Taking a break from my regular fixer upper rental house blogging, today I am going to comment on some favorite blog articles that I have recently read.
While most bucket lists consist of activities that might reduce your life expectancy ( e.g., bullfighting), or your ability to enjoy life (e.g., broken body from the ever-popular choice of skydiving), a part time business, like owning rental houses, can actually improve your life.
Chuck’s article on Vacancy, First one in a while for us . . . is an insightful description a recent episode of losing and replacing a tenant. I appreciate this “real life” rental story that I can both relate to and learn from.
In her article entitled, 13 Cool Tools to Make You a Marketing Superstar, Sharon describes 13 amazing tools to help real estate investor to streamline their business. This is great for me because I didn’t know a lot of these things even existed, or that I needed them, until I read her article.
By now, you probably know that my theory is that one of the easiest ways to get started in real estate investing is by turning your home into a rental house, instead of selling it.
According to the American Association of Realtors, the average American purchases 7 houses during their lifetime. In our opinion, those are 7 houses that we should hold onto for the rest of our lives, to generate monthly income and for long-term economic family security. Don’t give away the goose that lays the golden eggs!
The usual procedure that most people follow is to sell the home that they live in and to use the cash from the sale to buy a new house. If we tweak the old procedure just a little, it can result in a huge difference in our net worth and our economic security. We propose that instead of selling your home, just refinance it, and use the money from the refinance as a down payment on your next house. Now, you own two houses and you can just turn your old home into a rental property.
Presently, the book is going through the final editing and formatting process. Of course, it’s being reviewed by Homeland Security and the Pentagon, to avoid any classified information from leaking into the wrong hands.
By September the book should be available in both Kindle and paperback editions.
With the annual approach of summer rains, now is almost the last chance to make rental house roofs water proof before the watery onslaught. As someone who has a sworn aversion for arriving too early to parties, I subscribe to the time-tested philosophy of “better late than never.”
This morning I applied some black roofing cement on some areas on one of my townhouse roofs. I had located some cracks upon my inspection of it about 2 weeks ago.
The first photo shows the area in question, where I had previously applied a small amount of plastic roofing cement, but today I was going to put on some more and cover a broader area.
The second photo shows the application of the plastic roofing cement. We apply one layer of cement, then put a white membrane on top of that, followed by a second layer of cement. The membrane allows for more cement to be applied.
Below is the “after” photo. You can see that in addition to the corner, we hit a few other cracks with our roofing cement on the sides of theroof. Later, we’ll come back with white roofing paint to cover the black cement.
A good rental house
My wife and I purchased this 2 bed 2 bath townhouse in 1993 and lived in it for 10 years before moving on to a bigger house (to accomodate our growing family), and turning this property into a rental house in 2003.
Its been one of our best rental houses because it is in a “transition” zone (aka “opportunity zones”) where there is heavy demand for housing, and it is easy to care for because it is compact (1100 sq ft with small front and back yards). The townhouse perfect for single people or small families.
I encourage you to check out some of the other interviews that Sharon has conducted with several real estate investors. Its always interesting for me to hear how other people operate their businesses.
Upcoming Speaking Engagement
I will also be making a presentation to the Arizona Network of Real Estate Investors. Mark your calendars.
Where:
Fidelity National Title, 6760 N. Oracle Road, Suite 100, Tucson, AZ
When:
June 7th, 2012
Time:
Meeting begins at 5:30 pm, presentation at 6:00 pm
The fixer-upper house business is a great business to be in these days. But, if you are just starting out, and are as green as a gourd, as I was, you need some help.
To speed up the learning processes, you need to have a collection of reference books on home repair, buying and selling houses, rental properties, tax law and all other aspects of real estate.
If a home without books is like a body without a soul, then a fixer-upper business without reference books is like a cook without a cookbook.
You may not know everything at the start of your new business and you may need help in some areas, especially in the initial stages. However, each time you pay to have someone do work for you, or go through some new process, you should observe everything, ask questions and learn the process.
That way, the next time you will be able to do it yourself, or at least perform a larger part of the project. The key is to keep doing things over and over until you master how it works. You will eventually reach a point where you make decisions of where to make repairs and which houses to buy based on your instinct.
Books will help you to reach that point sooner.
Here are some books that I have found particularly useful to have on hand:
1.Fix em Up, Rent em Out, by yours truly. Yes, believe it or not, I read my own book! Anyone who says otherwise, is just itching for a fight.
2. Investing in Fixer Uppers, by Jay DeCima. His first, and still my favorite, of his books.
8. Tiling 1-2-3, by Home Depot. Are you getting the impression that I like the Home Depot books? In addition to mastering the art of tile installation, I made my first grout repair after reading this book.
Are you like me and never socked much money away for retirement? We are not alone. The Employee Benefit Research Institute’s Annual Retirement Confidence Survey found that pre-retirees (Americans between the ages of 55 and 65) greatly underestimate how long they are likely to live and how much money they will need in retirement.
Experts say that we need to change our mindset from “assets” to “income” in retirement planning. It’s not enough to know how much money we have in savings; we need to know how much income our savings can generate over time.
There is no better way to change our mindset and our portfolio from “assets” to “income” than by investing in real estate. If we invest wisely before we retire, and can have a stable of reliable rental properties that generate steady monthly income. We can look forward to a retirement that provides security instead of uncertainty.
Don’t rely on politicians to provide you with retirement security. If you want it done right, you must do it yourself.
What things do you actually have control over in your life?
When you think about it, there are actually very few things that we can control.
For example, I was forced to give up my dream of boxing. I ruined my hands in the ring. The referee kept stepping on them.
We are required to buy insurance for our cars and houses. The kids must go to school and have supplies and clothes. We choose food, cars and most consumer goods based on the advertisements we see on television. Different levels of government and social pressures decide many things for us, or leave us with limited options to choose from.
And, it doesn’t get any better as time moves on. It seems the older we get, the fewer choices that we have. Men still chase women when they get older, but only downhill.
The One Thing We Control
Napoleon Hill says that we have control over but one thing, the ability to control our own thoughts. This is the most significant and inspiring of all human traits. It is part of our divine nature. This divine tool is the sole way to control your own destiny.
Mind control is the result of self-discipline and habit. You either control it or it controls you. The most effective way to control your mind is by keeping it busy with a definite purpose, supported by a clear plan.
The Ultimate Question
A lot of people I know have read Think and Grow Rich, and they say that they think it is a great book. But, very few know the answer to the following question.
What does Napoleon Hill say that you must do twice daily in order to make your desires become reality?
On page 36 of my copy of Think and Grow Rich, Napoleon Hill says that you should have:
1.) written a concise statement of what you want,
2.) how you plan to get it, and
3.) when you will get it,
then you should read your written statement aloud twice daily, once before retiring at night and once after arising in the morning.
What Does This Have to Do With Real Estate?
In the early 2000’s, I thought my job was going to be cut and I that would be unemployed. I decided I needed a steady second income so I wouldn’t have to rely on my 8:00 to 5:00 job to bring home the bacon .
After I concluded that buying fixer upper houses and renting them out was the best second income for me, I wrote down my desire on a piece of paper and carried it around in my wallet.
I wrote, ” I will find and buy a fixer-upper house in the next 60 days.” In less than a month, I found and bought my first fixer upper house, and that was my start in this business.
That was the first time I experienced the power of this technique. I have had many subsequent successes with the technique as well.
Like most of us. you have ideas and dreams. But, if you go beyond just identifying them and you write them down, and put your passion into them, they are more likely to come true.
Here is another letter that I recently received that asks some pertinent and common questions related operating a fixer upper house business, that I would like to share with you.
Dear Terry,
We’re moving along towards renting out our first rental house…and I was reading your month-to-month lease agreement from the Never Sell Your Home book– it looks very good and we plan on using much of it, but I did have a few questions:
1) What % of the monthly rent do you require as a security deposit?
2) Should the Lessee(s) be responsible for all utilities, or should I pay the utilities for them?
Thanks for your help – !
Steve Klausman
Santa Fe
Dear Steve,
Congrats on your progress in preparing to rent our your first house. Don’t get discouraged if it’s rough sledding at first, the first house is the one that you learn the most from.
Security Deposit
In answer to your first question, the amount that I charge for security deposit is the amount of one month’s rent. So if the monthly rent is $900, the security deposit is also $900.
Some tenants may have trouble coming up with both the rent and the security deposit at the same time, in this case, a tidy sum of $1,800. So, I sometimes let them pay the security deposit over the course of 2 months, to make it easier on them.
Since you are just starting in the business, something to do from the beginning is to keep the security deposit and the monthly rental money from your business in a separate bank account from your personal bank account. The IRS doesn’t like to see the funds mixed together.
Who Pays Utilities?
In answer to your second question. I always have the tenants pay all the utilities themselves. Not only does it encourage them to conserve, but it vastly simplifies the process for you. Also, I have the tenants put the utility accounts in their own name, so that I’m not liable for their expenses.
In most states, you can sign up for a “Landlord Agreement Account” with the utility companies that allows you to switch the accounts to the tenants and back, with less paperwork and expense.
As you move along feel free to send me more questions as they arise.
Your (self-appointed) personal rental-home consultant,
Naturally, people are nervous about making financial changes during a recession. But, refinancing your existing house to take down payment money out of your equity and buy a rental house is one of the safest ways to start investing in real estate. It’s the most common way that real estate investors use to purchase investment properties.
If you have a steady job and a good credit rating, now is a rare opportunity to get a loan in the 4% interest range. And, houses are selling at fire sale prices!
It’s a good idea to refinance a house that you have owned for a few years before reinancing to take some equity out of it.
Refinancing an existing property for downpayment money is a lot better than waiting until you have enough cash to purchase a rental house withouta loan. Having a loan gives you leverage, because you don’t have to use all of your own money, which could take 20 years or more, to save.
The great benefit is, after you have purchased your rental house, is that you have a stream of income that is in addition to your regular 8:00 to 5:00 job.
You can be laid off, or fired from your regular job, but you can never lose your rental property job!
Are you willing to pay the price to have your life be the way you really want it? We all know there is a price to be paid for everything in life. If we stay in the same circumstances we are now it may cost us our life. Serious illness can be caused because of stress, the stress of being in a job we hate. Take the time to consider what price you are paying now for what you have in your life.
For me, the perfect job was buying fixer-upper houses and renting them out. It provided me the independence and financial security that I desired, and I could do it while still working my 8:00 to 5:00 job.
If you don’t like your job, if you are having your hours reduced, or if you lose your job altogether, it may be time to consider establishing a business that will provide you with some additional economic security.
How would you answer Joe Sabah’s question, “What price would you be willing to pay to have the life you really want?”
I asked John if he would write a post for my blog on this topic and he kindly agreed. Below are his insightful comments.
———–
Recently at the Tucson Festival of Books workshop, in addition to self publishing, you mentioned your underlying rental property business. I was more interested in your underlying business since I too have rental properties. I am also an attorney that represents claimants in negligence claims, workers compensation, social security disability, probate and estate matters.
So, I am one of the attorneys that will sue a landlord under premises liability if there is a case. What is frustrating to me is the fear of law suits against landlords that they will lose everything.
I have found at similar seminars (not yours) business consultants coincidentally selling limited liability companies and/or promoting their use as some kind of immunity or shield against law suits.
Protect Assets with Insurance
I advise property investor’s landlords to get insurance. If you have insurance, you really don’t need to worry about lawsuits since the insurance should defend you and indemnify you (pay) for any suit. The best asset protection is purchasing insurance.
Also, premises liability suits are some of the most difficult cases to take. Call around and ask for an attorney on a slip and fall case and you will be surprised by the lack of interest.
My advice to landlord property owners is to have a good insurance broker. Discuss with the insurance broker your specific concerns of a handy man being hurt and/or a tenant suit. It’s important that you are very specific at this meeting. Later if you are sued, you can bring this conversation up for coverage under reasonable expectations.
A landlord should have a business relationship with an insurance broker. All insurance needs such as liability, workers compensation, premises and an umbrella policy should be covered. If the selling agent states coverage is available, this should be confirmed in writing, such as providing a letter itemizing specific coverage.
Reasonable Expectations
Arizona had wonderful insurance law on reasonable expectations. If you go to an insurance broker for a specific example or insurable interest, the broker or insurance company can be bound. Under Arizona Law, reasonable expectations of a contracting party are to be enforced even if the written contract, such as an insurance policy/contract is contrary under the Darner decision/doctrine- 682 P.2nd 388 (Ariz., 1984).
There is a very famous landmark case in Arizona under reasonable expectations and insurance law. An auto broker went to his insurance broker requesting insurance on all of his vehicles. The broker wrote a small policy on one vehicle. The consumer was able to have coverage on all of his vehicles under the reasonable expectations.
It really should go without saying property investors need to be reasonable in their dealings. Underlying most premises liability issues, is notice. So, as a property owner if you are on notice of a dangerous condition, it must be fixed.
Notice of Dangers
The landlord obligation for premises safety may be summed up as Notice. For example, in Siddon’s, a four year old child was injured by a heavy door removed to allow access to the leased premises. The tenant asked the landlord to remove the door.
Another example is Shields, a landlord renting to a tenant repair shop that allowed pit bulls, that the landlord knew were dangerous.
I could go into some other areas such as fraudulent transfers, but that would be well beyond the scope of your inquiry. Perhaps in the future I could address this too for your readers.
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FIX EM UP RENT EM OUT
Purchase FIX EM UP RENT EM OUT (paperback)Award-Winning Finalist in the Real Estate category of the National Best Books Awards, sponsored by USA Book NewsGreat information for anyone starting out in the fixer-upper business. The author has served his apprenticeship in the trenches.
-- Fixer Jay P. DeCima, Investor and AuthorTerry Sprouse has created a profitable rental business in his spare time. What sets him apart is he took action.-- Bob Zachmeier, Investor, Educator, Author With the wit of Will Rogers, this book provides simple guidelines for restoring homes, and sanity to our crazy lives. --M.D. Matlock, Ph.D., P.E., C.S.E.
Turn Your House into a Rental House
