Archive for the ‘real estate principles’ Category

“Turn Your Home Into a Rental House!” finally sees the light of day

Wednesday, May 15th, 2013

 

Although it took a little longer than we anticipated, “Turn Your House Into a Rental House Instead of Selling It!” has finally popped out of the incubator and is available as a paperback book.

In a nutshell, what is this book about?

With my charming wife and business partner, Angy, as co-author, we have created a guide on how to find properties, live in them, and then turn them into a rental house, instead of selling them.

According to the “American Association of Realtors,” the average American purchases seven houses during their lifetime. Angy and I believe that those seven houses should be converted into rental houses and held for the rest of our lives. They are valuable assets that will generate monthly income for the hard years to come, and provide further assurance of long-term economic family security. Like the old folktale says: “Don’t kill the goose that lays the golden eggs.”

How does this book help the average Joe?

We show the average Joe where to find the best properties, how to pay for your houses, property inspection, the nitty-gritty steps on how to prepare your new rental house for tenants, how to attract and screen tenants, managing tenants, and complying with EPA regulations. The appendix includes samples of leases, property inspection sheets, tenant selection rating sheets, and many other valuable forms to get you started in your rental house business.

What do millionaires do that most people don’t do? 

Go into politics?

Buy their own Starbucks?

Become a bearded recluse?

Well, those are some of the things they do, but according to Thomas Stanley, in The Millionaire Next Door, most American millionaires own their own houses, and they own at least one rental property.

Our perspective is, “If it works for millionaires, it ought to work for us too.”

Our hope is that this book will inspire you to buy a rental property and to receive the enormous benefits from that one bold action. Even if you buy just one rental property throughout the course of your entire life, your economic picture will almost immediately get better.

You may wonder, as we did, “Why didn’t we do this a long time ago?”

Where do we order this book?

Click here to order the book through Amazon.com.

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Recommended reading:

The Short and Sweet Guide to Target Retirement Funds at Fearless Men

Creating an Outsourcing Master Plan For Your Business at Louisville Gals

Top Sights In Australia For The Adventure Seeker at Untemplater

Is There Right Time to Buy Real Estate? at KrantCents

How To Easily Reduce Your Utility Costs | 5 Simple Steps FRugal Habits

How Big Should Your Emergency Fund Be? at Work Save Live

Working Towards A Debt Free Lifestyle In 8 Steps at Canadian Budget Binder

Help Me Spend $1100! at Eyes on the Dollar

How You Can Start Freelancing at the End of This Article at Modest Money

The 5 Rules on How to Lose Money and Get Your Rental Property Trashed by Tenants

Friday, August 10th, 2012

The Arizona Network of Real Estate invited me to give a presentation to their group about my book “Fix em Up Rent em Out.”

I thought the video might be available to the general public but it looks as though that’s not going to happen.

However, so that no one feels left out, I am going to provide  a summary of the key points that I hit during the presentation. As someone who was regularly picked last for teams in gym class, I’m sensitive to people feeling left out. Casting modesty to the wind, I am also including exclusive photos of the event.

So here are:

The 5 Rules on How to Lose Money and Get Your Rental Property Trashed by Tenants (based on an article by Andrew Stefanczyk)

1. Choose the Worst Possible Area

Location will determine the kinds of tenants you will attract, and how much rent you can fairly charge.

Do you want these bearded wonders as tenants?

The best approach is to identify target areas in your city where you would like to focus your purchases. I like to focus on “transition zones” (where there is a mixture of housing types) which are good for investors because we can purchase properties at lower prices, and there is high demand to live in these areas.

2. Put in the very best of things when fixing up  an investment property

Use new and expensive sinks, doors, refrigerators, light fixtures, etc. Never shop at stores that recycle construction supplies. Spare no  expense.

Of course, the problem is that tenants will not take care of our properties as well as we would,

Habitat Store

so we end up with many broken or worn out items. The better alternative is to shop at used building supply stores, and to purchase good, inexpensive, supplies for our rental houses. One such store is the Habitat for Humanity store.

3. Make sure you have absolutely no experience in make basic repairs

Not knowing how to change electrical outlets, unclog drains & toilets, and replace broken windows will cost quite a bit down the road.

The better way is to:

A. Learn as you go, and comply with EPA regulations

B. Take construction classes at junior college

C. Learn from handymen and contractors

D. Take the Zen approach to  house repair learn to do everything yourself

5. Utilize fix-up books, investing books, & YouTube to find answers on how to make house repairs

4. Do not screen your tenants

Being as uninformed as possible about who you rent to may be the best way to lose money as a landlord. Do not ask for or check references. Do not call previous landlords and ask questions like, did they pay rent on time? How was the condition of the house or apartment when they left? Did they ever disturb neighbors with loud music or shouting matches? How often would you have to make special trips for repairs? Being as uninformed as possible about whom you rent to will make a huge difference and will increase the chances that you will get tenants that will trash your property and refuse to pay rent.

However, the better way is to:

A. Use a checklist for tenants. Decide what kind of tenant that you want ahead of time.

B. Look at their paycheck to verify income.

C. Check county records to see what illegal activities they’ve been up to.

D. Know the Fair Housing Act. Never select tenants based strictly on “race, color, national origin, religion, sex, familial status or handicap (disability).”

E. To find new tenants, use Craiglist, put up arrow signs, and host an “open house.”

5. Make sure you have not learned about your rights as a landlord

Be completely unfamiliar with the eviction process to guarantee long, drawn out disputes with tenants. Don’t keep up to date financial records or copies of correspondence with tenants. Most states provide online information about tenant and landlord rights so avoid reading these.

The better way is:

A. Get an authoritative legal guide like  “The Arizona Landlord Deskbook” by Carlton Cassler.

B.  Copy forms and letters from your legal book to send to tenants.

C. Comply with legal ways to deal with bad tenants.

D. Use memos to communicate with tenants so you have a record of correspondence.

E. Use a month to month lease instead of long-term lease to more easily scrape off bad tenants like barnacles.

F. Reward tenants for paying on time by discounting their rent $25.  

G. Send good tenants Target  gift cards for Xmas.

In Conclusion

Share Your Knowledge

“Each of us has cause to think with deep gratitude of those who have lighted the flame within us.”

–Albert Schweitzer

Carve Out Your Niche Update

My award-winning book on self-publishing, Carve Out Your Niche, is now available in Kindle format.

The Midwest Book Review called Carve Out Your Niche,

“Invaluable for anyone seeking to successfully write, publish, and market their own work.”

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Get in on the Greatest Real Estate Fire Sale in History

Saturday, March 3rd, 2012

“The greatest  real estate fire sale in the history of the United States rages on.”

— CNBC

Foreclosed properties are selling like hotcakes. Now is a great time to get some great deals on investment properties  Besides the price, below are four reasons why you can count on real estate to provide you with security today and in the future.

Cash flow

With a good rental property, after all the expenses have been covered, including mortgage, vacancy rate, repairs, and property management, you can still receive a good cash flow. This provides a reliable monthly income for as long as you want to keep the property. As the amount of rent that you charge goes up, your profits go up. See Table 1 (U.S. Census Bureau, 2012) for historic monthly rents in the U.S., from the U.S. Census Bureau.

Demand for Housing

There will be always be people in need of a place to live. With our growing population, a gain of one American born every 14 seconds, we will have a population of 400 million by 2050. Based on our current immigration patterns and population growth, there will continue to be a demand for housing well into the foreseeable future.

Appreciation

In the short term, housing appreciation seems to unpredictably rise and fall. However, in the long term, over a 60-year period, house values show a steady and consistent upward trend. According the U.S. Census Bureau, from 1940 to 2010, the average increase in the value of a house was about 5% per year, adjusted for inflation. Table 2 (U.S Census Bureau, 2012) shows historic home values.

While appreciation of 5% may seem low to some people, when we consider that we only put a small percentage down, between 5-20%, and we receive monthly rent checks that more than cover mortgage payments, it begins to make sense. If we don’t allow periodic dramatic rises and falls in home values to shake our confidence, we can count on steady, long-term, profits from our investment properties.

Tax savings

Our kindly Uncle Sam wisely gives tax incentives to real estate investors. The federal government allows you to depreciate your investment (or reduce your taxes to account for physical deterioration of the house) on Schedule E of your annual tax form. In addition, you deduct expenses related to your investment from your gross income on IRS Form 1040, and reduce the amount of income that you pay taxes on.

How to Force Yourself to Write

An amazing time to buy a foreclosure

Monday, February 27th, 2012

The past several months I have been searching for another investment/rental property to purchase, and have so far come up empty. Several times I found one, only to have it sold before I got my bid in. Today, I got my bid in on the above pictured foreclosure house. There are four bids on it and the bank will select one of us sometime this week.

The house is 3 bedroom, 1 bath, 1,400 sq ft, property in a nice neighborhood. The price is $53,000. It needs somewhere between $5,000 – $10,000 work to bring it up to rental condition, e.g., replacing sheet rock, electrical work, roof work, and flooring. It sold for $149,000 in 2006. I should be able to rent it for around $800/month. I’ll purchase with cash, if I get the house.

I would have preferred 2 bathrooms, but the house is in a good location and is otherwise a pretty good deal. I know several people with children who only have one bathroom and it works for them, even though I’m used to two.

Now is the time to take action

If you are just sitting on the fence, now is an opportune time to get into a investment house.

Of course, you must conduct a good inspection of the property either before you make the offer, or during the 7 to 10 day inspection period after your bid is accepted. Usually there are is no history of the property for you to examine, on foreclosures. It’s sold as is.

My main motivation is to that I can fairly inexpensively purchase a rental house, and it will provide me with an unusually large stream of income. I have other rental houses, but this new one will produce much more revenue because most of my income on the other properties goes to pay the mortgage company. Since I’m able to pay cash, this time all the revenue goes to me.

Rentals better than pensions

The great advantage of owning real estate property over having a pension is that your pension is fixed and what you get when you start it, is all you will ever get. For rental houses, the amount you receive from tenants goes up over time, with inflation, and you can never use it up.

The double win

It’s like being able to bet your money in Las Vegas, but then you get all the money that you lost back again when you leave. You get the monthly payments, like a pension. But, if you ever want to sell your investment house, you get the entire amount that you spent back again, and usually a lot more than that.


OTHER BLOG ARTICLES:

I encourage you to check out the insightful article How do you handle the whining tenants? over at landlordinvestor.com.

Security in Retirement with Fixer-Uppers

Monday, February 20th, 2012

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.

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Now is the Time to Start Meandering into Fixer Upper Houses

Tuesday, February 14th, 2012

Yep, that's me painting a fixer-upper house

If your circumstances are such that it is impossible for you to start investing in real estate today, you can start by just meandering in that direction. You can program your mind to pay attention to anything related to real estate. Cut articles out of the newspaper, buy books at book sales, ask friends and co-workers how they purchased their house, watch for free classes or seminars.

If you don’t start following your dream now, you may never do it. There’s a lot more to life than just making a living by working at an uninspiring job.

Start to Prepare Yourself

You can be constantly learning and preparing for the day you will purchase your first fix-up property. Virtually anything you need to know is available to you through books, audio recordings, workshops, seminars, public education programs, consultants and training programs.

I meandered for approximately 11 years before purchasing my first investment property. Now I wish I had started sooner, but you can’t begin until you have the desire and the knowledge. Sometimes, desire and knowledge can be acquired simply by observing someone else operating a successful business.

Reason to Not Invest and Reasons to Invest

There are always reasons not to invest in real estate. The most common reason used to be that people thought house prices were too high. Now, the situation has reversed itself and housing prices are at historic lows.

The time is ripe to start meandering in the direction of Fixer Upper Houses.

See What’s Happening in Your Neighborhood

You might want to check out how low houses are selling for in your neighborhood. You might be surprised.

You can find housing prices at Zillow.com or on the multiple listing service (MLS).

Don’t buy a house with a glaring defect

Sunday, January 30th, 2011

Opening up the old mailbag again, I am printing my response to a recent fixer upper email question that I received.

Hello Terry,

I’m writing you with a somewhat specific question.

I am looking at a house at xxxx Star St. in Duluth, MN. It’s a vacant house (so many are nowdays) and the listing price 39k. Repairs look to be 10.9k plus a fee of 1,100 for re-registering it as occupied.

I walked through the house, visually it’s fine. I like the house, don’t get me wrong. New windows, carpets, paint, etc. But the repairs are mostly plumbing etc. Should I put in my bid for 39k EVEN or throw it down for 29k?

It’s in a fairly low crime area, but across the street is a halfway house for prisoners just getting out into the world…Prior values in the 200k for this area before the Great Collapse….

Thank you for your time,

Malcom

Dear Malcom,

What I see is a red flag that should influence your decision.

The location of the house across the street from a halfway house is going to considerably limit what you can do with the house. Regardless of whether you are going to turn it into a rental or flip it, you have a very limited pool of potential tenants or purchasers. In my opinion, most people would not want to live there.

Consider, if you had a tenant who had a choice to rent your property, or one in another neighborhood nearby that did not have a half-way house across the street. Which would they choose?

Granted, the purchase price is low. However, in my opinion, it’s better to spend a little more money for a house that doesn’t have a glaring defect.

There are a lot of properties on the market right now, and many at bargain basement prices. If I were you, I would consider looking around for another one.

Donald Trump said, “Sometimes your best investments are the ones you don’t make.”

Best of luck in your business.

Best regards,

Terry Sprouse

Turn Your Home into a Rental Property (video)

Tuesday, November 23rd, 2010

What is the most powerful thing in the world?

An idea that has been planted in a person’s mind.

To improve your economic security you should plant in your mind the idea you should never sell a house. Converting your home to a rental house can provide long-term rental income and economic security to you and your family.

 

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How to Get Money to Buy Rental Houses (Video)

Thursday, September 16th, 2010

During my interview with the inimitable Dan Ramey, at WBEX 1490 1490 AM in Chillicothe, Ohio, he asked whether or not people should be concerned about refinacing their house to make a downpayment on a rental house.

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!

Here is my new video that shows the process of putting your lazy home equity to work for you:

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Getting Started with Fixer Upper & Rental Houses (Video)

Friday, September 10th, 2010

I think that buying fixer upper houses and turning them into rental properties is the easiest way to make money in real estate. You can do it in your spare time and still work your 8:00 to 5:00 job. And, rental houses can create a steady new income stream, that could even allow you to retire from your regular job, as I did.

This video which provides a general overview of the process for starting up a fixer upper and rental house business.