house to live in is the best way to begin investing! However, in Bob and Sue’s case, it seemed like the right plan at the time. My idea was to convert the $700 rent payments into something that would build equity. I also knew after listening to Bob and Sue go through several hours of “true confessions” about their past credit problems, they would be in “deep doodoo” if they had to borrow from a conventional lender. They still didn’t have “pink slips” for their six-year-old twins. In fact, they were still sending monthly payments to the hospital where the twins arrived!

Their situation was like this-Bob and Susan were financially committed “up to the hilt” as far as their present income was concerned. They couldn’t turn-up an extra dime if their lives depended on it!

Finding the Seller

To begin with, I said, let’s start searching the local newspapers for a seller who might be flexible. Look under the headings FOR SALE FOR LEASE – FOR TRADE and even FOR RENT. Also, gather up all the “freebie booklets” with real estate advertising-the kind you find in the paper racks at super-markets or in front of the Post Office! This includes penny-savers and the popular “deals on wheels” paper, which also has a real estate for sale section. All are free!

I explained the ideal property we’re looking for to Bob and Sue. I told them to start calling up ads and talking on the phone. There’s no use driving around until we find a seller who shows some interest in what we have to offer. Basically, the strategy we are trying to use here is called: PAINTING-FOR-DOWN PLAN. Obviously, it’s not just limited to painting. In fact, the only limits I know of would be the capabilities (know-how) of Bob and Sue to fix up the property we find.

First, I estimated Bob and Sue could afford $500 per month mortgage payments if they bought a house. That’s $200 less than the rent they currently pay each month. The extra $200 will be needed to fix up any property we find. $500 will payoff a $65,000 mortgage payment at 8.5 percent, amortized for 30 years. Obviously, $500 can pay a bigger mortgage at less interest or smaller if it’s higher.

The Strategy

Here’s how the strategy works: We start looking for a house that is totally run down. It probably needs painting very badly. The yard looks like the site of a national auto dismantlers’ convention. If gutters exist, they’re falling off. In general, the property is an ugly mess. We’ll also look for an owner who lives out of town. Perhaps recently divorced or recently married, is elderly, job transfer or has tried, but failed, at being a landlord. Don’t worry whether the house is empty (vacant) or occupied. Remember, you’re calling from an ad that says For Sale, For Rent or For Something! The ad wouldn’t be in the paper if everything was “just peachy”.

You will need to know a little about market values. Real estate agents or a friend can help if you are totally in the dark! Although, if you can’t really tell-I’d suggest you start driving around a bit matching up properties with comparable houses and prices in the surrounding neighborhoods. Remember, this job is not like engineering “precision” Swiss watches! Exactness is not our goal here! Being in the “ball-park” is perfectly good enough. After all, the offer we plan to make will compensate!

Once you figure out that the market values are within “ball-park” range, our next task will be to find an ugly property selling for about $75,000 in its rundown condition. A $75,000 rundown house should easily be worth $85,000 or more after it’s all fixed up. Also, don’t forget the highest mortgage we can afford to pay at 8.5 percent interest $65,OOO at 6.5%; the mortgage could increase to almost $80,000 keeping the same payment.