8 RULES FOR CAREER CHANGERS
- 1. Learn your local market. Know what properties should cost and what they can reasonably sell for. Learn how much rent you can get. Do these steps before you buy, not afterwards.
- 2. Learn to spot or identify hidden bargains quickly, then act fast to acquire them. Remember, competition is keen. You must develop a sixth sense for sniffing out hidden money-makers.
- 3. Develop a business sense...think like a retailer. This will help you to pay wholesale prices when you buy. Buying at retail prices and selling for retail prices simply won't work. Don't do it!
- 4. Invest...don't speculate. Investing is a plan to make money. You must be able to identify exactly how you will do it. That's why step one is necessary. Speculators are guessing without a plan.
- 5. Learn how-to do deals where you have 100 percent control or nearly so. Basically, this means owner financing with you doing the management. Avoid short payback notes and variable rate mortgages offered by the institutional lenders.
- 6. Learn how to live on tax-free or tax-sheltered income. Rents you collect are normally tax sheltered. Rehab loans, like Title Ones, are tax-free same as borrowing on equity or refinancing. When you collect $100 rent you get to keep $100. When you earn $100 in wages, you keep only $70. Taxes eat up the money you can easily keep to benefit yourself.
- 7. Learn landlording first hand from doing it. Manage your own customers (tenants). Many inexperienced investors farm this function out to professional property managers. I consider this a serious mistake for new investors. Maybe it's okay later on, but owners should know the job inside and out first.
- 8. Once you have developed a plan that works well and consistently makes you money, stick with it until it quits working. Most investors suffer this common weakness. We're all suckers for a better mousetrap. Avoid the "too good to be true" temptation-it generally is.
Comments (3)
Good advice Jay. Thanks!
Monica Delgado, over 8 years ago
2. As you search for investment properties, you must make your decision to pursue a deal or pass it up based on your knowledge of what you can do if you own the property. Many folks pass over solid money-makers because they don’t understand the various ways they can profit.
One of the most common examples I can offer is the case for buying only those houses without concrete perimeter foundations. That’s good sound advice as a general rule. However, there are some exceptions. I just happen to own quite a number of them. They produce the highest cash flow of all my houses. The reason is simple. I only paid about 50 percent of what equivalent houses with perimeter foundations cost. As a result, the mortgage payments are only half as much.
However, the rents are about the same as regular foundation houses. It’s the same Idea as buying mobile homes for rentals. You can buy them cheap and rent them for markups of two or three times higher than standard foundation houses.
I’m always concerned with location. I want good location for a specific plan I have in mind. However, all my plans are not the same. They all have the same objective – to make profit – but the way I do it can vary with different properties.
I like to think about locations as “A” “B” and “C”. “A” locations are the best. “B’: will be the local average and “C” is a stone’s throw from the county dump. With some study and driving around, you can easily determine these locations in your own investment area. Investing in “A” locations is fine, but it generally takes more cash. My choice is “B” locations, but I always look at a “c” to make sure I don’t miss anything exciting. I stay away from HUD projects, high crime areas and places where I don’t feel safe being there.
5. Simple. Learn how to do deals where you have 100% control or nearly so. Basically, this means seller financing and you doing your own management. Avoid short payback notes and variable rate mortgages offered by the institutional bankers and hard money lenders. It is not rocket science but you do need to find an expert and read about how to do this. If you do, you will save tons of time looking at every kind of real estate investing is out there (most not suited for you).
Seller financing vs hard money. Different as night and day. Hard money is "usually" higher interest, "points", short payback of 3-5 years. Ok to use, in the short term if you know what you are are doing. I by groups of houses on a single parcel. The seller know banks WILL OT FINANCE these junkier properties so sellers take back financing. 80% of my deals have or had seller financing. I never paid points, I never had a term less than 10 years and the kicker.............for some of them, I went to the person holding the note, years after I bought and asked if he would let me buy that note for LESS, AS IN DISCOUNT, for what I owed him......IF I PAID HIM/HER CASH NOW. Many, many said yes. This can be very profitable for you and mutually beneficial for the other party.This technique is also part of my 100% control.
Jay DeCima, over 8 years ago
Great blog Jay, interesting points, things I will remember as I go forward.
would you please expand on the following questions.
2. learn to spot or identify hidden bargains and money-makers....
what type of hidden features am I looking for?
5. learn how to do deals where you have 100 percent control or nearly so...
is it easier to do owner financing instead of using hard money? explain owner financing with me doing the management.
thanks, Cody
Cody Campbell, over 8 years ago