If you’re “dead-bang” serious about real estate investing like I am — It’s time to “roll out” right now! There has never been a better time in 30 years or more to take full advantage of the current housing market. It’s a very simple proposition: if you own houses – and if you buy them right - your customers (tenants) will pay them off and you’ll end up a lot richer than you ever imagined!
Another thing that always seems to happen — A few years down the road, you’ll look back and see how smart you were! People are always telling me how lucky I am! Jay bought a bunch of houses when they were dirt-cheap! It was perfect timing, they say. I just grin a little! After many years investing, I’ve found that almost any time is the perfect time. The only thing lucky about my wealth today is that I jumped in headfirst and started!
With over 40 years of practice, I’ve perfected everything I do! I’ve become a very skilled investor. I pay the right price. I purchase only the kind of properties that will earn me money - and I buy them in locations where my tenants desire to live. Naturally, I must set the deals up to start with! I pay a small down payment and make the necessary improvements to add value. After that, my customers pay for everything else till I own the property free and clear! That’s fair, isn’t it? About all this lucky business they talk about — I’m totally convinced that good luck happens when you make the right decisions for yourself.
Speaking of decisions — If you’ve decided you need a little help or you’d like to improve your investment skills, take a quick peek at my latest book in major bookstores January 2009. The title, “INVESTING IN GOOD MINE HOUSES.” Chapter 1, THE MILLIONAIRES RECIPE, will show you how to change your luck forever – guaranteed.
There are many good reasons why fixers are the perfect properties to begin a real estate investor career. However, leading the list is CASH FLOW. Fixer houses by far offer the best opportunities for small-time investors, without, much cash to spend, to acquire real estate with minimum down payments and still achieve cash flow quickly. No other kind of real estate I know of will do it!
CASH FLOW QUICKLY
It is reasonable to expect - after paying an average of 10% down that one can create a positive cash flow property within a relatively short period of time after the purchase. Obviously, the time it takes will depend on many factors, such as how long does the fix-up take - how much market value is added to the property and most certainly, the skills and aggressiveness of the investor-fixer.
I have learned from experience - cash flow is much easier to achieve buying small multiple residential properties, such as 2 or 3 houses on a single lot, several duplexes with a house or two, or any combination of these cluster type properties. I own many properties with 5 to 8 living units each. They are excellent cash flow producers a year or so after fix-up. My timetable for a complete turn around is 18 to 24 months.
LESS COMPETITION
Anytime there are fewer buyers who want something in a particular market, your odds for success are greatly increased. Competition is what drives up prices. Conversely, the lack of competition keeps prices down. It’s nearly impossible to purchase prime real estate at a discount - or expect to get any sort of a break on the terms. The reason: Too many buyers are willing to pay the asking price. Why would the seller need to discount?
There are basically only 2 methods to buy real estate at bargain prices:
Method #1
Situations Situations where you are the only potential buyer who knows about the deal (no competition), and the seller is willing to accept your offer and terms without seeking outside bids (offers) from anyone else.where you are the only potential buyer who knows about the deal (no competition), and the seller is willing to accept your offer and terms without seeking outside bids (offers) from anyone else.
Method #2
Where the public knows about a property that’s available but cannot visualize its potential value - like after it’s all fixed up. They are therefore not buyers - only lookers.
Most students who seek my advice are not yet sophisticated enough to be in the information loop where they can benefit from Method # I. Two of the most common ways Method # 1 is used is by licensed real estate agents who buy their own listings - and by friends of probate attorneys who get a secret telephone call when an asset (real estate) needs to be disposed of quickly. In both cases, the public never finds out about the deal. Private deals avoid competition - therefore, the selling price don’t get bid up!
Method #2 is how most of my students will buy real estate. We shall focus in a market where properties are for sale. They are even advertised and certainly known to many potential buyers. However, 95% of all the potential buyers (the competition) see ugly rundown houses as junk- ~~ poor investment not even worth the asking price. Most will never make an offer and those who do will likely alienate sellers by insulting them with “low ball” offers. With 95% of the competition out of the game, the playing field is definitely tilted in our direction.
During my 45 years investing, I’ve struggled through 4 economic downturns at various hurricane levels, but this one is shaping up to be the best ever! Up till now, the Jimmy Carter presidency has always been my all-time favorite because Jimmy and his crew made me a $1,000,000 overnight. When folks ask me exactly how he did it, I’m still a bit in awe, but what I can tell you - having my name on the deeds to a bunch of duplexes was pretty much all I had to do. Jimmy’s runaway inflation did the rest. My property values doubled in hardly. no time at all.
WILL HISTORY REPEAT ITSELF?
Home sales have slowed to a trickle where I live. My state (California) has risen to the leader in foreclosures! Bankers are scratching their heads wondering why they wrote so many “liar loans” (no docs) for deadbeats and of course by now, everyone knows lenders Freddie Mac and half sister Fannie Mae are in the “dumper”. Meanwhile, the Wall Street bunch is mopping around totally baffled. They thought the problem was four-dollar gas.
Once again, the inflation sharks are circling faster than anytime since 1981. New construction (home building) is at a 17 year low and mortgage defaults are growing by the day. Of course, there’s some bad news too! Interest rates are still comparatively low - which means Jimmy’s record remains unbeaten for now - still, we’re hearing awful bad vibes on the street. The unemployment fund is nearly broke, major retailers are filing bankruptcies and there’s big problems still ahead for oil. When the interest rates finally bust loose - you can kiss 01′ Jimmy’s record goodbye!
WHAT’S A POOR INVESTOR TO DO, YOU ASK?
My quick answer is get yourself in position to become rich! After all, how many Jimmy Carter’s are out there? You can’t expect them to help you all the time! If you miss the boat this time, you’ve got no one but yourself to blame. You can’t get rich sittin’ at the intersection when the light turns green! This get rich formula hasn’t changed in over a hundred years. You must acquire income-producing (assets) real estate before the inflation dam bursts. You must have the vision to see the leaks now, and be prepared to act quickly!
It’s important that you seek out and acquire the kind of properties that will rise with the tide! If you’ll purchase investment properties that are already earning income today; they’ll automatically rise with inflation- quite similar to a toilet after you flush! The added value (appreciation) which accompanies inflation is the easiest money you’ll ever earn and it’s all tax-free when you keep the property. Imagine if you can, acquiring an income property where inflation automatically drives up the value and the income, while your mortgage payments stay the same. That’s exactly what Jimmy’s term in the White House did for me. It was the perfect storm then - and it’s about to make an encore.
One of the biggest joys that comes from providing seminars is meeting folks who share the same interest in real estate investing that I have. What is even more heartwarming to me is seeing the increasing numbers of family investors who pitch-in and work together as a: team on their income properties. Dad will often negotiate the deals, while Mom is charged with the bookkeeping, records and accounting. Teenagers must cut the grass, mend the fences and keep the family investment in good operating condition to make sure the income keeps rolling in every month.
One question that always arises — Can small-time operators actually earn enough money in real estate to make investing worthwhile? Many critics will claim that when you do something on a part-time basis, it generally ends up a lot more like a hobby instead of a profit-making venture! Amateur investors can’t possibly expect to compete with the many thousands of real estate professionals, they reason.
THE HORTON FAMILY INVESTMENT TEAM
My good friends and long-time subscribers to my newsletter are perfect examples of what family investors can achieve working together as a team. I first met Craig and Jane some years ago at a Southern Oregon rental housing convention. Both were very much involved with their local housing association, which was hosting the event. I mention this because the Horton family are doers! They don’t stand around on the sidelines, waiting for things to happen. The Horton’s make things happen, and obviously that’s why they’re successful family investors today.
Larry was just a teenager when we met and he was busy winning all kinds of awards at, the local St. Mary’s High School track team. While Larry was running and jumping at the track, Mom and Dad were busy running around town looking at fixer-upper houses and foreclosed properties owned by the local bank. Knowing Mama and Papa Horton like I do, I’d be willing to bet that no matter how many trophies, Larry won for his prowess on the track, he still never ran fast enough to out-run clean-up chores at the family rental properties. I’d also be willing to make a small wager that some of the rental income from the Horton properties found its way out to the University of Missouri, where young Larry received his higher education.
WATCHING THE HORTONS IS A RECIPE FOR SUCCESS
I began observing the Horton family investment team shortly after they attended my seminar in Sacramento, California many years ago — And I must tell you, they haven’t stood in one place very long! The Horton’s are either buying more properties or learning better ways to do it. In just a single year, they acquired seven properties, which included several HUD repos. I’m also aware that they’ve continuously attended educational seminars. And if that’s not enough, they still find time to take family vacations too! Although I can’t prove it, I don’t believe the Horton’s ever sleep!
It wasn’t too long after I met the Horton family that it became obvious to me that nothing short of lightening striking them down would ever stop them from achieving the goals they had set for themselves. For one thing, AND HOW VERY IMPORTANT IT IS, they both had very positive attitudes! Attitude controls everything we do. Most folks must train themselves to stay positive, but the good news is — Almost anyone who wants to, can do it! You can always pick out the winners by how well they handle their daily problems. Problems, big and small, are reduced to nothing more than routine stuff when you keep your attitude in a positive mode.
The Horton family are do’ers, not just talkers and procrastinators! Nothing in the world makes better fertilizer for growing a money tree than the owner’s shadow! Even though Craig and Jane continue to attend seminars to improve themselves, they don’t believe in just sitting around waiting till they know everything. The truth is, a good part of an investor’s education can best be acquired while working in the trenches,
Opportunities to acquire wealth building real estate have never been better for investors who have the vision and basic skills to charge ahead. While the “chicken little” disciples dance around on the sidelines waiting for the sky to fall, shrewd investors are busy pickin’ cherries off the top branches!
The big chase today is for the huge pool of houses dumped by their owners and foreclosed by the banks. Obviously, price slashing is the major attraction -BUT INVESTORS SHOULD ASK THEMSELVES -slashed from what? Inflated appraisals to begin with, may not be a sound starting point to determine true value.
When I invest my money, I insist on being able to project my profits and cash flow within a reasonable period of time. If there’s some reason I can’t, then it’s too much risk in my judgment. Having control over financing and terms (like with seller financing) eliminates most of the risk and guarantees I’ll make my profits. Without this control, the best I could do is guess!
At my HOUSE FIXER CAMP, I’ll teach you how to accurately calculate your cash flow and future profits. My specialty is adding value to unattractive rundown properties. When you visit my properties, you’ll see for yourself - ugliness is only skin deep and can be fixed very quickly when you learn what to do.
The big money is made by investors who learn how to specialize because it’s so much easier to beat out your competition! Following the crowd rarely produces any lasting wealth. Think for a moment - isn’t it always the groupies chasing the latest “get rich” fads, looking for overnight wealth, who end up in the dumper when the economy stalls?
If you’re dead serious about building a lifetime of wealth with properties that earn predictable cash flow year ’round, rain or shine, regardless of a sputtering economy - I can teach you how! You owe it to yourself, your family and your financial future to attend my HOUSE FIXER CAMP and learn for yourself how it’s done. You’ll be pleased with the results – guaranteed. For more information – Click Jay’s Seminars – Fixer Camp
Like most successful investors, I suffered through a probationary period! That’s when there’s almost as good a chance of going broke as being successful. What finally saved my bacon was when I started buying the kind of properties that would earn enough income to pay me every month. That might not sound like much to some folks - but to me, it was the discovery that kept my investment career alive - and my faith intact!
I can tell you from experience - buying the right properties, in the right sequence, makes all the difference in the world. If you’re like me, cash flow is always the biggest concern! It took me several years and some seriously overloaded Visa cards before I gave up the notion that average three bedroom, American dream houses would set me free! They almost broke me instead! Don’t misunderstand me here - I’m not saying they’re not a good investment - I’m saying they don’t provide any cash flow! My dream was to be a full-time investor and have my real estate support me.
BUYING THE RIGHT PROPERTY FIRST
When you don’t have a lot of money - and you need cash flow rather quickly, you must invest in the kind of real estate that will produce it. Single houses can produce it someday - but not until the mortgages are paid! If I was lucky enough to earn $100 per house, not likely with a mortgage - I’d need more houses than I could ever afford just to earn pauper’s pay. Fortunately, there’s a faster, better way!
The better way is to start with fixer-uppers first - and concentrate on cash flow. With fixer properties, you can force the value up with sweat equity (yours or somebody else’s). With fixer properties, you won’t get stuck in a holding pattern, waiting for appreciation or a turn-around economy. This is very important, if your goal is to create wealth during your lifetime so you can enjoy it yourself!
BUILDING WEALTH DURING YOUR LIFETIME
Once you have a few dollars to jingle - and a respectable cash flow, you are now in a position to acquire quality houses, so long as they’re close to break even. I could never move forward very fast until I figured out the sequence! Go for cash flow first - quality houses, second! At my Fixer Camps - this is what I’ll show you how to do.
Fixer investors also enjoy another major advantage over all the other investors because there’s no up and down cycles to slow you down. Unlike the general housing market, the fix-up strategy never changes regardless of what the economy does. Although I currently own a number of American dream houses now - I don’t mind confessing - my fixer properties bought every single one of them! Join me at my next House Fixer Camp, September 19 - 20 21. I’ll teach you how to do the same thing yourself. Call right now to reserve your seat–- 1-800-722-2550.
The best way to begin your search for Mr. or Mrs. Right is to visit the local real estate offices in the area where you plan to invest. Ask the receptionist if she knows which agent sells the most apartment buildings or income properties. Get yourself introduced and tell the agent exactly what you’re trying to accomplish. The interview will be your opportunity to learn what the agent thinks he can do for you!
But remember, he must know exactly what you want done in order to respond in a meaningful way.
Just like a budding romance, the first thing that has to work is chemistry! It will do you no good in the long run to force yourself into working with an agent who disgusts you no matter how good you think he or she may be. Obnoxious agents are best left to service obnoxious house buyers since there’s no shortage or either one out there! I mention this because it’s very important to develop a relationship that can last a long time. Lasting together is much easier when you like each other.
AGENT’S KNOWLEDGE ABOUT THE DEAL IS THE KEY
Try and be as specific as you can. In my situation, I’m interested in “fixer-type”, rundown properties. I prefer detached houses on a single lot. For example: 10 or 12 older houses on an acre of land would be something I’m very interested in. I’m, also looking for properties with owner financing I’m particularly interested in properties that have several private notes or mortgages that I can assume. Deferred maintenance (rundown), problem tenants and properties that need major clean up are my specialty. I wish to avoid new bank financing whenever possible and I’m trying to purchase properties with 10% cash down. I can also add notes or other properties in trade.
This description about what I’m looking for and my special preferences should be enough to give most any agent a fairly decent idea of what I’m in the market for. Naturally, the price will have to fit the deal, but don’t ever forget; the asking price seldom has much to do with the final purchase price, particularly in the fixer business.
TRAINING YOUR PERSONAL AGENT PAYS OFF
A good agent will do “weeding out” for you automatically once he or she becomes accustomed to what you really want. Fred always brings me everything I need for making an educated evaluation on each deal. The information provided is normally A PROPERTY PROFILE, copies of EXISTING PROMISSORY NOTES and either a filled out INCOME PROPERTY ANALYSISFORM (the kind in my fixer house book), at least the necessary data to fill one out. He verifies rents, vacancies and liens. This is valuable “time saving” work for an investor, yet it’s needed before any intelligent buying decision can be made. All this stuff takes time and it costs Fred money. The only way he gets paid back is if I buy the property.
Fred don’t make a lot of dry runs. He knows what I want and determines quickly if a property has the right stuff. How did Fred get so smart? How did he ever learn this detective business anyway? When Fred and I started, we spent a lot of time discussing what I wanted! Investors must be very clear about which properties they will buy when one comes along; otherwise agents will attempt to show them everything.
NEVER SEND YOUR AGENT ON WILD GOOSE CHASES
Agents won’t hang around you if you’re just a LOOKY-LOO. That’s a person who wants to see everything but nothing ever seems to meet his approval. No agent worth his salt can afford that nonsense! Fred works for me for one simple reason — It’s profitable! He knows I can close fast if he does his job. Fred’s job is to know exactly what I will buy. He don’t call me about every property for sale in my town. A good agent will immediately qualify the property to determine if it has potential. Fred knows I don’t normally want deals where new bank financing is required. He also knows I want sellers who will carry paper and that I rank small “leper-type” properties, like 4 to 6 houses on a single lot or a bunch of ugly rundown duplexes at the top of my buying list. When he hears about these kinds of properties, he acts quickly!
Real estate agents are the EYES and EARS of the real estate business! 96% of all sales and trades involve licensed sales persons and their brokers. It would be very foolish indeed to harbor any serious notions about excluding them from your investment plans. The best thing you can do for yourself is to diligently begin searching for a good one.
Many investors like myself start out buying real estate to either keep for rental properties or to hold just long enough to re-sell at a reasonable profit! A large percentage of investors will find it necessary to carry back mortgages (promissory notes) for much of their equity in order to facilitate sales. Obviously, it’s much easier to sell properties when the seller offers good owner financing. It’s also easier to “jack up” the price when good terms and seller financing are offered!
As a result of these “carryback transactions” — Many small-time investors end up with “big time” note payments coming in after they sell all their properties. It’s kind of like a natural progression for investors — Transitioning from active daily management to a once-a-month trek to the mailbox!
HOW TO LIVE LIKE A KING ON A $1600 PENSION
A friend of mine, named -Sheldon, bought houses while he worked for IBM fixing computers! Sheldon recently sold his last two 4-unit buildings. He retired from IBM nearly two years ago. His retirement check from IBM is $1600 per month. His carryback notes from investing are $9,500. Sheldon will be the first to agree — Note payments coming in every month are very green indeed! Sheldon claims the note payments spend just as well as the IBM checks!
The bad news about selling all your properties with carryback financing is that you might not be in a position to pay all cash to buy a yacht, but the good news is –It won’t matter very much because they’ll sell it to you anyway. Exactly the same way you sold your houses!
ADDING EXTRA SAFETY TO SELLER CARRYBACK NOTES
It’s extremely important that you protect your backside when you sell properties and carry back the financing! This is very important because you don’t want to lose big bucks takings back (foreclosing) a property if the buyer can’t collect his rents and allows the houses to get trashed! This is the biggest concern for investors like myself who specialize in selling at tip-top prices with low (10%) down payments and easy-pay monthly terms. In order to protect myself, I use what I call my “2-FER” PROTECTION PLAN. The name comes from the 2 for the price of 1 sales used by major department stores to entice buyers! For example, stores will offer 2 pair of men’s jeans for the price of only 1 pair. The store jargon for this type of sale is a 2-fer sale.
Basically, what I need in exchange for selling properties with low cash down payment and EZ customized terms is more security! I want additional collateral, besides the property I’m selling. This can be easily accomplished if my buyer owns other real estate with equity and is willing to allow me to place a temporary mortgage on that property!
Most buyers, particularly “first timers”, are willing to accept this condition in exchange for the liberal purchase terms I offer! I have even recorded several additional collateral mortgages on the homes of my buyer’s parents! Obviously, it takes some convincing, but it generally always works. Here’s how a conversation might sound when I’m explaining the proposition to a buyer.
STICK TO THE FACTS AND SELL THE PLAN
Look Mr. Buyer, I’m more than happy to sell you my choice property (remember folks, I only sell fixed-up properties that look good), for very little money down! (Usually 10%) And, I’m also perfectly willing to give you good seller financing with payments you’ll be able to handle every month! I want you to be successful after you buy the property from me. The last thing I want is a messed-up property back! Now here’s my problem — 10% down is not really enough to protect me if things don’t work out for you! It could easily cost me 10% and more if I had to foreclose and fix-up the property again! What I need from you, Mr. Buyer, is a little more protection.
Let me suggest a plan that won’t cost you a dime! I will place a temporary mortgage on your residence (or other suitable property) for the amount of $50,000. There will be no payments and no interest charges on this mortgage! After you make 60 payments on my carryback note, I’ll instruct the title company to automatically remove the mortgage on your home! In other words, Mr. Buyer, you’ll be pledging an extra $ 50,000 worth of security to assure me that you will keep your promise to make the payments on my property — At least the first 60 months anyway!
BUYERS CAN BENEFIT BUT THE SELLER GETS PROTECTION
In case you’re wondering why would any buyer do this, the reason is quite simple. They will do it to get the low down payment deal with my EZ pay seller financing. After all, if my buyer does nothing more than what he promises to do anyway - the extra mortgage can do him no harm. If he doesn’t, however, I can foreclose on two mortgages instead of only one. Remember, the 2 pair of jeans for the price of one! Just substitute mortgages for jeans and you’ll fully understand how my 2-fer plan works to protect me.
I have no set rules about 60 months or $50,000 worth of additional collateral! You will need to evaluate your own level of risk. There are some situations where taking back a property would be beneficial to me - others not so. In almost all situations I would come out ahead if I were forced to foreclose on both mortgages. As a practical matter, if the buyer of your property turns out to be a flake, chances are you’d be paid the $50,000 added collateral amount and get your sale property back.
Fixer Camp is where it all started for Dan. In fact, he’s attended 3 times since 1991 — And no, he’s not mentally challenged! If he is, he’s the richest “challenged” investor you’ll ever meet. The truth is — Dan was brand new when he first showed up! Twenty years working as a computer salesman is not exactly the perfect background training for a real estate millionaire.
“Earning a predictable income has always been very important to Dan - he now earns income around the clock - even when he’s sleeping.
Dan’s investment career took-off like wildfire after he attended a Fixer Jay Seminar in the early ’90’s. With many income-producing houses under his belt - any worries about his financial future have all but faded away. Jay recently asked Dan to share some secrets with Mom and Pop Millionaire Blogger’s. Dan recalls his Miller Street property.
Click on the video below for a brief introduction to Dan Shea:
Some people try to avoid problems in their lives. However, I will suggest to you, that in the world of real estate investing, finding and solving problems can put money in your pocket. Remember, problems usually will cost the property seller a lot of money. However, as a buyer, problems can be disguised opportunities. These problems don’t need to be so big that you need engineers and heavy equipment operators to fix. You will be able to fix them for only a few dollars. These will be problems that others overlook or choose not to address.
Most homebuyers are NOT investors. They are looking to buy nice trouble-free homes. They will tend to run away from problem situations. I am not talking here about Junker fixer-upper houses. I am referring to simple entry-level houses, at the more affordable end of the marketplace. Find problems that others avoid that you can fix and make better.
FLAT ROOF, CLOGGED DRAIN, BAD FLOORPLAN AND A DUMP NEXT DOOR
How appealing does that sound to you? Well, I bought my Miller Street house with these problems. It was about 40 years old. It was listed as a 2 bedrooms, 2-bath home with an “extra room and bath in the rear”. It was vacant, and in OK, but dated, condition on the inside. It had a flat roof. Older houses in this area, with flat roofs, tend to get very hot inside during warm weather. The real estate agent also told me that the neighbors informed him that roots, from the big tree in the front yard, periodically clogged the main waste line.
Over the years, someone added a bedroom and a half bath to the back of the house. But the problem was that you had to go outside of the main house to get access to it. And finally, the house next door was a big eyesore- A REAL DUMP. It had piles of junk and old cars on the front lawn, the siding was falling off, roof shingles were missing, and it was painted an ugly rust color.
This house was actually listed with a real estate agent and had been on the market for 24 months when I first saw it. This is what you call a STALE LISTING in the real estate business. Agents had pretty much stopped showing it to clients. They just did not want to waste their time. Why did I want these problems? Because I could see the profit in it for me. I could fix and rent the house, problem-free, to a nice family. There were not expensive structural problems and the overall fix up costs seemed to be minimal I figured that for $3,000 to $4,000 I could solve most of the problems with the house and make it more desirable and profitable.
FOR ME IT WAS LOVE AT FIRST SIGHT
Here is what I did after I bought the house. Flat roofed houses retain a lot of heat. I took out the small inefficient window air conditioner in the living room. These tend to cool only one or two rooms and do not cool well if it gets too hot outside. I then cut a hole in the living room wall and had a big evaporator cooler (swamp cooler) installed. This cost about $700. The new cooler blew lots of cold air in to cool down the house. I then had the main sewer line snaked in the front yard to remove the roots of the big tree. I could have dug up the lawn and replaced some of the pipes, but the snaking was a more simple way to go. I did realize that I would have to have this done at least once a year for a cost of about $100 each time. Maybe some day I will get around to replacing part of this line. In the meantime, my tenants are happy.
I camouflaged the ugly house next door by having 40 feet of wooden fence installed on the property line in the front yard (the back yard already had a wooden fence hiding the eyesore next door). This cost about $600. The neighbor’s ugly house was still there, but it was hidden a little by the new fence. Keep in mind, that if you were looking to buy this house, you may not want to live next to an ugly eyesore. However, renters will look at the same situation differently. They want a nice place to live, but are not concerned with issues that affect the property values in the neighborhood.
K.I.S.S. — KEEP IT SIMPLE STUPID
Now I had to address the next question, “How do I solve the flawed floor plan”? Remember, you had to go outside to get access to this extra bedroom and half bath. I came up with a simple idea that required about $400 for a door and a little labor. I cut a hole in the bedroom wall of the main house that gave me access to this extra room. I had a pre-hung door from Home Depot installed and painted. This door came with the hinges and door jam in one piece. The “back” bedroom and bath were now part of the main house. Yes, now you did need to go thru the bedroom in the main house to get to this extra bedroom, but my tenants have never complained.
I also did one other MONEY MAKING FLOOR PLAN CHANGE. The attached garage in this house had previously been converted to a family room. Since the house already had a good size living room, I converted this family room to an additional large bedroom. I put in a closet with some nice, inexpensive, sliding mirrored-glass doors. For about $800 of labor and material I now had ANOTHER BEDROOM. My original 2-bedroom house now had 4 bedrooms. Keep in mind that I did not add any new walls or change the footprint of the existing house. I was just looking for ways to increase the value of my investment QUICKLY. Adding an extra bedroom in an existing floor plan can mean MONEY IN THE BANK FOR YOU.
The major problems of this house were addressed and the cost was very reasonable. For the expense of a cooler, a plumber, a pre-hung door, a little fencing and some closet doors, the problems are now gone or at least addressed in a satisfactory way. Remember, that MOST PROBLEMS ARE TEMPORARY and probably not as bad as you may think. With a little creativity you can get rid of them and put money in your bank account at the same time. You will start to get good at identifying problems that you can inexpensively fix. You will actively start looking for them, because you will get more confident as you solve them. Once again, the MAJORITY OF BUYERS ARE LOOKING FOR HOMES WITHOUT PROBLEMS. You eliminate a lot of competition by looking for problems that OTHERS ARE TRYING TO AVOID.
FORCED APPRECIATION CREATES PROFITS
When I bought the house it was 2 bedrooms, 2 baths home, with a separate bedroom and toilet in the rear listed for $55,000. I simply turned it into a 4 bedroom 3 bath home that at the time, in that neighborhood, in that condition, was selling for about $90,000. This $90,000 is NOT BASED ON MARKET APPRECIATION. It is just the approximate value of the house at that time if the problems we have been discussing were addressed. My cost of fix up was about $3,000 ($700 for the evaporative cooler, $100 to snake the pipe in the front yard, $600 for front fence to hide the neighbor’s ugly house, $400 to punch a hole in bedroom wall and add a door to get access to the bedroom in the back, $800 to change the family room into a bedroom and about $400 in additional painting).
This $3,000 increased the value of this simple rental house by about $35,000 ($90,000 worth for a simple 4 bedroom, 3 1/2 bath house, less the $55,000 that I paid). Not a bad paper profit for a relatively simple and quick project. Not a lot of labor, not a lot of materials JUST A FEW SIMPLE, PRACTICAL IDEAS. These were all things that were done right away and did not involve anything very complicated. We did not have to change or move any electrical outlets or plumbing.
You do not have to be a contractor or be much of an expert at fixing things to actually solve problems. In fact, to give proper credit here, most of the problem solving ideas for this project came from my handyman. You see, he fixes things EVERYDAY FOR A LIVING. He looked at my problems as an ORDINARY DAY ON THE JOB. If you have a challenge that you can’t solve, ask your contractor, handyman, plumber, fellow fixer, the clerk at the hardware store, etc. You don’t need anything too complicated to make money-solving problems.
IF THIS IS SO SIMPLE AND PROFITABE, WHY DOESN’T EVERYONE DO IT?
The answer to this question, as it relates to the Miller Street house is, “BECAUSE THEY JUST DON’T”. This property was on the market for 2 years. No one saw, OR ACTED UPON, finding solutions. Yes, it turned out to be profitable, but no one else did what I did. I said earlier that one did not need an engineer or heavy equipment operator to solve the problems with this house. Other people saw the same problems, choose not to address them, and went on to find a different problem free house.
YOU WILL BE PAID WELL TO SOLVE PROBLEMS.
Look for old, stale listings. Ask your real estate agent or look in the classified ads. For a profit of $35,000 like this Miller Street house, you can afford to spend some time looking for a similar deal. You need to CHANGE YOUR MINDSET ABOUT PROBLEMS. If you are looking to buy houses without problems, you are competing with the MASSES looking for ‘nice houses”. If you are actively looking for properties PROBLEMS, you are ON THE WAY TO MAKING SOME SERIOUS MONEY.
About once a month or so I get the opportunity, to go out and visit one of my investor students (subscribers to my one-an-one counseling service). Most students tell me they find my visits extremely helpful and beneficial to them! It’s probably because they have a chance to show me what they’re doing on their hometown turf! Others are looking for a little extra push from me, I’m sure — And some simply want my opinion on a particular property before they sign the deal.
I know people tired of my saying this, but I feel it’s worth repeating just as many times as it takes! THERE IS NO VALID REASON TO BE IN THE REAL ESTATE INVESTING BUSINESS IF YOU DON’T MAKE A PROFIT! Losing money is not fun, and it’s especially a bitter pill to swallow when you do it five or six years before realizing you are. By the way, this is quite common in case you’re wondering if it really happens! When you jockey tenants around for some time and then suddenly discover one day it’s actually costing you money every month, you’re not going to be a happy camper either.
Okay, okay I agree with you Jay — But- is there supposed to be some special message here? The answer my friends is yes - yes there is, so we’ll cut to the chase and get on with stuff that really counts.
BUYING WHOLESALE - SELLING RETAIL
Buying older rundown houses cheap, then fixing them up for a profit has been an excellent moneymaking, low risk investment plan for many years now and it remains the same way today. Obviously, we’re not blazing any new trails here! And thankfully, it doesn’t take a math major from Stanford to get it right — Believe it or not; it doesn’t even require a computer, not even a cheap one! What is required is plain old common horse sense. Horse sense says, you mustn’t spend more than a reasonable retail marketplace can pay you for your finished product or service! This means with rundown houses, you must not spend your fix-up budget for things that don’t pay you back in a reasonable period of time. See how easy this stuff is! Don’t agree with me - it’s really not, but it can be done by almost anyone who learns what to do. The key here is, do exactly what the marketplace requires and spend only what your customers (tenants or buyers) are willing to pay for.
All fix-up work should pass some financial scrutiny! Does it really need doing? I believe most improvements should be justified on the basis of paying for themselves I expect the payments to come from higher rents or bigger profits as my reward for doing the work. Fixing or changing things around purely, on the basis of personal likes and dislikes will seldom provide a justifiable “mark-up” (profits). Those kind should be avoided. This happens to investors who quickly charge forward without a plan. It also happens to folks who fall in love with investment property I advise you — Be very careful and avoid these two common pitfalls. Remember, fixing up dumpy-dirty houses is not glamorous work. But, if you do it right, you can double your money faster than anything else I know of.
FIX-UP SIZZLE OFFERS THE BIGGEST PROFITS
Let me take a moment to say that all rundown properties must be brought up to basic minimum building code standards before you can expect them to generate income. That’s a must rule for all investment properties.
When I talk about fixing for dollars, I’m primarily referring to what I call, “SIZZLE ITEMS”. Things like white picket fences, fresh paint, window coverings, ceiling fans, wallpaper, new plastic countertops (Formica), attractive floor coverings, planters, shower curtains, decorative porches or entrance doors, trees & shrubs, green lawns, modern toilets and new plastic shower enclosures.
The reason I call these SIZZLE ITEMS is because they are attractive and eye appealing, as well as useful. SIZZLE ITEMS seldom have anything to do with code problems. For example, an old dingy carpet will pass a code inspection; same, as bright new carpet will! Trees and shrubs have nothing to do with codes or safety and neither does curtains or ceiling fans. What these items have is lots of customer appeal. This appeal translates into more dollars at the box office, aka (my rental office). The very same appeal makes selling properties much more profitable because they look much better.
RENOVATORS - REMODELERS - THERE’S LIGHT YEARS OF DIFFERENCE
I discovered years ago, there’s no inexpensive method to turn older houses into new homes. Many armature fixers try to accomplish this task only to find their bank account disappears faster than the house changes. Herein lies the most important difference between what I do and what remodelers and renovators to. Believe me, it’s a very expensive difference too!
Often remodelers will replace entire plumbing systems with all new piping; sometimes they have the entire house rewired. They tear out old flooring and replace floor joists and girders. They replace wood windows with new metal frame styles. Some will even jack a house up to level it. That means they must also fix all the cracks and often redo the stucco exterior. Don’t do fix-up this way. Unless money is not the object –You’ll lose your shirt if you do.
Since older houses are not the same as newer ones, don’t try to make them so. Instead, try to capitalize on the marketable features not found in the modern-day construction. Older houses quite often radiate charm — A homey feeling! High ceilings, woodwork, large porches, yard space, old windows (dressed up), evaporative cooling with separate heating, storage sheds and separate garages and more often than not, mature shrubs and trees. All these items can add to the charm of older buildings. Add a freshly painted white picket fence after everything else is cleaned and “spruced up” — You’ll have lots of customers — Renters or buyers, depending on your investment plan.
THE WOMEN’S INTUITION SHOWS UP
Fixing houses is also a very equal opportunity business! The job is not the least bit gender sensitive, with perhaps one small exception. I think women understand living space better than most guys I’m acquainted with, for example, cupboards and closets, cabinet space and electrical outlets in the bathroom my male fix-up crew often ignores or overlooks the importance of these items. Later they are called to my attention when a female renter calls to complain about only one cabinet or not enough electrical outlets for all her bathroom goodies! Women seem to have a natural instinct when house remodeling is involved and I suspect this comes from their homemaking abilities. I have caught my fix-up crew building a bedroom closet just large enough for 3 wire hangers. Women fixers seem to know better than that.
Since almost every problem can be patched up, repaired or replaced by skilled mechanics, it becomes necessary to further qualify fix-up work in terms of the economics, “How much will it cost?” This information will help you decide how much work is too much — And
when it’s best to simply pass over the deal and move along to the next one. The fix-up investor must be concerned with fixing for profits. Not just fixing! This is a very important concept. One you must never forget! The two worst mistakes for beginning fix-up investors are OVER-FIXING and FIXING THE WRONG THINGS.
THE BIG MONEY COMES FROM UNDERSTANDING ECONOMICS
In order to determine what to fix, you must first answer two simple financial questions. First, what will it cost to complete the items you propose to fix or repair? Second, what will the fix-up value be after the work is completed? Cost and value knowledge is critical whether you intend to keep the property for rental income or sell it quick for turn -around profits.
For example, let’s say you purchase a fix-up property for $65,000. Assume the property will have a market value of $89,000 immediately after your fix-up. You can easily see’ that fix-up costs, vacancies, operating expenses and selling costs cannot exceed $24,000 or you’ll lose money on the deal. Again, let me repeat — The same economics apply whether you plan to sell or keep for rental income. $24,000 equals 27% under the market value and that might not be enough! Your job is to know before you sign the deal.
CHANGING LOOKS IS ALWAYS THE FIRST PLACE TO START
It’s not by accident that I always begin my fix-up projects in the front yard. I’ve seen professional appraisers value identical houses as much as $20,000 difference because of plain old filth and junk on one property. In other words, a clean house is worth $20,000 more simply because the owner hauls away the trash and keeps the house looking nice. Think about that for a minute! That’s an awful lot of money for ordinary clean-up skills. Suppose it takes a whole week (40 hours) to haul away garbage and clean up a property — That’s $500 an hour, or nearly as much as a brain surgeon makes on his coffee break!
I haven’t mentioned location here because that’s another entire discussion. However, let me just say this. Don’t buy property near the Beirut Airport or in locations where you’ll need a Bradley armored vehicle to drive through the neighborhood. It’s not that you can’t make money in a combat zone! Because you can! The reason is this — Houses like I’m recommending are not scarce in decent areas once you develop your “star search” network. Bad areas are simply not worth all the hassle. Save your energy for painting and my foo-foo techniques.
Before you purchase your next fixer property, spend some time on the property by yourself with your, pen and legal pad in hand. I want you to list everything you think requires fix-up or repair. Don’t rush! If several units are involved, write up each one separately. Later, we’ll add cost $ numbers. This is time very well spent because now you are developing a job cost, as well as formulating a reasonable plan of attack. At least 95% of all so-called house fixer investors don’t do this simple act. When you follow my advice, you will only represent 05%, but you’ll be in the profitable group!
This course will show you how to sell houses for top price in any real estate market regardless of what the economy is like.
Jay's lease option technique is different than most because it solves the two biggest problems facing every lease/option customer - namely, how to get the down payment together - and, qualifying for a new mortgage when it's time to purchase the property.
