The intrepid Sharon Vornholt, of Louisville Gals Real Estate Blog, interviewed me last week about how I got started in my fixer-upper house business. Today she posted the interview on her website. It’s entitled “Escaping the 9 To 5; How I Did It Interview With Terry Sprouse.”

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

Also for your reading pleasure:

Top (Secret) Book Marketing Tips on Amazon – Part 2

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.

3. Investing in Real Estate, by Gary Eldred.

4. Arizona Landlord’s Deskbook (or the equivalent for your state.) by Carlton Casler.

5. Real Estate Debt Can Make You Rich, by Steve Dexter.

6. Wiring 1-2-3, by Home Depot

7. Plumbing 1-2-3, by Home Depot

8. Flooring 1-2-3, by Home Depot. Are you getting the impression that I like the Home Depot books?

9. Fix it Yourself Manual, by Reader’s Digest.

10. Upside Up Real Estate Investing, by Bob Zachmeier (teacher of the first real estate class that I took).

Learn the Ropes

My wife and I didn’t know much about repairing houses before we started our fixer-upper business, but like fine wine, we got better as time went on. One important rule in the fix-up profession is that you must constantly strive to become self-sufficient and learn all aspects of the profession. You must become an expert in your new business, even if you only do it part-time.

You can learn from others, but you have to rely on yourself to get ahead. Like the novice swimmer who is tossed in the pool, sometimes it’s sink or swim. You must learn by doing.

Trust Your Own Judgment

There are times when destiny forces you down a certain path in life. Other times, you make you own destiny by choosing to walk down a difficult path.

My plan when I bought my first fix-up house was that I could learn as I went along. I thought if others had learned to do it, so could I.

When I bought my fist fix-up house, it was like being stranded on a desert island. I was forced to learn new skills to survive, like Robinson Crusoe. The best way to learn new skills is by putting yourself in a situation where you are forced to change and adapt.

Before embarking on his life-transforming mission, the hero in the book Dune was advised, “Unless you change, something inside you sleeps.”

Foreclosure Update

The bank accepted someone else’s bid over mine for the foreclosed property that I bid on. My new target property is a 3 bed, 3 bath townhouse that is being offered for $69,900.

It’s an honor, once again, to have tax accountant, Sean McCoy, E.A., Chartered (PC), discuss tax issues on my blog, particularly in light of the looming deadline to submit income taxes.

Today Sean will discuss:

1. Changes to the tax code that affect real estate investors;
2. Issues related to purchasing forclosed properties;
3. Pros and cons of self-directed IRA accounts to purchase real estate; and,
4. Tax considerations when owning out of state properties.

In a nutshell, one night when a gymnast, Dan, cannot sleep he wanders in to a service station and meets a mysterious man. Dan injures his leg in an automobile accident and the mystic helps the gymnast to overcome incredible odds and tap into new worlds of strength and understanding.

At the end of the film, Dan is trying out for the Olympics, after making a startling comeback from his accident. A teammate asks him if can share some tip that he has learned from his training with Socrates to help him do his routine. Dan tells him to get rid of the garbage in his mind, to just forget about winning and his parent’s expectations, and to just focus on the routine.

But, the teammate just doesn’t get it. He replies that he has to win the gold medal, and everyone is counting on him to win. If he loses, he will let himself, and everyone else down, and he’ll never be happy.

What’s really interesting is the expression on Dan’s face as he listens to his teammate, and his realization that he used to think exactly the same way.

How this relates to fixer-upper houses

The movie made me think about how the fixer-upper business is like being a peaceful warrior. The Peaceful Warrior said, “Service to others is the highest good.”

I don’t think its stretching things too far to say that we provide a service. We purchase properties that are worn out and shunned by society. We rehabilitate the houses, make them presentable again, and provide a nice place for people to live in.

“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

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.

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.

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.

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 pur-chasing 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 suc-cessful 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).

Go confidently in the direction of your dreams. Live the life you have imagined.
– Henry David Thoreau

While you pay a price for following your dream, you also pay a price for staying where you are. You lose the opportunity to develop new life-coping skills that help you deal with unexpected crises or joblessness. You may suffer from depression by staying in a debilitating job.

Marsha Sinetar, in To Build the Life You Want, Create the Work You Love, says that excelling at a job that you love could be the best mental health insurance for people who feel depressed or anxious about their work. Americans spend $12.4 billion each year to treat clinical depression.

Do You Have Zest and Gusto?

Science fiction writer Ray Bradbury, in Zen and the Art of Writing, wrote that, “life is short, misery sure, and mortality certain.” Yet, he advocated that as we move along life’s way, and in our work, our lives should be filled with “zest” and “gusto.” With zest and gusto, traveling to the grave, Bradbury vowed to fight injustice, appreciate beauty and encourage children.

Is there enough zest and gusto in your life to fight in-justice, appreciate beauty and encourage children?

What do You Trade Your “Life Energy” For?

We should wisely use the time that we must devote to work. Our working hours constitute at least one-third of our lives during the work week. As Joe Dominguez and Vicki Robin point out in Your Money or Your Life, money is what we chose to trade our time, or “life-energy,” for. The authors distinguish between “wants” vs. “needs,” and promote not wasting money on unnecessary consumer goods. Instead, they advocate conscientiously saving money until you reach the point where you can free yourself from the working treadmill.

Fixer Upper Houses was Right for Me

The independence of working with fix-up houses was this type of “right” job for me, and can be for you too. It can be the road to operate a business that develops one’s inde-pendence, creativity and imagination. With real estate, you can invest a small amount and gradually accumulate money as both your rental income and equity increase over time.

Video of TV Interview for “Carve Out Your Niche”