Written by Jimmy Moncrief
Most people want to invest in real estate and own rental property to increase their passive income and net worth.
What holds people back is that they feel as if they don’t have enough money to get started investing in real estate.
Most people have heard of the old saying “It takes money to make money”, but I challenge you to reconsider that belief.
Here are seven strategies to help you get started the rental property business.
1. “War Zones”
You can buy houses in Detroit all day for between $25,000 and $35,000. These properties generally rent somewhere between $600 and $800 a month.
The downside: These properties generally have maintenance issues.
I know, however, at least five investors who started with less than $20,000 and now own over 100 rental properties after buying in “war zones.”
2. Tax Liens
When you don’t pay property taxes for a year, your house can get foreclosed on by the local county government (or whoever is in charge of collecting property taxes). Generally speaking, counties don’t foreclose unless there is at least three years of unpaid taxes.
You buy the lien in this investment strategy (not the property). If the owner pays the lien, you get the money you paid for the lien back plus interest. If they don’t pay, you own the property after a year.
Sound too good to be true? It’s not. I know several people who have done this and have made some decent money.
The downside: There’s a lot of time involved with analyzing the liens and going through the process of taking ownership of the land. You also need to make sure you’re researching any title issues with the property. Most properties are tear-downs or land that is not build-able.
If you pursue tax liens, you might have better luck in rural areas. Major investors focus on large metropolitan areas and bid up the price to make the returns uneconomical.
3. Tax-Delinquent List
This strategy has you finding motivated sellers by searching your county property’s website for delinquent taxes. Here, you can even focus on high-end properties.
Every county is different, and some counties don’t even have a website, but here is typically how you’d go about your search:
- Find several streets in an area where you want to live.
- Search the county’s assessor of property website for those specific streets.
- Put in a spreadsheet of properties that were over two years behind on taxes.
- Write a letter to all the owners.
The downside: People who live in million dollar houses might be dismissive of you. Many might call you back, but it’s probably unlikely that most will want to address the property tax issue directly with you.
4. HUD Homes for Sale
You can search foreclosed homes on HUD’s website.
But how are you supposed to buy these homes with $10,000?
Here are two ways:
- Get a private loan for the rehab and the purchase. You can get private loans from a variety of sources, such as people you know and/or people who lend on individual real estate properties.
- Use bank financing and order the appraisal subject to completion. If the appraisal shows that you will build a significant amount of sweat equity, then the $10,000 down will probably be enough at closing. This depends on the purchase price and the lender.
The downside: There is a fair amount of paperwork and a lot of technical paperwork when buying a HUD foreclosure. And there is generally a lot of repairs to be made on these properties.
5. Eviction List
This is an underused source for deals. Going to eviction court is a great way to meet landlords who have had enough of the rental business. They are likely to sell using seller-financing. There are a lot of benefits with this strategy, as you can craft your own financing terms. Additionally, you likely have a very motivated seller, so you can purchase the property at a discounted price.
6. Property Management Companies
Property management companies are another source of deals. The property managers know owners’ intentions and whether they plan on selling. Additionally, they generally know how “motivated” sellers are.
Look on property management company websites. If they have a vacant property, particularly one that’s been vacant for a long time, look up who the owner is and call the owner or call the property manager to ask about the property.
This strategy allows you to go big early on. Maybe you know four people who can contribute $22,500, which gets you $90,000.
You contribute $10,000 for a grand total of $100,000.
Put the money in a LLC. Each person will own 20% of the company. The reason you didn’t have to contribute as much as the investors is that is you charged a deal fee for finding the deal and structuring all the work on the front end (finding the property, doing due diligence, financing with banks, and setting up a legal organization).
Many large multifamily investors use this strategy and charge the LLC a property management fee.
You can now buy a $500,000 apartment building with the $100,000 you raised by getting a $400,000 bank loan. Structure the bank loan so the property is able to cash flow with you being able to pay the loan to zero within 10 years.
Assuming zero appreciation and cash flow, in year 10, you will turn that $10,000 into a value of $50,000. Plus, you will have passive income from the apartments.
Credit to Jimmy Moncrief
Jimmy is a multifamily real estate investor and bank credit officer. He has written a complimentary bank negotiating guide on how to get around the 80% LTV rule
Written by Chris Deziel
Hardwood floor maintenance is a snap, and easier than up-keeping carpet. If fact, a minimalist approach is not only easier for you, it’s actually better for the floor.
Whether your floors are real hardwood or laminate, it’s important to keep them free from gritty dirt that can scratch the finish. Beyond that, your floor should need only an occasional wipe down to keep it as shiny as the day you moved in.
Floor maintenance is critical if you expect to get your full security deposit back at the end of your lease. If your floors that have been finished with some type of polyurethane — which is most of them — they do not need waxing.
Here are six ways to protect and maintain hardwood floors.
1. Clean the Finish — Not the Wood
It’s rare to come across floors that have been finished with shellac or alkyd varnish, but if the floor in your rental unit is one of them, get specific cleaning instructions from the landlord when you move in.
In most cases, you’re cleaning polyurethane, an inert layer of durable plastic that’s water- and stain-resistant. Polyurethane, however, is vulnerable to microscopic scratches from dirt ground in by foot traffic.
2. Vacuum Regularly; Mop Occasionally
Even if you observe a shoes-off protocol, it’s a good idea to vacuum at least once a week. Use a soft vacuuming attachment, and leave the beater bar off. (The beater bar, while great for carpets, scratches floor finishes.) Don’t cut corners: lift the floor mats — otherwise knows as gritty dirt magnets — and vacuum underneath them.
Water is a universal solvent that dissolves scuff marks and stains, but it’s an enemy to hardwood floors. If left standing, it can dull the finish and create spots. Even worse, it can seep between the boards and wreak havoc on the wood, causing the boards to warp.
A microfiber string or pad mop with most of the water wrung out is best. Dry the floor with a non-abrasive cloth after mopping.
3. Use a DIY Floor Cleaner
Commercial hardwood floor cleaners are safe and effective, especially if you use one recommended by the manufacturer of your flooring. You probably don’t need one, though, because you can make a pH-neutral cleaner that does the job.
To make floor cleaner, mix the following ingredients in a bucket:
- 2 gallons warm water
- 1 ounce dish detergent
- 1/2 cup vinegar
Vinegar is slightly acidic, which is why it’s a good cleaner. But not every floor manufacturer recommends using it because it could dull the finish. Minimize that from happening by applying the cleaning solution with a damp mop, rinsing with clear water, and drying the floor immediately after mopping.
4. Get Rid of Stains on Hardwood Floors
If you have pets and kids, your floor will likely wind up with super stains, stains so powerful that an all-purpose cleaner can’t even remove them. The trick to handling tough stains is to find a solvent that can dissolve them without damaging the floor finish. Here are three:
- Isopropyl alcohol (rubbing alcohol): removes juice and wine stains. Moisten a rag and dab or rub. Stop immediately if the finish turns soft. That means it’s shellac, and you need those cleaning instructions from your landlord.
- Acetone (or nail polish remover): the go-to solvent for paint and lacquer stains. It will also handle some juice stains. Pour it on a rag — never directly on the floor — and dab.
- Hydrogen peroxide: rids your floor of some pet urine stains and the resulting blackening of the wood (as long as the spots are fairly small). Moisten a rag and leave it on the stain for a couple of hours.
Got white spots caused by standing water? Cover them with petroleum jelly, olive oil or mayonnaise. Then put a paper towel over the stain and wait overnight. The oils will seep into the finish and replace the water. In the morning, the white discoloration should be gone.
5. Avoid Sun Damage
Direct sunlight fades floor finishes and darkens the wood. If you get lots of sunlight through the windows, change the positions of your rugs and the furniture periodically to avoid transition lines caused by sun exposure. If the sun shines on a particular area of the floor every day, use curtains or shades to block it.
6. Try DIY Restoration
Refinishing the floor or restoring the finish is usually a job for the landlord. If your floors need this treatment when you move out, you could lose your security deposit if you damaged the floors more than simple wear and tear.
It’s possible to do a quick restore yourself using a floor restoration product. The procedure is simple: clean the floor and spread the product according to the directions.
But if that doesn’t work, and you damaged the floor, the money to fix it will probably come from your security deposit.
Credit to Chris Deziel
Chris has owned and managed 4 rental properties in Santa Cruz, CA, and Salida, CO and is a DIY handyman expert for popular sites like RedBeacon.
In examining how the Internet of Things will change the way people buy, sell, and manage property over the next few years, it’s clear that the universe of Internet-enabled devices and beacon technology could also change the way the industry organizes itself.
In case you missed our print feature examining the Internet of Things (or IoT) and real estate, here’s a quick recap of how this technology works: Smart devices record and transmit data in a variety of ways, and many of these devices are focused on improving consumers’ interactions with homes and businesses. One familiar example is the Nest thermostat (created by a company recently purchased by Google). This device allows users to control the HVAC system of a home remotely, using a smartphone. But for a device to be truly “smart,” it needs to be more than a glorified remote control. The Nest learns a household’s schedule and programs itself based on its owners’ habits. Individual users can set baselines about how much water or electricity they want to use, but the device can also coordinate these commands with data from the National Weather Service or a city’s electrical grid to help conserve energy and save money. Beacon technology is another facet of the IoT world. These small devices, usually powered by Bluetooth low-energy technology, can be mounted virtually anywhere and transmit information about the environment to nearby receptors (usually to mobile devices via app software).
Organizations can also use this emerging technology to better serve members and event attendees. Beacon technology has already been used to enhance trade show and meeting experiences at the Las Vegas and San Diego convention centers, among others. Beacons can deliver location-based information to visitors, gather audience feedback in real time, and offer smarter, faster ways to register for and network at large gatherings.
Just as increased information about homes captured by Internet-enabled devices can help listing agents market properties better, and just as environmental data captured by municipal smart devices can help buyer’s agents determine the best neighborhoods for their clients, so can IoT help associations improve the member experience. The California Association of REALTORS® is building a warehouse of sorts that will merge some of the more traditional member information, such as designations and committee involvement, with data that tracks member behavior, like interactions with webinars, e-mails, and zipForms. The association hopes to use the data to help them make more informed, strategic decisions about member benefits and engagement.
“This year, we’re going to start looking at correlations between behaviors and trying to determine what we can learn about that in order to make our investments more effective,” says Josh Sharfman, CAR’s chief technology officer. “What can we do to make members more productive?”
Sharfman sees the potential in using beacon technology to proctor educational courses. Beacons can be set up to record when particular people enter and exit a room, allowing associations to set up a check-in process during a board of directors meeting or continuing education class.
“Of course, there is a creepiness factor to being able to follow a person around at all times. But when it comes to a committee member, who is being paid for their time, being able to account for whether or not that person is in the room when they say they are is a pretty reasonable use of the technology,” says Sharfman.
Technology experts at the National Association of REALTORS® are also watching these developments closely.
“I think NAR will get into the IoT game in the near future,” says Chad Curry, managing director of NAR’s Center for REALTOR® Technology. “It has the potential to improve member experience and value.”
Curry adds that IoT data could someday augment the research department at NAR or other associations. By using predictive analytics carefully, the tracking of industry trends could benefit from information gathered in real time by Internet-enabled devices.
“We might be able to see a recession coming faster if we notice that there’s less traffic on Michigan Avenue,” Curry says, referring to the iconic stretch of high-end retail known as the Magnificent Mile in Chicago. “Maybe there’s a specific store, even, that signals that.”
Making Listing Data More Valuable
Though beacon technology is still new, it’s already being used to augment home tours. Avid Ratings, a customer loyalty management firm for homebuilders based in Madison, Wis., launched an updated version of its home tour software at the International Builders’ Show in Las Vegas this January. Called GoTour Onsite, the new version uses beacon technology to enable house hunters to tour a model home on their mobile device. As they enter each room, customers can immediately access floor plans, options for customization, and videos that provide in-depth information about hidden aspects of the home, such as building materials and HVAC systems.
Folding this type of data into a multiple listing service feed could be game-changing. MLS listings could be augmented with data feeds from outside sources, perhaps allowing buyers who gaze out a “smart” window to see up-to-date municipal information about how much traffic goes by, or to have the area’s Walkscore pop up on their mobile device when they’re standing on the front porch. Sharfman says he sees this technology as an opportunity for MLSs to add real value to the home tour experience, especially for the luxury market in California. Such smart home tours could even be produced using information pulled directly from an MLS listing, making the home marketing task a bit simpler for individual real estate pros.
The data flow could theoretically go in both directions; while MLSs could provide and package new information about for-sale properties, they could also collect information about transactions that could prove to be useful for MLS members. An MLS could use beacons or Internet-enabled lockboxes to record how much time house hunters spend in each room, helping listing agents better position a property for sale based on real-time feedback from buyers. By having this data on all homes in the MLS, members could get an idea of how many minutes of attention their listing has gotten compared to other homes on the market.
Of course, the development of such complex data-sharing systems may be awhile off, depending on the pace of development both within the technology sector and in associations and MLSs.
“It’s going to take effort and investment to make it work on all sides of the deal. It requires a sophisticated real estate professional to add in data streams, as well as some of the narrative information about what it’s like to actually live there that sellers may tell the listing agent,” says Sharfman. “But it also requires a dedicated MLS to make sure all these data streams work together and feed up information in a useful way that home buyers will actually enjoy interacting with, rather than seeing it as a distraction.”
Todd Carpenter, NAR’s managing director of data analytics, also views this as a way to shift the value proposition for real estate professionals in the future.
“The piece of the pie that is MLS data is getting smaller,” Carpenter says. “If you’re selling yourself, you can say ‘I’m the one who can help you decipher this expanding data,’ instead of ‘I am the one who can show it to you.’ The person who only has the keys to the MLS is not going to be successful in the future.”
While the complexity of the task ahead is great, so too may be the rewards. Curry agrees that the Internet of Things is ripe for organizational investment. “This is a beautiful time to be working on this. Listing data is almost passé right now [and] home performance data and behavioral data are going to become key,” Curry says. “If the MLSs and the associations and portals were to get into this market, it could be a real boon for the industry.”
Meg White is the managing editor of REALTOR® Magazine
As you prepare to become a successful real estate investor, I encourage you to take the following tips into consideration. They have helped me greatly as I have navigated my way through the world of real estate–and life in general. I hope these tips will make just as big of an impact on your life as they have had on mine.
Tip #1: Create a game plan.
Decide what you want to accomplish and outline the steps that you must take to get there. Who will be involved? How will you meet them and gain their cooperation? How much time will it take? Where will you find this time? How much will it cost, and where will you get this money? What’s the risk? How will you handle it?
This plan will serve as your guide each day, so you need to get it right. That brings us to the next tip…
Tip #2: Have an expert review your plan.
The first real estate investing plan I created involved me single-handedly buying 100 houses in a year. And it listed several different marketing strategies that were completely cost ineffective. I had a friend of mine (who isn’t even involved in real estate) review the plan, and he said it looked good. How silly of me!
About eight months into working this over-reaching and misguided plan, I had an expert investor review it. He tore it apart, and together we reconstructed a better plan with more realistic goals (buy 12 houses, not 100) and a more effective marketing plan.
Shortly thereafter, I bought 6 houses, and I actually felt good about my progress. Six out of twelve feels much better than six out of 100!
Tip #3: Don’t give up.
The life of a new real estate investor is filled with countless highs and lows. You’re on a high when you think you have a property all locked up to purchase, and then you hit a low when it suddenly falls though at closing.
Or you’re on a high when you finally do close on that house, but you hit a low when you hit a 3-week dry spell and it feels like you couldn’t get a seller to agree to your price–even if you paid double.
I hit a personal low when I was jobless and $5,500 in debt from fruitless marketing attempts. But I got up early each morning and worked toward my goal of financial freedom. Even though a voice in my head told me to give up, I never did.
That’s probably the #1 key to success: Don’t give up. Even someone who’s as dumb as a box of rocks will eventually succeed if he doesn’t give up.
Tip #4: Take baby steps.
When you break it all down, big goals, big dreams, and big plans are nothing more than a series of miniature action steps or “to do” items. When you dissect the daily life of a successful investor, you’ll find that he or she does 8 to 12 things each day that are real estate related.
One item might be “Watch DVD #5 in the new investing course I bought.” Another item might be “Call the title company about the name on the warranty deed” or “Meet the inspector at the house on Watson Street.”
All of these little tasks each day add up to what is, or what eventually will be, a large and highly profitable real estate investing operation. So don’t toss that “to do” list by the wayside, thinking that your small efforts today don’t mean much. They mean everything.
Tip #5: Become comfortable with discomfort.
I was actually nervous at the first real estate investing meeting that I attended. I was wondering if I would say something stupid or if I wouldn’t fit in. After all, most of the investors in the room were 40 or 50 years old, and I was 22.
But by the third meeting I attended, I became comfortable with the crowd. Had I quit after the first meeting, I would have missed out on the very information that enabled me to buy so many properties.
I’ve learned that one of the biggest keys to success is persisting though uncomfortable situations until they eventually become comfortable. This is where true growth occurs.
Tip #6: Do what you say you’re going to do.
As a real estate investor, your reputation means everything. They say it’s a small world, but the world of real estate investing is even smaller. So be honest, be courteous, and for heaven’s sake, do what you say you’re going to do. If you say you’re going to buy another investor’s house, by golly, you better move mountains–if that’s what it takes–to buy it!
Otherwise, your name will eventually become mud, and you’ll have a tough time buying from not only that investor, but just about every other investor in town. Believe me, I can count at least 10 local investors of the top of my head who I will NOT do business with because their word means nothing. And I know several other investors who won’t deal with them either. You DO NOT want to be black listed.
Tip #7: Be on time.
Showing up late is just about one of the most disrespectful things you can do to another real estate investor, inspector, contractor, or anyone for that matter. It shows them that you don’t value them or their time, and time is MUCH more valuable than money. Money can be replaced. Time cannot.
When someone shows up late for a meeting with me, they instantly lose credibility. And there are countless other investors who feel the same way I do. On the other hand, when an investor or business associate shows up on time or early, it makes me want to smile, reach out my hand, and strike a win-win deal.
So be on time. You’re much more likely to create trusted allies who can help you along your path to success.
Tip #8: Eliminate certain activities.
I’ll wrap up with one more tip that is closely linked to the first tip, “Create a Game Plan.” That game plan will involve a series of goals and steps or “to do” items that you must follow to become successful. But what many people don’t seem to realize is that for all of these things to happen, certain activities in your current schedule must be REMOVED.
For example, if you’re going to attend two real estate meetings and make five offers per week, what must go? Possibly TV time. Possibly a friendship. Possibly your workout plan. Of course, what has to go is unique to each of us, but you must realize that if you’re an extremely busy person, you’ll have to make some TOUGH sacrifices.
But these sacrifices are only for the short run. If you have to quit your exercise program to have enough time for real estate, for example, then so be it. You can resume in two years after you’ve achieved financial freedom through real estate. And you’ll have more time to exercise than ever.
Early on in real estate, I gave up friendships, exercise, sleep, vacations, and leisure time. How much you give up depends on how quickly you want to become financially independent.
It can be a tough to integrate all of these tips into your daily routine at once. So for now, I encourage you to focus on the one tip that you think can benefit your investing business the most. After you’ve turned that tip into a habit that’s part of your daily routine, then move on to the next. Keep moving forward and never give up, and you’ll be a successful and financially free investor in no time!
Credit to Doug Smith
Doug Smith has bought and sold over 40 properties using almost every method–wholesaling, rehabbing, landlording, subject to, lease options, and more. He is the founder and president of MyHouseDeals, a company that provides a constantly-updated list of bargain-priced investment properties in some of the nation’s largest metro areas.
People naturally go through buying stages as their lives change. Whether they’re aging, gaining wealth, expanding their families, or just maturing in their tastes, each potential client is going through an easily recognized cycle. That cycle puts buyers into three categories: those who are starting out and are truly just looking; the ones who have decided they are definitely going to do something, but haven’t decided what yet; and the ones who have a clear idea of what they want, including their price range and other details.
Stage one buyers are just toying with the idea of making a change. They’re not trying to be coy when they give vague answers to your questions about what they’re looking for. They legitimately don’t know. Agents can put themselves in a position to win their business down the road by taking on the role of adviser and asking them questions that move them forward mentally.
In stage two, buyers have chosen to make a change. They’ve put their houses on the market or have decided not to renew their rental agreement. They’ve already made a verbal commitment to each other or to friends and family that they are going to buy. They don’t know exactly what they want, but they do know a change is coming. Agents can distill two or three different options to help them narrow the field.
In stage three, customers come to the table knowing what they want — their price range, the features they can’t live without, and a notion of the type of floor plan that meets their needs. They are definitively in the market, and it’s only a matter of who’s going to win their business.
When agents fail to win that business, too often their response is that “buyers are liars.” They write them off as unserious people only interested in wasting their time. In truth, agents who are surprised by a customer going a different direction most likely aren’t asking the right questions to get inside buyers’ heads. When agents aren’t aware of what their potential buyers are thinking, they are the ones wasting their own time with the wrong people, losing business in the process.
On the other hand, when agents find out which stage buyers are in, they can meet them there. They don’t need to talk about price range if the prospects haven’t even decided whether or not they need a change. In this stage, buyers don’t need to hear specifics. They need to first understand the how their lives will improve if they make a change. In stage three, they don’t need to be persuaded that a change will improve their lives. They already know that and that’s why they came to the agent. Stage three buyers need to know why the agent, community, or home is the right one for their specific situation.
It’s important for agents to spend time with buyers in all stages of the process. This way, they’ll have a healthy pipeline of prospects as potential clients move through the stages. If agents are ever surprised by a customer’s decision, coach them to identify customer stages. That will allow your agents to meet customers where they are so they can move them into the next stage (and subsequently, their next home).
Jason Forrest is a sales trainer; management coach; member of the National Speakers Association’s Million Dollar Speakers Group; and author of three books, including his latest, Leadership Sales Coaching. One of Training magazine’s Top Young Trainers of 2012, Jason is an expert at creating high-performance sales cultures through complete training programs. He incorporates experiential learning to increase sales, implement cultural accountability, and transform companies into sales organizations.