Think about this for a moment! When I buy an income property for $40,000 less than its true market value using my investment knowledge – how much tax do you suppose 1’ll have to pay on the $40,000 I’ve just earned using my buying skills? Don’t take too long with your answer ’cause any way you do the math, the answer is still zip — Like in none! Now think about the same $40,000 amount that you earned last year at the factory! Down there they call it wages. Let’s assume for the moment you’re a family of four. I’d bet that when we add up the state, federal and social security taxes, which are automatically withheld from your earnings – you’ll be very lucky to take home $28,000 for a whole year’s worth of bolting on fenders.
Assuming my calculations are somewhere in the ballpark – you’re talkin’ about giving up or losing $1000 every single month in this particular example. In my case I’ll earn the same $40,000, but the difference is – 1 can keep it all. I’m not sure exactly how you think about money, but from where I sit, $1000 is a whole wad of dollar bills to give up every single month.
IT’S ABOUT KEEPING EVERYTHING YOU EARN
Just imagine what you might be able to do with $1000 every month investing for your own account – using that $1000 to benefit yourself.’ Remember we’re only talking about one small deal here. This stuff gets real exciting when you start thinking about several deals going on at the same time.
If you follow my line of reasoning here, you’ll understand that the quickest way to become a successful investor is not so much dependent on how much money you have – but rather skillfully using all the dollars you earn to advance yourself . The idea here is to quickly build up your money-making assets and substitute your tax battered wages with cash flow earnings from your investment houses. Living off tax-sheltered rents allows you to legally beat the taxman and keep all your earnings to build your own wealth.
Changing careers like I did is not for everyone – nor should it be. For the same reason they make different colored shirts. Folks have different goals and dreams. You won’t find everyone likes blue as I do – but for those who wish a change in their everyday life – or have decided what they do now to earn a living might be temporary or shaky — Allow me to give you a few insights into the world of a FULL-TIME REAL ESTATE INVESTOR. I’m qualified because I are one – even more so, ’cause I’ve made some seriousmoney doing it.
YOU NEED A WORKABLE PLAN TO BEGIN
If you tell me how old you are now – then give a reasonable amount of time to get you set up in the real estate business, I can come pretty close to telling you what you must do to arrive at the place you’d like to be and I can also give you a reasonable guesstimate about the income you’ll have at that time. This stuff is not brain science or rocket surgery – close is good enough, plus I will tell you I have many students who have proven my estimates to be quite conservative. Don’t ya hate it when they do better than their mentor!
MY SIMPLE PLAN – REASONABLE AND PROFIT ABLE
I decided to buy older houses and small apartments that needed fix-up. My reasoning was this: I can do much of the work myself Plus, I can buy them for much less cash down because there are fewer serious buyers for unsightly distress-type properties. I also thought, and it proved to be correct, than once fixed and cleaned up with a shiny new paint job — Older rental houses would command about the same rents as equivalent-sized newer houses. The same thing is true with the older rundown apartments, although I’ve always favored houses because tenants rent houses quicker than apartments.
It is not my purpose here to explain why my plan has worked out so well financially other than to say; BIG MONEY is made in real estate when you can consistently get the highest investment returns. Let me ask you a simple question. Which do you think is better: Buying houses for $50,000 each with average down payments of $5,000 and after fix-up, rents of $750 per month or — Houses that cost $140,000 each with $25,000 cash down payments and rents of $950 per month? If you own both kinds right now, you already know which are best. If you don’t know the answer yet, carefully study these numbers before you invest. Never forget, cash flow means survival, the opposite spells disaster.
HOW MUCH RISK IS TOO MUCH?
Once I decided where I wanted my plan to take me and after choosing inexpensive fix-up houses as the vehicle to get me there – I then considered how much risk would be involved. Shopping centers are high-risk properties. Land speculation is more like gambling. Bare land can go for years without any income or payback. Special use buildings like airport hangers, bowling alleys, auto factories and resorts can sink an investor quickly if the tenant moves out. You limit yourself to a very specialized group of tenants when you own “special use” properties. It’s dangerous for beginners who normally don’t have “holding power” (extracash reserves).
In my own case, I knew from the very beginning I could not stand many vacancies. Obviously, too much risk of any sort was not what I wanted or needed. Just imagine how long you could last if you owned a “seethru” office building in Houston during the last oil bust. Those buildings stood there for years with little or no rents coming in. Many rich tycoons joined the ranks of “poor folks” with no income to pay their mortgage payments. By the way, “see-thru” means you could look straight through those fancy glass windows from one side to the other because there were no tenants. You have an unobstructed view. That, my friends, is what I call high risk investing. Forget those kind if you’re starting out!
INVEST WHERE DEMAND IS HIGHEST
It’s very important to stay within your means financially and to acquire the type of properties you can personally handle yourself. If you do that, you can almost write off the risk factor. Inexpensive rental houses and small apartment buildings will always have long waiting lists of qualified tenants if you keep the properties looking attractive and in good repair.
According to Housing and Urban Development (HUD), about 60,000 lower income rental units are disappearing in this country annually. They are being tom down for urban expansion, condomized and some like the ones I buy just fall down. The reason they’re disappearing don’t matter much. The point is, they’re becoming scarce as hens’ teeth. In some cases I know of, the federal government is already subsidizing landlords who own what’s left. Certainly that makes as much sense as paying farmers to plow their tomatoes under – or feeding fat kids pizza and French fries for lunch under the federal nutritional lunch program at school.
Because they are scarce and in such high demand, the risk of owning and operating inexpensive rental houses is almost non-existent. That’s exactly what new investors need, non-existent risk — There are plenty of other things to worry about.
Once you have develop your financial success plan – you’ve decided where you wish to go – you’ve selected the vehicle to take you there, and you’ve decided to invest in properties with the lowest possible risk given your resources and abilities. You have completed the first step. Now you are ready to implement your plan. Don’t wait until you know everything about investing. You never will! Investment education comes mostly from investing. Obviously, you must learn all you can from reading, classrooms and seminars. However, unless you actually do some investing yourself, you’ll be missing the most important part of the learning process. Following is a list of 8 things you need to pay particular attention to as a career-changer who needs to get a payday as soon as possible.
1. Learn your local market. Know what properties should cost – what they can reasonably sell for. Learn how much rent you can get. Do this step before you buy – not afterwards.
2. Learn to spot or identify hidden bargains quickly – then act fast to acquire them. Remember, competition is keen. You must develop a sixth sense for “sniffing out” hidden money-makers.
3. Develop a business sense — Think like a retailer. This will help you to pay wholesale prices when you buy. Buying at retail prices and selling for retail prices simply won’t work. Don’t do it! It shows your wife/husband or significant other how dumb you are!
4. Invest – don’t speculate. Investing is a plan to make money. You must be able to identify exactly how you will do it. That’s why step one is necessary. Speculators are merely guessing without a plan.
5. Learn how to do deals where you have 100% control or nearly so. Basically this means owner financing with you doing the management. Avoid short payback notes and variable rate mortgages offered by the institutional lenders.
6. Learn how to live on tax-free or tax-sheltered income. Rents you collect are normally tax sheltered. Rehab loans, like Title Ones, are tax-free same as borrowing on equity or refinancing. When you collect $100 rent – you get to keep $100. When you earn $100 in wages – you keep only $70. Taxes eat up the money you can easily keep to benefit yourself.
7. Learn landlording firsthand – from doing it. Manage your own customers (tenants).Many inexperienced investors farm this function out to professional property managers. I consider this a serious mistake for new investors. Maybe it’s okay later on, but owners should know the job inside and out first.
8. Once you have developed a plan that works wee and consistently makes you money. Stick with it til it quits working. Most investors suffer this common weakness. We’re all suckers for a better mousetrap. Avoid the “to good to be true temptation” – it generally is.
Looking back now, I still wonder where I found the time to do all this stuff It sounds like more work than the job I left, but it certainly paid me back for all the effort I made. Let’s review what I told you earlier about a plan. First, I said you must know where you want to go. Obviously, you must direct yourself towards a target. In my case, I wanted to own enough income-producing real estate to support the lifestyle I had planned for myself. That meant I would need to own rental properties that would provide enough cash flow every month to pay all my expenses.
I remember at first $1000 every month was okay. Then $2000 seemed more appropriate. When that happened, I adjusted my goal to $3000, then $5000 and so forth. Remember, when you’re working your plan, adjustments and fine-tuning are perfectly all right. Also, don’t forget when you’re doing this stuff yourself, you’re also learning how to work much smarter! Working smarter means bigger paydays.
The second part of my plan involves — How to get there. This part is very important. You must choose a method for achieving your goals within your personal capabilities. This means financially and physically. You must know yourself first. Evaluate what you can do and what you cannot do. This is not the place to dream. In my own case, J had very little money saved. However, I’ve watched others start with even less. Money to start, as it turns out, is much less important than starting and staying with it. PERSIST ANCE WILL BE THE MOST IMPORTANT INGREDIENT OF YOUR PLAN.