John Schaub
There is a common conception that commercial buildings or apartments are less work. I've owned both, and I can tell you that this is not true. The tenants in apartments and commercial properties often come and go. Every time they leave, the property will need work. Every time they move, you need to find a new tenant. In short, apartments and commercial property require ongoing work. (Location 53)
You want to buy property that attracts good tenants-tenants who will pay rent and take care of your property. You want to buy a property that you can rent to tenants who are not great negotiators and who need you more than you need them. (Location 59)
Houses are much safer investments for several reasons. First, there is less money involved. You often can buy a house with a small down payment, so you have less at risk. Lenders routinely will lend more against a house than any other type of property.Next, there are more buyers for houses than for bigger properties. If you need to sell in a hurry, you can-if you offer a house at a good price. Third, houses rent faster and have fewer vacancies. Apartment vacancies often run 10 to 20 percent, whereas house vacancies rarely exceed 5 percent. Commercial properties sit… (Location 67)
When you buy commercial or apartment property, you are buying from another investor. You may still be able to negotiate a good deal, but often you are dealing with someone who is an experienced negotiator. He might be better at this than you are. When you buy from a homeowner, you have more negotiation experience… (Location 74)
Now, for the really important part! When you sell a house to an owner occupant, that person usually can get a loan for nearly the entire purchase price; in some cases the loan will be for more money than what the buyer pays. You will receive all cash when you sell.If you want… (Location 79)
A disadvantage of selling an apartment building or commercial property is that the buyer will be another investor. This investor will negotiate to get… (Location 82)
A major advantage of investing in several houses rather than one big apartment or office building is that you can diversify by investing in different price ranges. By owning both less expensive and more expensive houses, you can have the safety of the… (Location 91)
To learn how houses have performed as investments in your town, identify several houses that have sold recently in neighborhoods that you think would be a good place to invest. Research what those houses sold for in previous years. You can find this information in your public records. In the past, this usually meant a trip to the courthouse, but now this information is often available online.Now calculate how much these houses have increased in value per year on average. Continue to track these houses, and add others to your research as you discover other neighborhoods that you think have… (Location 106)
Buy when it's hard to sell, and sell when everyone wants to buy. There are cycles in housing prices. Although the overall trend is definitely up, there will be opportunities to buy at discounted prices from homeowners who need to sell quickly and from speculators who purchased more than they can afford to carry. (Location 153)
When it is easy to buy, buy at bigger discounts. Look for builders and banks who have property they will sell cheap, and negotiate both a good price and good terms. (Location 156)
DOUBLING YOUR MONEY-THE RULE OF 72Do you know how long it takes an investment to double in value if it goes up 5 percent each year? The answer can be calculated by using the rule of 72, which states that you can calculate the time it will take to double your money by dividing the compounded rate of return (the interest you would earn on a savings account at a bank) into the number 72 (see Figure 1.2).Thus, 72 divided by 5 equals 14.4.… (Location 168)
Read the classic book, Nothing Down, written by my student Robert Allen. Robert was a young real estate agent when he took my seminar in the mid-1970s. He bought a number of… (Location 180)
Buy one, rent one, then and only then look for the next deal.By using this strategy, you will learn management at the same time you learn to buy. Ask yourself this question, "If I begin buying houses aggressively, will I make a better deal on my first five houses or the last five houses that I buy?" If you are… (Location 197)
ow that you can see how buying houses can make you money, it's time to get into the specifics of which house you should buy. Having a plan and buying a house that fits into that plan will help you to meet your goals in a shorter time. Most people who buy real estate do not set out to buy a particular property. They just look at everything that is for sale and hope to find a good deal. You can do far better by targeting a house that will make you the most money.Not all houses are created equal. Some houses will appreciate more; some will produce more cash flow because they will attract better tenants; and others will require more maintenance and have higher expenses. No house is perfect, but you can… (Location 200)
An advantage of investing in houses is that-over time-you probably will buy more than one. Owning different houses in different neighborhoods allows you to diversify. Some houses will produce more cash flow, and some will appreciate more. Owning houses of different sizes, different ages, and different prices makes your "portfolio" safer than… (Location 206)
When you begin to invest, naturally you will focus on properties that produce more income. Less expensive "starter homes" will produce more cash flow. These homes often are built in tracts where all the lots are the same size and all the houses are about the same size and look a lot alike. They are around 1,000 to 1,200 square feet in total size, with small bedrooms and few frills.These houses are in high demand and appreciate at an above-average rate because few new ones are being produced. Most new houses are larger, more elaborate, and more expensive. The more expensive house typically produces more profit for the builder.Starter houses rent well and generally rent fast. During hard economic times, tenants often downsize to these houses to save money.The next step up on the investment ladder is a slightly larger house in a little better neighborhood. There are several reasons to buy these houses as investments.1. This house is more likely to attract a longer-term tenant because it has more space and better neighbors. You can buy this size house in a neighborhood that is predominantly owner occupied. Owners take better care of their property than most landlords, so the… (Location 208)
If the income is important to you, start with the lowest-price house in your town that is in… (Location 223)
Buyers and tenants are attracted to neighborhoods that are quiet, safe, well maintained, and populated by responsible people. Good neighbors make a good neighborhood. Buy houses in neighborhoods where you… (Location 225)
Good neighbors are attracted by many factors, including geography. High ground, the right exposure, and proximity to roads, rivers, lakes or oceans, hospitals, work, and schools are all factors that affect desirability-and therefore value. Study the geography in your town and learn why certain areas are more popular and therefore more valuable.Schools have a significant effect on neighborhood values. Get to know which schools in your areas are the most desirable. Become knowledgeable about which schools are improving and which are becoming less desirable. Watch for information about planned new schools and possible redistricting. Both tenants and buyers will want to live in the best school districts that they can afford. Often new schools are popular and attract both good teachers and good students.Buy in the best neighborhood that you can afford. A house in a better… (Location 228)
When you buy a house that you want to hold as an investment, you want it to be attractive to good tenants-tenants who will stay a long time and take good care of your property. You want to rent to a tenant with long-term potential, not someone who is constantly on the move. Tenants with the long-term potential typically are coming out of another house where they have accumulated furniture and lots of other stuff. You want to buy a house that has enough space for such a tenant to live in comfortably.The overwhelming majority of home buyers prefer at least a three-bedroom, two-bath house. Renters have the same preferences. If you buy a smaller house, you will have to compete at a disadvantage with all the three-bedroom houses in your town for rent. There is not a big difference in price… (Location 234)
An investment house should be big enough to attract a normal-sized family with their belongings, but not much bigger. While I would feel safe living in any house that I own as an investment, most of my stuff would not fit in them.I would be comfortable living in any of my rental houses because the neighborhoods are quiet and the neighbors are friendly. However, the investment houses are smaller and lack some of the luxury items that you may be used to in your own home.Buy a house that is functional and well located, and then keep it in good operating condition. Don't buy a house with a lot of fragile items such as fancy wallpaper, trim, elaborate landscaping, and so on. The tenants won't take care of it, and it will not look as good in a year as it does today.… (Location 249)
Some lots are better than others. Avoid lots on busy streets or strangely shaped lots. Even corner lots are not as valuable as interior lots. With a corner lot, you have to set the house back from two streets. This leaves you with a big front yard on two sides but an unusually small back yard. Although… (Location 259)
Neighborhoods are changing constantly. When they are new, most neighborhoods are almost totally owner occupied. As the houses age, some owners will rent their houses or sell to investors who will rent them. The rental houses are rarely maintained as well as owner-occupied houses, and they have a negative effect on values. Sometimes the neighborhood will become completely owned by landlords. You can spot these streets by a lack of pride of ownership.If these neighborhoods are in good locations, eventually owners will begin moving back in and buying bargains that they can fix up and live in. When this happens, property values will start to appreciate… (Location 264)
As the economy changes, you will borrow at different interest rates. When rates are the highest, you will make your best buys. When rates drop, you will be able to borrow at low rates and refinance your… (Location 280)
Before you buy, research the property taxes and learn if they will change if you buy the house. Property taxes often increase when a property is sold. Contact a local insurance agent and get an estimate of what it will cost to… (Location 284)
I divide potential tenants into three broad groups. Those with too much money, those without enough money, and those with just the right amount of money. Obviously, I want to buy a house that the last group can afford and wants to rent. (Location 306)
When you target an area close to where you live, you can spend time in that neighborhood and really learn the market. Walk the streets and talk to the neighbors. Tell them that you want to buy a house in their neighborhood and ask them if they know of anyone who wants to sell. You are complimenting them on living in a nice neighborhood. You will be surprised at how helpful they will be.Call on every house for sale and for rent until you know the market well enough that you can walk down a street and give a price and rent foreach house. (Location 314)
ow that you know the price range and size of the house you want to buy, you can begin looking for opportunities. This can be overwhelming because there are lots of properties for sale. Focusing on certain neighborhoods and specific types of properties in those neighborhoods will help… (Location 320)
Out-of-town management can be an expensive adventure. I know first hand: I've owned investment properties in 10 states. Today… (Location 327)
Owning property close to you allows you to stay on top of the management or to manage it yourself. Even more important, you know your market and can buy when there are buying opportunities and sell when the market is hot.Most buyers look at properties listed for sale. In my experience, houses that are real opportunities are not on the market for sale. They are not listed, and there is no sign in the front yard.When you can identify a house that an owner wants to sell and that is not listed, you have less competition from other buyers. Here are my top sources of opportunities for investment homes:1. Empty houses. An empty house is costing somebody money every day. In addition, it is a source of worry and work for someone. Look for empty houses, and contact the owners. If the house is empty, knock on the neighbor's door and ask if he knows where the owner has moved. If that fails, look up the neighbor's phone number and call him. The neighbor does not like an empty house next door, especially if it is not being maintained. Neighbors can be a valuable source of information. The owner may be a lender who has foreclosed or an heir who has inherited the property.2. Houses that need work, especially in nicer neighborhoods. Houses in disrepair stand out, especially on a good street. Some people are just poor housekeepers, but more often, they are short of money to repair the house. Occasionally, the house is rented to a tenant who is not maintaining it. All these situations signal potential profit.3. Out-of-town owners. While you cannot see this from the street, you often can find an owner's name and address in the public records. When you spot an empty house or one in disrepair, look up the owner. Often this can be done on the Internet. If not, go to yourcounty courthouse and ask for help in looking up a property's owner. While you are there, ask how to find out if there are any mortgages or liens against the property, and read those. You can learn what the current owner paid and what she owes.4. Landlords who are not maintaining their property. When you see an occupied house in disrepair, knock on the door and ask if it is for sale. If it is rented, the tenant typically will tell you and may even give you the landlord's name and phone number. If the landlord is out of town, he may be more than willing to sell. You can tell the tenants that if you buy… (Location 328)
If you are walking through a neighborhood and find a house that looks like an opportunity, you want to ask the owner these same questions.In a normal market, 90 percent of the houses for sale are not opportunities. You are trying to identify that one seller in 10 who might have a reason to make you a good deal. After you find the right seller, you want to determine whether this house has the potential of making you money. Not all houses are opportunities.Asking the right questions gives you clues about how anxious the seller is to sell the house, and then the information will help you to make an offer that the seller can accept. It will increase your chance of buying a house at a good price.Ask these questions to determine a seller's motivation to make you a good deal. The first questions will be easy for the seller to answer. As you ask the harder questions, you are both gathering information and testing the seller's eagerness to sell. If the seller keeps answering questions, eventually the information you receive is not really in the seller's best interest to share with a potential buyer. Keep in mind that the seller is answering the questions to keep you interested in the house because he really wants to sell it.As you ask these normal questions, take notes because you will learn a lot. Number a sheet of paper (or take notes on your computer), and record the answers.1. Are you the owner? (Many times a neighbor or relative will answer the phone for an out-of-town owner. If so, ask for the owner's number and call her directly.)2. Where is the house? (Only pursue houses in neighborhoods where you want to own property. Write down the address and phone number.)3. How large is the house? (Look for houses large enough to accommodate a family.)4. How old is the house? (Older houses may be in great neighborhoods, but beware of fragile, high-maintenance houses.)5. How large is the lot? (Look for lots of normal size and shape.)6. Does the house need any work? (All houses need some work. Look for an honest answer.)7. What school districts is the house in? (Know which schools are the best and worst in your town. Buy in the best districts that you can afford.)8. What are the neighbors like? (Are there more tenants or owners on the street?)9. How long have you owned the house? (Long-term owners often have larger profits and are… (Location 363)