the beginning
LIVING THE DREAM Opinions and recommendations given in this book are based on the author’s actual experiences and on research believed to be reliable. It should be noted that investments described in this book have been chosen to demonstrate a given point. This book is sold with the understanding that the publisher and author are not engaged in providing legal, accounting or other professional services. If legal advice or other expert assistance is required, the reader should seek competent professionals in those fields. If you do not wish to be bound by this statement, you may return this book to the publisher in good condition for a full refund.
Published and Distributed by: KJAY Publishing Co. P.O. Box 491779 Redding, CA 96049-1779 www.fixerjay.com 1-800-722-2550 COPYRIGHT by KJAY Publishing Co. First Publishing 2013 All rights reserved. No part of this book may be reproduced in any form, by any means, without written permission from the author, except when used in advertisements for this book or other written material by this author. Manufactured and printed in the United States of America. Library of Congress Catalog Card Number ISBN 0-9621023- 4-2
ii
LIVING THE DREAM PRODUCT 8210
CONTENTS -WHO IS FIXER JAY -WARNING TO READERS
CHAPTER 1
PAGE NO.
Become the First Millionaire on Your Block
1
2
Seller Financing – Investor
11
3
The Power of Leverage And Compounding
17
The Best Stay At Home Business Opportunity
21
5
Your First Gold Mine Opportunity
28
6
Financing and Control
37
7
Rent to Value Ratio
42
8
Dreams Can Come True At Any Age
50
9
The Right Vehicle – 5 Units or More
53
10
Investing With a Different Twist
61
11
Answers to Most Common Questions
69
Dream a Little Playing What-If
73
The Ball’s In Your Court – It’s Up To You
79
4
12
iii
LIVING THE DREAM
WHO IS FIXER JAY? Jay P. DeCima (“Fixer Jay”) is a seasoned investor/landlord and a national bestselling real estate author. Over the past 30 years, Jay’s popular books and “Investor Training Seminars” have helped thousands of small-time investors create second incomes and launch “full-time” investment careers. Jay’s unique investment strategies are ideally suited for small-time, “Mom and Pop” investors who most often have very little money to start with! By developing their personal skills and learning the right kind of income-producing properties to acquire, Jay’s students are soon competing with their wealthier competition! Today, Jay spends his time managing and overseeing his investment properties and teaching others who wish to learn more about building their personal real estate wealth! Jay’s current hobbies are visiting Civil War battlefields, cruising on the high seas and writing more books about his life-long passion, building real estate wealth starting from scratch!
iv
LIVING THE DREAM
WARNING TO READERS If you happen to be an “eager beaver” or wanta-bee investor searching for the best way to invest in real estate – and you also have a very limited start-out budget, which includes almost all regular working folks – this book might read like a miracle from heaven – or, your constant reminder how close you came to the gold mine – but walked away! First, I’d like to show you how one small six unit investment property can literally make you a millionaire landlord!
Then I will tell you about my personal
investment plan that can help you become totally financially independent within a very reasonable period of time. I intend to let you in on a variety of moneymaking opportunities that can ultimately put you and your family on “Easy Street”. I call my plan “INVESTING WITH A DIFFERENT TWIST”, and although it’s not really new or original – I often describe it as a revised version of an older model with a brand new “hi tech” carburetor. Best of all, my plan works extremely well for both part-time investors and career changers alike! I’ll show you how to maximize your monthly income in the shortest amount of time, build yourself a million dollar investment portfolio and retire like a king!
v
LIVING THE DREAM
There is however an unfortunate downside for looky-loo’s and dreamers. It comes from learning about this lucrative profit-making opportunity I’ll be sharing – and then doing absolutely nothing about it! Failure to take action can have a devastating effect on your financial aspirations for many years to come, therefore; please be advised – reading any further shall be at your own risk! FIXER JAY
vi
LIVING THE DREAM
Chapter 1 BECOME THE FIRST MILLIONAIRE ON YOUR BLOCK
Folks who’ve read my books, newsletters or attended my Investor Training Seminars already know something about my background and experiences as an investor. I’m pretty much a two career guy who worked more than 20 years for the phone company, then spent the rest of my life up till now as a full-time investor. I began investing in real estate while still in my 20’s – and basically “moonlighted”, fixing up junky houses nights and weekends while splicing telephone wires during my day job. After 50 years investing, a good number of successful “money-making strategies” have rubbed off – and without trying to toot my own horn too loudly, they’ve made me financially independent. That said, there’s one strategy in particular I want you to know about! Pay close attention here because what I’m about to show you is the best one I’ve ever found for regular everyday investors without a suitcase full of money to start with. I will promise you this much – if you’ll take what I tell you seriously and learn the ropes, financial independence can be yours as well!
It took me 20 long years of my investing life to make the switch over to properties like Cherry Street, and during most of that period, my bank hovered around -1-
LIVING THE DREAM
“almost empty”! All the while, I desperately tried to make my single family houses cash flow! Suddenly one day I finally figured out that highly leveraged houses with big mortgage payments take way too many years before there’s hardly a whiff of cash flow! Friends, Cherry Street is 100 times better, and I’m about to show ya why!
MY MILLION DOLLAR VEHICLE
Cherry Street (not real name) was not any different than hundreds of other small multi-unit rental properties you’ll find in almost every decent size town or city in my state (California). In fact, you can find Cherry Street properties in just about every state in towns or communities with populations of 4500 or more. Many newbie’s, or start-out investors claim they have great difficulty finding these small multi-unit properties – however; I’ve found the main reason is because their sights are generally set on finding single family bargains rather than small multiple unit properties like Cherry Street. If your goals as an investors are anything like mine – that is, you’d like to “speed up” your cash flow earnings and start making profits in a much shorter period of time – pay very close attention to what I’m about to tell you next. It’s what I call my millionaire strategy for Mom & Pop investors!
CHERRY STREET – MILLIONAIRE MAKER
My first real up close look at six older houses all snuggled together on an oversized city lot with a skinny dirt driveway running down through the middle sorta reminded me of an old Norman Rockwell painting with the paint all smeared together!
About sixty years old I’m guessing – each house had two small
bedrooms and a single bath! They were pretty much typical of the smaller homes -2-
LIVING THE DREAM
built during the late ‘50’s and early ‘60’s. Small “cottage style” houses like Cherry Street, are an excellent find for investors like myself because they are extremely easy to rent – and they’re affordable for most of my customers (tenants). Purchased at the right price, I can easily afford to spend a few bucks to spiffy ‘em up, making them very attractive for my rental customers! Best of all, I can still make a decent profit for myself.
Before moving on, I want you to underline those last two sentences and never-ever forget them! They contain 38 words that are the essence of making a million dollars in the income property business. Let me say this one more time so it’s perfectly clear! Investors who are willing to step outside the box - learn a few new investment skills, can acquire these properties – rent them at affordable rates and earn very respectable profits while the tenants are paying off the mortgages and all the expenses along the way.
When you compare my results to investing in single family homes or flipping properties, you’ll be absolutely amazed at my huge profit advantage. Naturally, you must keep the properties and manage them, but in the end they’ll make you a wealthy investor. If becoming a financially self-made millionaire is your goal – stay tuned! I’ll show you exactly how it’s done. Take a close look at my Cherry Street property showing the actual dollar numbers my six little houses produced! I think you’ll be thoroughly convinced that my multiple unit strategy is the best game in town! Before I show you Cherry Street, let me make something clear – I love all income-producing real estate, including single rental houses. However, it’s the order of buying where I’m different than most other teachers.
-3-
LIVING THE DREAM
I believe small-time beginners need to develop dependable cash flow or monthly income first! Cash flow is what keeps the doors open! Once you have money coming in every month that you can count on - then buying good solid break-even houses is just fine! To accomplish this goal – buy Cherry Street properties first
-4-
LIVING THE DREAM
Purchased Many Years Ago With The Following Terms: Purchase Price: Down Payment Seller Carryback
$145,000 20,000 125,000
Terms: 15 Years – Seller Financing
-5-
LIVING THE DREAM
CHERRY STREET HOUSES I operated the property for 26 years, then – I sold with the following terms:
Selling Price
$650,000
Down Payment Received
50,000
I Carried Back A Note For 20 Years with the Following Terms:
600,000
Payments to Jay $3250 per Month Interest Only 6.5% with Principal of $600,000 – All Due In 20 Years.
-6-
LIVING THE DREAM
TOTAL OF ALL MONIES RECEIVED BY JAY
Total Rents Received Down Payment from Sale
$999,010 50,000
Interest Income Seller Financing
780,000
Jay’s Note Principal Payment (End of 20 Years)
600,000
TOTALS – START TO FINISH
$2,429,010
-7-
LIVING THE DREAM
FINANCIAL RESULTS – BENEFITS
Jay Earned Back His Initial Investment Down Payment of $20,000 --- 121 Times
For Every Year Jay Owned – And Financed The Property – Cherry Street Provided An Average Annual Income of $53,000
Average Rents During Jay’s Ownership Less Than $550 per Month per House
-8-
LIVING THE DREAM
Pretty impressive earnings – wouldn’t ya say? Some may argue that $2,429,010 is indeed a lot of money, but its gross earnings! Fair enough - it is gross, and I paid mortgage payments as well as normal expenses along the way while I operated the property. Still, $2,429,010 far exceeds all the money I ever spent on Cherry Street. You also need to understand this – before I reached my seventh year of operation, I had all my fix-up expenses, plus my down payment money back in my pocket! In other words; I had none of my own money left in the deal – and here’s the beauty. From the seventh year until I sold Cherry Street, my tenants paid for everything! They paid all my expenses – plus every single mortgage payment till they were all gone!
-9-
LIVING THE DREAM
REASONS TO CONSIDER INVESTING IN MULTI-UNIT PROPERTIES 1.
Investment not affected by an up & down economy – or recession.
2.
Not dependent on bank financing.
3.
Much easier to create your own employment.
4.
Monthly income indexed to inflation.
5.
Keep your money – no FUTA, FICA, state withholding.
6.
Ideal family business – generous write-offs.
7.
Easy to expand in any economy.
8.
Many “high Profit” related benefits.
9.
Rapid wealth builder for net worth.
10.
Guaranteed retirement income.
- 10 -
LIVING THE DREAM
Chapter 2 SELLER FINANCING INVESTORS MUST LEARN HOW
During my book tours, almost everyone who saw my Cherry Street slides were absolutely “blown away” by the impressive dollar numbers generated by the property! Remember, the numbers are gross earnings – not net, and of course, I did have mortgage payments and expenses. Still, as you probably have already guessed, there was plenty left over for me!
McGraw Hill, my giant New York publisher called me several times during their review of my manuscript! At first, they told me their real estate staff didn’t believe I could negotiate seller financing in an age when real estate mortgages were at their lowest rate in 60 years. One expert (so he calls himself), told me that seller financing only happens when banks charge high interest rates for mortgages or when they stop lending altogether like during the Jimmy Carter years.
I invited my personal editor to fly out to California and review my closing files since I’ve kept them all from day one. After I told the crew at McGraw Hill that not only was Cherry Street financed by the seller, but also more than 80% of all my deals are financed by sellers – plus, I can prove it! That really snookered ‘em! - 11 -
LIVING THE DREAM
Apparently they didn’t know what else to say, so they just quit calling. Needless to say, they didn’t bother flying out to visit me either. In all fairness, I did convince them that properties like Cherry Street with more than five rental units on a single lot are considered commercial mortgages at the bank – and for older properties like Cherry Street; new mortgages are pretty much out of the question!
YOU MUST HELP YOUR AGENT HELP YOU
Negotiating seller financing and convincing reluctant real estate agents to help you is something all successful investors must learn how to do! Buyers need to personally talk with sellers, look them straight in the eye and negotiate seller financing. This idea pretty much flies in the face of real estate agent training 101! Agents are taught that principals should always be kept separated – much like bulls from the heifers!
No seller, including me; is likely to ever carry long-term
financing for a buyer unless they can meet him or her personally and judge for themselves whether they seem like a reasonable risk! Underline this next sentence, its important! Real estate is always about people and their needs! You need to meet ‘em to find out what those needs are!
Because seller financing is one of the most valuable benefits to my investing strategy – my home study course, “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”, dedicates several chapters and CD lessons to the subject. Seller financing is a big money-maker when you’re the buyer – and again, when it’s time to sell as you’ve already observed with Cherry Street. Since wrap-around financing is also very important, and is always recommended, when you are selling a property with existing mortgage debt, my study course will teach - 12 -
LIVING THE DREAM
you how to write up or draft the mortgage contract. I’ll also tell you how to avoid a huge tax bill when you decide to sell a property with existing mortgage debt. This one lesson is worth the price of my entire course many times over!
MORE INCOME IS ALWAYS BEST
Properties like Cherry Street are not the best real estate investment because I say so! They’re best because they have more benefits that can make you richer – and, they can do it a whole lot faster than most other investments can!
A bit later, I intend to show how six (6) small properties like Cherry Street can provide you lifetime security, financial independence and a worry-free retirement far superior than Social Security. If you happen to be a two career person like me – take ‘em both! If you’re fairly young, Cherry Street might just be all that’s left – don’t worry, earning $100,000 a year should keep you outta the poor house – more about this later.
- 13 -
LIVING THE DREAM
In my slide presentations, I show an example of a medium priced single family house in my town that rents for $1100 per month. As an investor – or nonoccupying owner, it will cost me 20% for the down payment. The balance (80%) can be financed with a traditional investor mortgage. In this particular case, the asking price was $149,000 for the 3 bedroom house, so I felt pretty good when my offer of $125,000 was accepted! Here are the purchase numbers:
Purchase Price
$125,000
Down Payment
25,000
Bank Mortgage
100,000
Terms: 6.25% amortized 30 years - payments: Estimated operating expenses (35%) of income: CASH FLOW:
$ 615.72 385.00 $ 99.28
- 14 -
LIVING THE DREAM
MORE INCOME IS ALWAYS BETTER
A small six unit property that looks trashy and rundown with deferred maintenance, as they call it, would likely sell in my town for around $300,000. Depending on the seller’s motivation, a $25,000 cash down payment would probably be enough to purchase the property I’ve just described. Over the years, my average down payments to acquire these small multiple unit properties has been about 10%, depending on how the property looks.
CASTING A WIDER INCOME NET Let’s assume my out of pocket cost or the down payment is $25,000 (same as the house purchase), but for six units instead! Obviously, there’s no difference there! However, there’s a huge difference in the income these properties produce! The house earns $1100 per month or $13,200 annually, while each of the six multiple units bring in $625 per month or $45,000 annually. That’s almost 3 ½ times more income for the six units with exactly the same amount invested. My return on the investment (ROI) jumps from 53% for the house to 180% for the multi-unit property! Leveraging down payment dollars is truly like leaping tall buildings in a single bound! Remember Superman?
- 15 -
LIVING THE DREAM
Important Reasons to Invest In Income-Producing Real Estate 1. Investing the way I teach is guaranteed employment for your family if they wish. And most important of all – you become your new boss – and kiss your old boss goodbye.
2.
Investing the way I teach works the same in a good economy – or bad! It
don’t run hot and cold because shelter is needed by all of us. When you acquire affordable rental houses as I suggest – you’ll be setting up a guaranteed income for life.
3.
One of the best features of becoming a house provider is you can earn while
you learn. Investing is about learning new skills. Beginners are wise to learn a few basics before buying their first investment property. Be extra careful about who you select as a teacher. My advice – check ‘em good.
4. You do not need to be a genius or have a college degree! High school drop-outs can succeed same as anyone else who has discipline, determination and willingness to learn.
5.
This business can set you up for life! It can provide a sizable monthly income
of your choosing – build a large net worth for you and your family – and a very comfortable retirement you can depend on. reward for your efforts.
- 16 -
Financial freedom will be the
LIVING THE DREAM
Chapter 3 THE POWER OF LEVERAGE AND COMPOUNDING
Leverage and its twin sister compounding are two of the most powerful tools in your investor’s financial kit. You must learn to use them safely! Please underline safely because leverage can destroy your dreams of riches and security almost as quickly as it can create them! Just be aware, it’s a double edge sword that can cut both ways! Safe leverage will make you richer and a whole lot faster – let me explain how!
Referring back to the example of six rental units purchased for $300,000 with a $25,000 cash down payment – I want you to understand why leverage is such a powerful wealth builder. Since the entire property cost $300,000, that means the price for each rental unit would be $50,000 ($300,000 divided by 6 units = $50,000).
But because we are paying only $25,000 down, we are actually
investing just $4167 for each of the six units. That’s only about 08% of the total cost – but here’s what’s really exciting! We get to collect and keep 100% of all the rent money each unit generates because we were smart enough to be the owner. From an earnings standpoint, our $4167 investment will generate $7500 in income during our first year of ownership! Think about that for a moment! How much do you think you might have earned if your $4167 was in some bank account! If you - 17 -
LIVING THE DREAM
earned 10%, that would only be $417! This is how super leverage can speed up your wealth plans if you’ll invest your limited funds wisely.
THE MAGIC OF COMPOUNDING Albert Einstein is reported to have said: “Compounding is the most powerful force in the universe”! Let me explain my version of what Einstein is talking about.
Say for example; you decided to invest $1000 per month into real estate trust deeds that will pay you 12% annual compounding interest. It might be your personal savings account or retirement plan, but you must promise me you’ll leave the money alone for 20 years. In other words, you can’t withdraw or borrow any money from the account until after you’ve been investing for 20 full years. That’s my only rule! Now fast forward to 20 years from now! Can you make a guess how much money you’ll have in your account after investing $1000 a month for 20 years?
Would you ever guess you’d be a
millionaire? If you did, you’d be pretty close – you’d have $989,255 in your bank account! WOW – that’s a lot of money. I’m churning the numbers around in my head, but I’m coming up way-way short! When I multiply $1000 per month times 240 month (20 years), it only comes to $240,000! That’s absolutely correct, but what you forgot to plug in is the 12% compound interest earnings over 20 years. That number, my friend, is $749,255! Altogether you’ll have $989,255.
- 18 -
LIVING THE DREAM
Okay, I can hear ya thinkin’ out loud --- All this sounds like peaches and cream, but where does Jay think we’re supposed to find a $1000 every month to invest? Well – no one said this was easy. Still, lots of folks spend that much money on car payments, TV’s and new iPhones!
Eventually if you follow my investment
strategy, buying small multiple unit properties, you’ll create the extra income outta thin air – keep reading, I’ll show you how!
SELF-HELP AND SWEAT EQUITY
Earlier I told you why I was able to purchase a six unit income property in my town for $300,000 with only $25,000 down! Do you recall what I said about the property when I described its condition or how it looked? Almost all of us judge value based on the looks. Bad looks will greatly reduce the competition for these properties. Bad looks and ugliness also tend to lower the seller’s expectations - or his asking price. When you’re the buyer – this is exactly what you want. This is the situation where you make your biggest profits! Here’s what I told you earlier!
A small six unit property that looks trashy and rundown with deferred maintenance would likely sell for $300,000 in my town. Of course, that’s why the rents were only $625, even though comparable units in the neighborhood were renting for $795. Why the difference in the rents, you ask? Tenants won’t pay top rents for trashy and rundown units! Paint ‘em, clean ‘em up and plant nice green lawns with flowers and in a couple years or so, you’ll be able to get $795, just like the nicer units. By the way, this is where you’ll find that extra $1000 a month you need for investing in trust deeds. The difference between $625 rents and $795 equals $170 per unit. Multiply that times six rents and presto - you’ll have your thousand bucks. - 19 -
LIVING THE DREAM
THE BEST I CAN OFFER YOU
Earlier I told you I love all kinds of residential real estate investing from one room shanties to larger apartment buildings, but they all have their positive advantages, as well as their negatives. Since I’ve done ‘em all; I feel more than qualified to present you with what I consider the very best of the best for ordinary working folks who’ve been bitten by the investment bug! People I often refer to as “Mom and Pop” investors, much like myself when I first started. As a group, we’re very energetic working folks with a common desire to improve our financial lot! It’s also quite likely that we don’t have a great deal of money to start with! If my description fits you like it did me 50 years ago – you need to keep right on reading because I intend to let you in on a very special investment plan with more than enough income and profits to change your life forever – even the lives of your family if you choose. The beauty of my plan is that it works for part-time investors and full-timers alike!
It’s also perfect for career changers, family
business ventures and small informal partnerships. The nuts and bolts of my plan are covered from A to Z in comprehensive detail in my home study course: “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”. However, allow me to share some of the major benefits to show you exactly what I mean! Perhaps best of all, you won’t need a Master’s degree to be successful! Of course you will need some education – but that’s where my study course will come to your rescue!
- 20 -
LIVING THE DREAM
Chapter 4 THE BEST STAY AT HOME BUSINESS OPPORTUNITY I KNOW
Before I let you in on my wealth builder plan, which can greatly improve your financial security – I first want you to think long and hard about your future. If you’re young – what are your future job prospects? If you’re older, what about your retirement or your standard of living later on? If you’re somewhere in between – do you need more income now? Do you need a financial backup plan? Almost everyone fits in here somewhere, I’m sure! Assuming you do – then here’s the deal? If you are truly sold on the idea of owning income-producing real estate – and you wish to take full advantage of the extremely lucrative benefits it can provide for you – just keep reading!
I’m about to show you how you can
accomplish the task. Also, I want you to know you can do this a lot quicker than you might think if you’ll attend my INVESTOR TRAINING SEMINAR or educate yourself using my home study course to help you get started.
Many real estate book writers claim you need a special team of experts in order to be a successful investor! That’s pure horse pucky! These so-called experts won’t ever show up until after you’re already successful because you can’t afford to pay ‘em! There’s an old saying about banks and their lending policies – they’re willing to loan you money when you don’t need it. The same thing is true about the - 21 -
LIVING THE DREAM
experts. What you really need instead, is a good workable plan that you can adopt and make it work all by yourself. That’s exactly the kind of plan I’ll be telling you about. CHERRY STREET REVISITED
Back on Page 7, I showed you the financial rewards associated with my long-term ownership of six little houses on Cherry Street. Over the course of my ownership and the seller financing profits when I sold the property – my average gross earnings were approximately $53,000 per year – or about 121 times my initial investment of $20,000. This happened because I employed the two most powerful investor tools – leveraging and compounding! You’ve read how the magic of compounding works on Page 17! Well, guess what – it works the same way for all properties like Cherry Street! Talk about “hamburger helper”, you can’t leverage anything and get better results. This is exactly what broke investors need to get off the launching pad! A little later on I’ll introduce you to my lifetime investment model. It consists of six (6) separate properties containing 40 rental units. In my town, even with very modest rents of $695 per month, you’ll gross $333,600 annually and keep more than $100,000 for yourself. Right now however, allow me explain how you can accomplish this task without a ton of money to start with!
YOU MUST SELECT THE RIGHT VEHICLE You can’t drive up the side of a mountain in a regular passenger car, but it’s easy as pie with a rugged four-wheel drive “off road” vehicle! Passenger cars are just fine for highway driving, but they’re almost useless on the mountain side because - 22 -
LIVING THE DREAM
they don’t have the right stuff! Investing is much the same way! You need the right vehicle with the right stuff to earn the biggest paydays! To begin with, let’s assume your plan – or goals are to earn $100,000 annually and develop a cash flow stream quick as possible. I’ll assume, you’d like to accomplish these things before you’re as old as the instructor. To make this happen, you must first choose the right vehicle that can get you there! Buying single family houses with 80% mortgages simply won’t cut the mustard! Why not – you ask? It’s because mortgaged houses take too long! Remember, it took me 20 years to figure that out! (See Page 1) Whether your plan is part-time investing or you’re hoping to make real estate your new career – the vehicle should be the same! Why? Because I’ve yet to find an investor who told me cash flow doesn’t matter! It always matters to me, so I’ll just assume it matters to most other investors as well!
QUICKER CASH FLOW REDUCES RISK
The opportunity to acquire the type of property (right vehicle) that allows you to quickly increase the income – as well as the property value, is very important to any investor, both newbies and ol’ salts alike! The reason is --- Because it reduces risk and eliminates the fear of going broke! This is particularly appealing to family investment teams where everyone can feel much safer.
My example of a single family house with an 80% mortgage payment (Page 14) clearly shows why you need a better vehicle if your goal is to earn any serious money while you’re still a resident of this planet! You’ll note that my example - 23 -
LIVING THE DREAM
shows cash flow less than $100 in the best case scenario! With a two month vacancy, I’d be completely under water! I’ve been there, done that and believe me – it sucks! It’s far better to pin your hopes and dreams on a plan that can produce a lot more money – and much faster too! AGREED!
FINDING A DIAMOND IN THE ROUGH Under-performing properties, they’re called! It means the property is trashy, rundown and probably butt-ugly. The owner is likely to be a “milker”! Every month he sucks all the money (rents) from the property and never spends one thin dime to fix anything or even perform routine maintenance.
As a result, the
property is caught in a downhill spiral, looking shabbier every month, and attracting only marginal tenants who can’t pay regular market rents.
Finding the property I just described is like discovering gold in your backyard! Obviously, you’ll need to beef up your skills to take advantage here, but assuming you have my home study course; “Earn $100,000 Annually With Small Income Properties”, you’ll have the proper guidance to keep you in the moving forward mode!
HOW VALUE IS DETERMINED
Your first big profit opportunity could come rather quickly when you learn and understand how property values are determined! With single family houses, it’s pretty much cut ‘n dried! A licensed appraiser is summoned with his measuring tape and “boiler plate” forms! He draws a few sketches and then searches through the current records to find out what the same size houses in the neighborhood are - 24 -
LIVING THE DREAM
selling for. He then basically copies those prices, jiggles the numbers a little – and BINGO, there’s your appraised value! When the houses all look about the same, with roughly the same measurements, it’s hard to get much of a price break when you’re a house buyer. This is called comparable value or “comp’ing”.
MULTIPLE UNITS ARE MUCH DIFFERENT During my 50 years investing, I’ve yet to see two income properties (the kind I buy) that look very much alike! The kinds of properties I buy are actually called income properties. Houses are not called income properties! This is a very important distinction – and here’s why!
Income property values are mostly
determined by the income they generate along with two other factors – the condition of the property and its location! I want you to underline what I’m about to tell you next! Under-market rents can artificially lower an income property’s true value, but more importantly – it’s selling price! This can create a super opportunity to buy properties at a substantial discount for investors who have learned a few basic detective skills. Skilled investors buy income properties for income! When the income is not up to par – or it’s less than it could be; buyers will pay accordingly. Sellers (owners) who let their properties run down and become ugly will always suffer at the sales table! To repeat; multi-unit property values are primarily based on the following three (3) items:
AMOUNT OF INCOME LOCATION OF PROPERTY CONDITION OF PROPERTY - 25 -
LIVING THE DREAM
The two most commonly used methods to determine the value of income properties
are
CAPITALIZATION
and
GROSS
RENT
MULTIPLIER.
Capitalization is the most precise or accurate measurement because it’s based on net income, however; the gross rent multiplier is more widely used because it’s an easier calculation, and it’s close enough to establish a reasonable “ballpark” estimate of value. In my 50 year career, it’s about the only method I’ve ever used.
HOW TO HELP YOURSELF LEARN VALUES You’ll find using the GROSS RENT MULTIPLIER method is easy as pie, but you must first learn the rental rates (prices) in your buying area! You can do this by studying the classified “For Rent” ads – then driving out to the various properties to see what your rent dollar will buy you! Basically, you’ll be pretending to be a rental customer until you’ve developed a pretty fair knowledge about what different properties will rent for. Be sure to check out the various sizes (1BR, 2BR & 3BR), the condition of the property and of course; pay close attention to location! Don’t forget to take good notes for your future reference!
Local real estate agents can help you learn what investors are willing to pay for income properties in your local investment area! Obviously, if you’ll promise to do business with an agent, this learning process might just happen much faster. It’s called the “back scratch’n” formula – I’ll scratch yours if you’ll do mine! As I told you earlier, income property values are almost entirely based on INCOME, CONDITION and LOCATION. Once you learn the rents and property values, you’ll be able to develop your own GROSS RENT MULTIPLIER CHART for your area like mine on Page 27.
- 26 -
LIVING THE DREAM
GRM CHART (Gross Rent Multiplier) JAY’S INVESTMENT AREA 6 UNITS – HOUSES OR APARTMENTS
GRM
DESCRIPTION
RENT
ANNUAL
VALUE
13X
Snob Hill
$1,000
$72,000
$936,000
12X
Primo
950
68,400
820,800
11X
Deluxe
895
64,440
708,840
10X
Desirable
845
60,840
608,400
9X
Average
795
57,240
515,160
8X
Deferred Maint.
715
51,480
411,840
625
45,000
315,000
510
36,720
220,320
7X 6X
Trashy-Rundown Butt-Ugly
- 27 -
LIVING THE DREAM
Chapter 5 YOUR FIRST GOLD MINE PROPERTIES
You won’t find multi-unit income properties for sale sittin’ on every street corner like bank repo houses! The reason is because multi-unit properties generally make money for their owners – houses don’t! Therefore, one of the most important lessons you’ll need to learn is how to find them, or dig ‘em out! Like gold, they’re often hidden in the older established neighborhoods or tucked in out of sight behind the main house on an older residential street! Often you’ll find ‘em mixed in with small commercial properties where you would least expect to look. Don’t fret, there’s plenty enough to go around – and once you begin looking in the right places, they’ll start pop’n up like targets on a rifle range! Several chapters in my home study course, “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”, are dedicated to helping students find these properties – and how to contact owners with “cold-call” letters. When you can deal “one on one” with property owners, you’ll be in the driver’s seat! The reason is because it’s the owners who can make the kind of deals that will help you the most! This is one of the keys to negotiating seller financing with the kind of terms that can help you get cash flow! Besides, when dealing with an owner, there’s no commission to pay. Every little bit helps when you’re running on empty – agreed!
- 28 -
LIVING THE DREAM
SCOUTIN’ THE NEIGHBORHOOD
Suppose I learn about six (6) small houses in a desirable rental area that have suddenly become available for sale! I’m told the elderly couple that owns the property can no longer physically do the upkeep and they’ve decided to move to Florida! During the 30 plus years they’ve owned the property – their church friends have also become their tenants! This has worked out quite well because managing has been a breeze! Their only problem however – they’ve failed to keep their rents at current market rates because the tenants are their friends – plus they rarely call for repairs! As I’ve already told you – income properties are pretty much bought and sold based on the income they generate. As a rule, the higher the income, the more valuable the property. Obviously, lower income means less value! Most real estate salesmen or brokers will generally express an income property’s value in terms of gross earnings! For example; in my town, a six unit property in good condition, located in a desirable rental area would likely sell for about 10 times gross rents (see Page 27). For 2 bedroom units, each house would rent for $845 per month – therefore, 6 units renting for $845 each = $5070 per month or $60,840 annually. 10 times the gross rents would equal a sale price of $608,400.
The GROSS RENT MULTIPLIER CHART on page 27 shows you how values increase or decrease as the income goes up or down! Understand, these values are based on what investors are willing to pay for a specific amount of income. They can vary somewhat with inflation, scarcity and the interest (returns) what other investments are paying. Investors must study their particular market area before
- 29 -
LIVING THE DREAM
they can develop their own chart like mine. A knowledgeable real estate agent can help you a great deal, particularly in the beginning!
Now back to my example about the elderly couple wanting to sell! I told you they have a problem and I immediately realized there was great opportunity for me if I could strike a deal! Their average rents were only $695 per month in a desirable area where neighboring units similar to theirs, were renting for $150.00 more per month. This situation often occurs when landlords rent to their friends at below market rents – or when the owners no longer have mortgage payments to make (meaning they have more cash flow). Obviously, the most common reason for lower than market rents is when owners allow their properties to run down and they simply cannot charge market rents because of the condition. Each of these situations are “gold mines” in disguise for educated investors.
Referring to my gross rent multiplier chart on page 27, you can see that $695 rents would translate to slightly under an 8 x (times) gross rent multiplier (GRM). Yet, as I’ve already told you, the elderly couple’s property was located in a desirable rental area! Once again, referring to the chart, you will note that rents in a desirable area are $845 per month. This is what investors refer to as an underperforming property. Notice that six (6) units renting for $695 per month – or $50,040 annually would likely have a value between $375,000 to $400,000 (see chart Page 27, far right column).
- 30 -
LIVING THE DREAM
STRIKING A DEAL
Lots of money can be made by finding under-performing assets; both real estate and small businesses alike – then turning them around. Corporate raiders become rich and famous when they possess the ability to do this! But they are not alone however! Small-time real estate operators can become very wealthy tycoons doing the same thing. A good start would be acquiring the elderly couple’s six (6) small rental houses using my example on the previous pages.
In my town, a fair offer for six small 2 bedroom rentals (detached houses) earning $50,000 annually would be somewhere around 8 times the gross annual income. 8 x $50,000 equals $400,000 back when I went to school – I assume it still does! When I say around 8 x gross; the word around always means a bit less to me. Thus, my offer will be $360,000, which translates to $60,000 per unit. The rent-tovalue ratio is still over one percent (.011), which I consider good. ($695 rent per month divided by $60,000 unit price) If the seller agrees to carry the financing giving me what I consider good terms; who knows – I might even show my generous side and pay up to $450,000. Good terms to me means – ten percent (10%) down payment and a monthly mortgage payment of around 50% of the total monthly income. In this example; the total monthly income is $4170, therefore; a mortgage payment of $2100 per month is about what I’m shooting for. Although my first offer will likely be $360,000, let’s assume I’m countered (or got pushed up) to $400,000! Here’s how my offer might look:
- 31 -
LIVING THE DREAM
JAY’S GENEROUS OFFER
Total Selling Price
$400,000
Cash Down Payment Seller Carry-Back Financing
TERMS:
40,000 360,000
Payments to Be $2158.40 per Month Including 06% Interest Amortized 30 Years
Although my monthly mortgage payment is $58 higher than my target mortgage payment of $2100, it’s still within the acceptable range for me.
Remember, this stuff is not set in concrete. There are ways to be flexible! The variables are selling price, down payment amount, and of course, the mortgage interest rate. IT’S NOT THE ECONOMY – IT’S YOUR KNOWLEDGE AND SKILLS Let’s assume we close the deal with the elderly couple like my example above – “Jay’s Generous Offer”! Can you visualize your earnings and profits? In case you can’t – let me tell you that finding an under-performing property is like hitting the super jackpot. If you’re a “do-it-yourself” investor like me; you’ll enjoy cash - 32 -
LIVING THE DREAM
flow starting on day one of your ownership! When you manage the property – and do your own maintenance and repairs, you’ll save yourself about 25% of the operating costs, which in this example will put about $500 per month extra in your pocket.
The real payday comes from your buying skills because almost immediately you can begin raising rents to match the neighborhood units, which we’ve already determined are $845 per month. As a rule, I do these rent increases gradually as new tenants move in. It’s also my policy to make a few improvements – paint the units, build some new fences and upgrade the yards so new tenants – and even the existing residents see they’re getting some real value along with their increased rent payments. My time limit for bringing rents up to the current market value is generally about 18 to 24 months. I raise the rents in modest amounts during this period and try to reach full market rates by 24 months or so.
Gradual rent
increases while making visible property improvements along the way won’t stir up the tenants like big rent increases for no obvious reason!
FORCED APPRECIATION ALWAYS WORKS The beauty of what I’m about to tell ya is that you can have absolute total control when you acquire the kind of income properties I suggest! It don’t matter a “hill o beans” whether there’s inflation or mortgage funds available! Neither does it matter if the economy is completely in the dumper or if your credit score is less than the days in a year! Why – because everything I’ve told you so far is 100% within your control. Personal control is one of the key factors to becoming financially independent and rich by the time you’re old like me!
- 33 -
LIVING THE DREAM
Let’s fast forward about two years from now and take a quick peak at our six little houses example! If you did what I’ve suggested, you should have the rents up to the market rate by now ($845 per month)! Like I’ve already told you, the value for rental units is primarily based on the income they generate. In this case $845 x 6 units equal $60,840 annually. We know the property is located in a desirable area – thus the value is $608,400 as shown on my GRM chart on Page 27.
As the owner, you would now enjoy rents of $900 more than when you acquired the property – plus equity of nearly $250,000 – life is good. Best of all – you did it all by yourself because you were serious about the value of educating yourself before you struck
out on your own and made some stupid mistakes.
Congratulations!
If for some reason you believe my only purpose in telling you my million dollar secrets is to sell you my training course – give yourself some credit – but you’re only half right! The other half is because I have 50 long years experience doing this stuff and you really need my help! If your goal is to speed up your success, and make money a whole lot quicker than you can by yourself – I’m your shortcut! Remember, I spent 20 years buying houses with hardly any cash flow and without any help! Believe me when I tell ya – that’s like a slow boat to China – you and I together can beat the pants off of that - GUARANTEED!
LEVERAGING PROPERTIES AND THE TENANTS WHO PAY You don’t need 20 or 30 houses scattered hither and yawn like I once owned. You’ll be light years ahead acquiring just six multiple unit properties with 40 - 34 -
LIVING THE DREAM
rents coming in every month. That will make you a millionaire several times over; with a whole lot less effort. My home study course; “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES” is an inexpensive way to get you started down the right path today! Believe me, right now is the investor’s perfect storm! Here’s what several of my “die hard” students have said about my training over the years. And no – I didn’t pay ‘em either!
- 35 -
LIVING THE DREAM
WHAT OTHERS HAVE TO SAY Jay: I love your courses. I’ve been an investor since 1978. I now own 20 units. I have applied your knowledge to my recent rehab and I’m very satisfied. I’ve listened to your tapes over and over and they’ve really helped me. I’m your best customer for any new courses you write – especially about landlording. Thanks much - Brian Felch, Columbia, MD Hi Jay: I’m probably your biggest fan. Being a single mother with two small children, I’m especially grateful for your help. I was able to acquire 5 rundown houses in 2 years, which I sold so I could be a stay at home mom with a good income. You were a life saver to me. Beth Rosander, San Francisco Area, CA First Jay: Thank you so much for all your help. Your counseling has been extremely valuable to me. After attending your 3 day seminar in Las Vegas, I returned home (Sacramento, CA) and purchased 24 houses in one location using the seller financing you taught me. Thank you Dan Shea, Kentfield, CA I just wanted to thank you for a wonderful course this weekend. Your course was extremely practical and useful – and thankfully lacking the puffery of so many real estate gurus. I was very impressed by the breadth of your knowledge and by your generosity of sharing it with us. Thanks for a great seminar. Cheers! Richard Kelly – San Francisco, CA Jay’s Fixer Camp is the absolute “Gold Standard” when it comes to learning all about adding value to multi-unit properties. Jay’s cash flow techniques are nothing short of amazing. I highly recommend Jay’s seminar. John Schaub, Investor, Author, Educator – Sarasota, FL Great seminar Jay! Boy did you ever open my eyes to a whole new way of thinking. A job well done! I really enjoyed the whole experience and plan to send others to see the light. Mike Cantu – Alta Loma, CA - 36 -
LIVING THE DREAM
Chapter 6 FINANCING AND CONTROL
How you finance your real estate holdings makes all the difference in the world. One of the major reasons I invest the way I do and in the kind of properties (multiunits) I’m writing about –properties I often call “the right vehicle”, is not because I’m in love with these properties.
It’s because they create the biggest
opportunities for the biggest paydays in the quickest amount of time! When banks loan money for mortgages, after you’ve paid 10 or 20% down – would you care to make a guess about who might have the most control or say-so about your property! If you guessed the bank – give yourself an A+, you’re catchin’ on! Bank mortgages control what happens to the property with fancy clauses like “Due on Sale”, meaning no one else can assume or take over the mortgage without their permission. Also, unless the mortgage is for your personal residence (owner-occupied), you are generally personally liable for any monies less than a full payback should the property ever be sold for less than the mortgage balance; such as foreclosure auctions or a short sale. That just plain sucks, in my opinion!
- 37 -
LIVING THE DREAM
When you purchase five or more units; the bank calls this a commercial loan or mortgage! These are very difficult to get unless you’re building a shopping center or new commercial development! So if you follow my advice about buying older multiple unit properties (over 5 units) and they look a bit shabby and rundown – you can forget about your prissy little loan officer at the downtown branch. Don’t even bother bringing the pictures either! He’ll throw up! Banks don’t do commercial mortgages for older junky lookin’ rental properties. Besides, they understand that Mom and Pop investors are generally highly leveraged. Many are investing on a shoe string – and some don’t even have a W-2 from a regular job! Banks really hate that!
SELLER FINANCING IS THE ONLY GAME IN TOWN Since the banks won’t come out and play, small-time investors like myself must look for long-term financing elsewhere. In short, we must ask the sellers to participate! Most sellers who own the kind of properties I’m looking for already know that banks won’t provide mortgages, therefore; these owners are fully aware that financing will be up to them! You could say that buying the older multiple unit properties (5 or more units) like I’m suggesting, actually forces seller financing if the owner wishes to sell his property! When sellers agree to “carry paper” or finance your deals, it’s far different than a bank mortgage! To start with, bank mortgages are actually a loan – meaning real money was used! When the bank provided a mortgage so you could buy the property, they actually used depositor funds to pay off the seller! In turn, you - 38 -
LIVING THE DREAM
signed a promise to the bank that you’ll pay the money back along with interest over a period of 20 to 30 years. The bank earns a profit on the money in the form of interest income until they are paid back all the original loan (mortgage) amount. Seller financing is not a loan – real money is not being used! The seller is simply allowing you terms; say like 10 years, to pay for his property. He’s not loaning you one stinkin’ dime. He’s extending credit to you because you cannot pay for his property all at once! Instead, after an agreeable down payment – say 10%, he allows you to make payments over a certain period of time until he receives the total “Agreed-To” price for his property! Just remember; bank mortgages mean real dollars have been loaned – with seller financing, that’s not so!
Seller
financing is only about terms! I need you to understand this distinction because one will make you rich – the other a whole lot poorer!
BUYING BACK YOUR OWN DEBT If you have a bank mortgage, you can keep reading, but you’ll hate yourself in the morning! Why is that, you ask? Because I’m about to tell you about a big profit opportunity that won’t work with bank financing – yet, it’s quite common with seller financing (terms).
Sellers who own properties (multi-units), the kind I buy, will generally accept 10% cash down payments when they sell to me. Would they like more cash if they could get it? The answer is yes; but with older properties, especially if they’re rundown looking and not kept up too well, most investors are simply not willing to pay much more than 10% down! As a general rule, the kinds of investors who are interested don’t have much more than 10% to give! Also you mustn’t forget, the - 39 -
LIVING THE DREAM
competition to purchase six junky looking rentals on a single lot is only a small percentage of all the wanta-bee investors roaming around looking for properties to buy! Roughly 95% are looking at single family houses! When you negotiate seller financing on your property – as opposed to a bank mortgage, you’ve set yourself up to earn bonus profits in the future buying back your own debt – or financing! I’ve found the type of sellers who allow their income properties to run down (often called milkers) are always needing more money! They seem to manage money about the same way they manage their properties!
MAKING $85,000 THE EASY WAY
Years ago I purchased a six (6) unit rental property for $200,000 with 10% down ($20,000). My payments on the balance ($180,000) were $1200 per month. Just thirteen months later the seller needed cash to open a new restaurant. He was more than happy to take my $95,000 cash as the full payment for his 20 year, $180,000 promissory note.
I borrowed the $95,000 to pay him, cutting my monthly
payments to $765 per month. These large discounts for cash are not the least bit uncommon when you acquire properties financed by the seller.
Think about this for a moment!
Only thirteen months after I purchased my
property for $200,000, I get $85,000 back in the form of a discount! This means I’ve actually acquired my six (6) rental units for only $115,000. This is only possible when you buy properties from sellers who provide the financing (terms). Dealing with people, rather than banks is one of the most profitable benefits when you invest the way I teach. Buying back debt at super discounted prices works - 40 -
LIVING THE DREAM
equally well when you purchase my kind of properties and assume or “take over” the existing private financing that comes with the deal! Learn more about this in my home study course, “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”.
The more you can learn about creating your own financing – which sometimes includes paying no interest at all, the more money you’ll start making – and keeping for yourself. Once again, I’ll remind you what I’ve told you several times already. You must select the right vehicle to enjoy the kind of benefits we’re talkin’ about.
- 41 -
LIVING THE DREAM
Chapter 7 RENT TO VALUE RATIO
Investing is about $ numbers and investment returns and you don’t need to make it too complicated or difficult to figure out. My RENT-TO-VALUE measurement works just fine for me because it’s easy to use and gives me a good feel about how much money each one of my rental units is earning in relationship to its worth or value! For example; suppose I purchase a six unit property for $300,000 – and further, each of the six units is valued at $50,000 ($300,000 divided by 6 units = $50,000), lets also agree that each unit will rent for $750 per month after a few repairs and a spiffy new paint job! My rent-to-value formula is calculated as follows! $750 rent divided by $50,000 value = .015 or as I call it, a 1.5 ratio. This 1.5 ratio means my $50,000 asset, the rental unit, is earning or bringing in an 18% annual rent return! To verify the math; multiply 0.18 x $50,000, which equals $9000. Obviously, $750 per month for 12 months = $9000.
By comparison, a single family house in my town with a value of $150,000 only rents for $1100 per month! Therefore, $1100 rent divided by $150,000 value = .007 or as I call it, a 0.7 ratio! This means the house brings in or earns less than half the annual rent return compared to my multi-unit property above! A 1.0 ratio - 42 -
LIVING THE DREAM
equals 12% annual rent return or the equivalent of 01% per month. As you can see, my vehicle of choice (multi-units) blows away the competition when it comes to the return on my investment!
QUALIFICATIONS FOR REAL ESTATE INVESTING The real beauty of real estate investing is that it’s wide open to everyone regardless of education, age, background, male, female or the size of one’s savings account. Much like any other business venture; having a few bucks saved up can make getting started a bit more comfortable!
However, far more important than a
savings account is one’s commitment to learning what to do (education), then quickly following through with a plan of action.
Basically, it means learning enough about rents and values so you can go out and acquire your first property if you’re just a beginner – or you can make a quick switch if you feel your current plan is not up to snuff! More than anything else however; you must follow your dream and stay totally focused until you achieve the goal. Along the way you must constantly “muster up” the discipline to stay on course! Professional golfers will tell you, the toughest tournament they’ve ever won was always the first one and it often took many years!
Fortunately, real estate
investing can produce far better results – and a whole lot faster; if you stay motivated and keep your plan moving forward.
This is where the personal
discipline comes in. In football jargon, you mustn’t stop until you’ve clearly reached the end zone! - 43 -
LIVING THE DREAM
HILLCREST COTTAGES WAS MY EARLY DREAM
Had you driven by my Hillcrest property when I finally mustered up enough courage to buy it, a dream would have been the furthest thing from your mind. “A nightmare” would have been a much better description! Looking back now, I should have won a medal for bravery on the day I closed escrow. After all, not another soul even made an offer so far as I know!
Still, I’ve never lacked
confidence in my own ability to clean up a stink’n mess no matter how many “looky-loo’s” around me thought I was nuts! I did prove to myself that if you’re willing to roll up your sleeves and take on the challenge, you can make yourself a ton of money if you’ll stay the course!
Hillcrest was an old outdated motor lodge (the forerunner to modern day motels) with 23 small cottages all snuggled together on a two acre parcel (city lot). It was my plan to switch the cottages over to individual senior apartments and rent them on a monthly basis. The sellers were still trying to compete with modern day motels when they finally decided it was time to give up. Fortunately for me, they were quickly going broke so their motivation level was a near perfect 10, and rising! As it turned out, they agreed to my no cash offer, accepting instead, a single family house I owned as a trade. I learned early on, the toughest jobs – often the dirty jobs will produce the biggest rewards! Properties like Hillcrest present broke buyers like I was back then, a great deal of flexibility when it comes to the down payment and extra special creative terms! Trading my house for the down payment was a good example.
- 44 -
LIVING THE DREAM
MAKING $69,000 OUT OF THIN AIR
I had just purchased a commercially zoned property (my house) a short time before finding Hillcrest! I had paid $80,000 with a $20,000 cash down payment. The owners had agreed to sell me Hillcrest for $234,000. I agreed to assume (take over) three (3) existing mortgages, which added up to $143,000. That meant I would still need $91,000 to close escrow! By now my house mortgage balance was paid down to $58,000, so I simply added $91,000 to $58,000 – and presto, my new house value, appraised by me, was now adjusted to $149,000. I could now trade equities straight across for Hillcrest Cottages – no cash would be needed. Many folks have asked me – how can you purchase a house for $80,000 and sell it a few months later for $149,000? That’s an 85% markup. Is that legal? It’s not only legal, but the sellers were pushing me hard to make the deal happen – can’t we close any faster, they asked? There’s a valuable “profit-making” lesson clearly demonstrated in my Hillcrest transaction! When sellers are determined to dump what they own – when they’re highly motivated to sell! There are many ways to close a deal. It often takes very little cash, sometimes none and most motivated sellers don’t pay a whole lot of attention to trade values like my “puffed up” house value! They’re main concern is getting out from under the property they’re trying to sell – or dump! Finding these sellers is worth big bucks to investors who wish to “speed up” their wealth building plans. This may be a great opportunity to join the “one percenters”.
- 45 -
LIVING THE DREAM
CHANGE THE USE – INCREASE THE PROFITS I’ve written a lot about Hillcrest Cottages because it’s the kind of deal that can move “small-time” players (investors) to the big leagues rather quickly. Almost two years to the day, and after spending nearly $50,000 (borrowed funds) for fixup, clean-up, rewiring and hooking up the units to city water; I sold Hillcrest along with a couple other rentals for almost $600,000 to a local physician looking for a tax shelter. Naturally, I was more than happy to carry the financing when I sold! My interest income alone was nearly a million dollars, well, $939,077 if you wanta be picky! Later on when I tell you about “selling out” at the end of your investment career, like when it’s time to smell the roses – I want you to remember the term wraparound financing and make it your primary selling tool – we’ll call it, funding your retirement!
Selling Hillcrest along with a couple other rental units earned me $260,945 in sales profits – but when you add on the $939,077 I earned from interest income during the 27 years I carried the seller financing – it adds up to some serious money! Wouldn’t you agree? You’re gonna want to learn all the details how wrap-around financing works ‘cause it can easily earn you a million bucks on every multiple unit property you sell – the same way it’s done for me! Think about wrap-around financing as your old age retirement plan. You can’t find a better plan anywhere! You’ll also need to understand the six (6) important reasons for using “wraps” when you sell your properties so you don’t miss out on the extra profits. In my home study course; “EARN $100,000 ANNUALLY - 46 -
LIVING THE DREAM
WITH SMALL INCOME PROPERTIES”; you’ll not only learn these six (6) important reasons – but how and when to use them! My home study course devotes nearly a full chapter showing you examples about how to draft up your wrap-around notes, plus I’ll show you where the extra profits come from. Wraparound financing will also eliminate most of the seller carryback risks the way I teach you! That’s especially important at my age – but still, you’re gonna want to know for yourself!
- 47 -
LIVING THE DREAM
WHEN YOU HAVE NO MONEY – THEN USE WHAT YOU HAVE
People often ask me --- How do you find these special deals like Hillcrest? Many investors tell me they’re willing to tackle almost any kind of problems in order to save money on the down payment - or acquire properties at a substantial discount! It’s no big secret, if you’re willing to do some work yourself and crappy lookin’ rentals don’t frighten you away, you can earn yourself some serious profits! As a general rule; you’ll be able to negotiate far better terms – meaning longer terms, with easy pay seller financing. Always remember – terms control the cash flow.
Obviously, there are some investors who want no part of hauling away trash and facing goofy lookin’ tenants. Some may not have the skills to fix anything! Still, you can make a ton of money without having any hands-on skills, but you must promise me you’ll make a double effort to learn what things cost. In the long run, the biggest profits will come from your negotiating skills and your ability to obtain seller financing with the kind of terms that allow you to operate with cash flow.
The following chart gives you some idea, based on my experiences, about on the range of discounts you might expect if you’re willing to tackle the clean-up problems and people issues. Remember, ugliness and people problems always cause sellers the most grief! Most buyers shy away from rundown ugly properties, which means; if you can jump in and fix these problems, you’ll have automatically eliminated most of your buying competition. Being one-on-one with the seller, with no other buyers in sight is the ultimate dealmaker’s goal!
- 48 -
LIVING THE DREAM
Range of Discounts for Various Conditions
Condition of Property
Discount Range
1. Ugliness – Pigsty lookin’ with tons of junk on property. Major clean-up.
30-50%
2. People problems – dirty unruly deadbeats, often non-paying tenants.
30-40%
3. Old junky houses/apts. Lots of deferred maintenance and repairs.
25-35%
4. Rundown properties Out-of-town owners, often a tenant manager.
20-30%
5. Cosmetic fixer Mostly needs clean-up and paint – general “tune-up”
10-15%
- 49 -
LIVING THE DREAM
Chapter 8 DREAMS CAN COME TRUE AT ANY AGE
At seminars I’m often asked about age. Students ask --- Can you still become successful after 50, 60 and so forth? My answer; without the slightest hesitation is yes – you most certainly can! You can do almost anything you set your mind to, I’ve found, if you will stay focused, maintain discipline, avoid negative friends and all the “nay-sayers” who will always tell you why you can’t!
An excellent role model in my opinion was the late Harland Sanders - an Indiana born, grammar school dropout, who wouldn’t give up! Harland’s working career began at age fifteen doing back-breaking, labor intensive jobs – but Harland had a very special dream! He loved to cook! As a young boy he’d learned how to pan fry chicken and make scrumptious homemade biscuits from his mother. Harland decided to open his own restaurant in a 12’ x 15’ storage room in the back of a local service station. By the time he was 42 years old, his fried chicken dinners had gained a wide reputation in the county allowing Harland to open up a full size restaurant, which he named – Sander’s Café! Business was good, but pan frying was way too slow, so Harland developed a pressure cooking system that worked much faster. At the same time, he kept improving his special blend of spices!
- 50 -
LIVING THE DREAM
A DREAM - PLUS ACTION WAS HARLAND’S MAGIC INGREDIENTS Harland was not your ordinary day dreamer. He had a clear vision he’d soon become successful!
When he was 59 years old, he was presented with a
prestigious Kentucky Colonel’s commission from the governor’s office. He even had his picture taken dining with the governor!
In 1959, Harland was offered $164,000 to sell his popular roadside restaurant, but he turned it down! He dreamed of much bigger opportunities, perhaps expanding his building size or opening up a second location! However, fate was about to play a dirty trick on Harland and his popular highway café.
Expecting a brand new freeway interchange that would literally dump hundreds of new customers on his doorstep, it wasn’t to be! Instead, the U.S. highway that ran directly past the front of his restaurant was re-routed several miles away. Harland was forced to sell out for just enough money to pay his bills.
With his restaurant gone, the Colonel now faced the prospect of living on his paltry Social Security check of $105 per month. He was now 66 years old. Down but never out, Harland wouldn’t even think about giving up! With an overabundance of lifetime experiences, he was “dead-bang” certain there was one thing he could always do better than anyone else – fry chicken with homemade biscuits! Loading up his herbs and spices in the trunk of his aging white Cadillac, Harland took to the road! He convinced himself, he could still be a success.
More
importantly, he never gave up on his dream, even though he was now almost 68 years old! He would stop at every restaurant and offer to cook for free, just to - 51 -
LIVING THE DREAM
prove that diners would fall in love with his special southern style chicken formula. Harland would then convince the owners to pay him four cents for every chicken they cooked using his now famous herbs and spices.
A bit slow at first, but by 1960, there were more than 200 Kentucky Fried Chicken outlets in the United States and Canada. The Colonel could now afford to stop his traveling! While his wife Claudia kept the books – Harland would mix and mail out his herbs and spices working from home. The Colonel had now reached 70 years of age, but he wasn’t done by a long shot! Successful folks never are!
By 1963, the popularity of Kentucky Fried Chicken had expanded to more than 600 outlets. By now, the Colonel and his wife employed 167 employees to keep the operation running – but it soon became too much! The Colonel sold his business to a Nashville millionaire for two million dollars cash and a $75,000 annual lifetime salary to travel around the country in his white linen suit, promoting his famous chicken. With his bleached white hair, neatly trimmed goatee and a black string tie, the Colonel would soon become one of the most recognized marketing personalities in America.
By 1971, just seven years after the sale, the number of Kentucky Fried Chicken stores grew to 3500 – and before it was bought out by the giant Heublein Corporation in 1995, there were 9400 KFC outlets worldwide with reported annual sales of seven billion dollars. When members of the U.S. congress asked Harland Sanders what one should do to prepare for retirement, the Colonel replied --- “Give him the opportunity to do for himself! A person should never stop dreaming or stop working to achieve his dream – a man will rust out long before he wears out!”
- 52 -
LIVING THE DREAM
PROOF THE AMERICAN DREAM IS STILL ALIVE Colonel Sander’s life is an inspiration for entrepreneurs everywhere! Harland’s story should be a constant reminder that no matter how old you are, the best is yet to come. To be a successful real estate investor, you must never recognize defeat. To keep trying is not the mark of a loser. As the Colonel no doubt would tell you – it’s the mark of a millionaire in the making!
- 53 -
LIVING THE DREAM
Chapter 9 THE RIGHT VEHICLE 5 UNITS OR MORE
I’m sure you’ll agree – it’s much better to collect six (6) rents instead of just one like I already told you back on Page 15. $45,000 annually trumps $13,200 per year any day of the week! It’s only fourth grade math, but yet, I know PhD’s who can’t figure out how to make a profit!
I also told you the down payment cost to purchase six units instead of buying just one would be the same amount, $25,000! How can that possibly be, you’re probably wondering! WELL – here’s the reason! All real estate investing don’t follow the same set of rules. Take financing for example! It’s customary for most houses (homes) to be financed by banks and mortgage companies using traditional 30 year amortized mortgage or at least some form of institutional financing. Yet, when you inform your banker the house will be occupied by renters – they charge more interest because banks consider renters to be higher risk compared to owner occupants. Banks also have tons of restrictions written into their mortgage documents telling borrowers what they cannot do. One such restriction (clause) says that if you sell, lease or encumber the property – they want all their money back right now! This restriction is known as the DUE- 54 -
LIVING THE DREAM
ON-SALE CLAUSE, and you’ll find one written in every bank mortgage you sign! Banks also require that house buyers sign mortgages which say – they agree to be personally liable if the property gets foreclosed and is sold at auction for less than the mortgage balance when the property is being used for business – like a rental.
FINANCIAL SUCCESS CREATES FREEDOMS
After being both a W-2 wage earner and full-time investor; I can honestly tell you – there’s no way I’d ever switch back. From a financial standpoint; they’d have to pay me more than the President. Still, it’s not just the money – it’s the lifestyle! As a general rule; investors like myself start out with a goal of FINANCIAL FREEDOM. Once we learn the business well – work hard and achieve success, we soon realize there’s another equally important goal we need to conquer! It’s called PERSONAL FREEDOM! It’s having enough free time to do all the personal things we’d like to do. With enough money jingling in our pockets, we can now set our sights on doing all the things that regular wage earners with a boss, can’t ever do! For example; in the past 20 years or so, I’ve become quite fond of annual cruises – sometime I’ll even sail twice!
Another personal freedom, which of course,
financial freedom has given me are my trips to visit Civil War battlefields. There’s simply no way I could have ever dropped everything – jumped on a jet plane, headed for Miami and a two week cruise while working for the phone company.
Back then, I found myself in a rather peculiar situation! After twenty years of service, I had earned my full four weeks vacation, but I only had enough money saved up to pay for one week’s worth! Working for the other guys has severe - 55 -
LIVING THE DREAM
limitations! Seems like in the beginning, I couldn’t get enough time off, then finally, when I could – I was broke! Jumping on a plane to visit Civil War battlefields without advance permission - and having some extra money in my pocket, was only a distant dream before my real estate success! WHEN THE LIVIN’ IS EASY I don’t wish to suggest that real estate is ever easy, but like most opportunities in this life – with the proper education and a strong desire to succeed, it does become much easier! It also becomes a lot more fun because your deals will keep getting better, which generally means more cash flow! Now that’s real fun - agreed! I’ve concluded that investor benefits come in two different flavors! We tend to think first about the money benefits – as in getting rich – and obviously, that’s a very important part! But I also believe almost equally important are the lifestyle benefits! It’s all the personal freedoms I have which are far superior than working for someone else.
- 56 -
LIVING THE DREAM
LISTED BELOW ARE 13 INVESTOR BENEFITS THAT I TREASURE VERY MUCH! 1. I can earn a very good income; the amount is up to me. The sky’s the only limit! 2. I can work whenever I choose – no specific hours or days. When I’m not working – I’m free. 3. I can take time off my job anytime I need to because I’m the boss. I’ve got permission! 4. I’m both the boss and CEO. I hold my strategy meetings every morning in the shower. Needless to say – I’m in total agreement. 5. My earnings are never frozen or voted on by others. My rents are indexed to normal inflation. Rents go up just like pork-n-beans at the supermarket. 6. I enjoy the best home business opportunity in America. My assets are income real estate, which continually increase in value, unlike personal property assets, which wear out and generally decrease. 7. I get to keep most of my income because Uncle Sugar allows me very generous business write-offs, therefore; less taxes to pay. 8. I’m layoff proof – no pink slips or downsizings – plus, my earnings don’t stop when I’m sick. Rents keep coming in around the clock. 9. I’m like a walking tax deduction. A large majority of my expenses are what accountants call “above the line” tax deductions. They’re legally paid by my business – not me! 10. Driving and auto expenses – most are management expenses - driving back and forth to my rental properties or other business related trips. 11. Invisible earnings without any taxes due – when I acquire a $250,000 property for $150,000, I’ve earned $100,000 without a tax bill. Try this if you earn an extra $100,000 on your job!
- 57 -
LIVING THE DREAM
12. My business assets, my properties, are being fully paid off by my customers (renters). I get the deeds, they get rent receipts. Which do you like the best? 13. Best retirement plan in the world – “Pajama Money” I call it! Payments from my carryback notes – comes from the financing I provide to the buyers when I sell my properties! It’s now time to smell the roses, but my income never stops!
If your dream is to enjoy the same benefits like me, this could be your lucky day! You can start right now with my home study course; “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”. You’ll be glad you did!
ONLY FOOLS RUSH IN There’s not one single reason to race out quickly “halfcocked” to purchase income properties!
You need to understand a few basics first!
I’m familiar with
investors who set strict goals for themselves to acquire at least one house every month – sometimes even more! That’s kinda what I did when I started nearly 50 years ago and it don’t work any better today than it did back then! When you’re a brand new investor just starting out – you’re bound to make beginner-type mistakes. If you keep repeating these same mistakes twelve times in a year; you might very well be going backwards with each new purchase! Take my advice here – slow down, there’s really no hurry. Ya got it!
Preparation and quality rather than speed and quantity will bring you far better results no matter which kind of properties you acquire. But as you shall learn, it’s a lot more profitable when buying multiple units or colony properties, as I call them. Once again, let me repeat myself – take your time – there’s absolutely no hurry! - 58 -
LIVING THE DREAM
Buying just one multiple unit property each year will make you a millionaire if you follow my strategies! Just imagine where you’ll be financially if you decide to own six!
WORKS FOR NEWBIES & OLD SALTS ALIKE The genius of my multi-unit strategy is that it works for newbies and ol’ timers alike! It’s also an excellent investment strategy for part-time investors like I was starting out – yet, it’s perfect for “full-timers” and “career changers” as well. I’ve already told you – I began investing nights and weekends while working my day job at the phone company. One of the biggest benefits that comes from investing in multi-units – or colonies, is much quicker cash flow – and more of it! On Pages 19 & 20, you may recall my example showing how rents were increased more than $1000 during the first two years of ownership. That was no misprint or Disneyland fairytale! The fact is, it’s really quite common when you choose the right vehicle – multi-units, like we’ve been talking about!
Also, I want you to consider the huge returns on your initial investment dollars! In our example; the down payment was only $25,000 needed to acquire a $300,000 property. Just two years later, with increased rents, the property was earning or taking in $12,240 more annually. With the added rents, you’ll soon be able to recoup your total down payment back - roughly 2 years. For Mom and Pop investors hoping to expand rapidly – there’s no better game in town!
- 59 -
LIVING THE DREAM
The beauty of multi-unit investing is versatility! You can make some serious money even if you decide to acquire just one property and keep it for monthly cash flow until you sell out and retire! See my Cherry Street property on Pages 2 thru 8. On the other hand – you can go for the gusto! Keep right on buying and become the first millionaire in your family. Don’t forget, this is America; every family deserves at least one!
- 60 -
LIVING THE DREAM
Chapter 10 INVESTING WITH A DIFFERENT TWIST
I call it my lifetime investment model! Six (6) multi-unit properties or colonies – six separate locations with 40 rental units! It’s more than enough to make you a millionaire several times over and will guarantee financial freedom for you and your family for as long as you stay invested.
This model is my personal
investment plan of choice.
I call it lifetime because if you follow through and accumulate six separate properties with 40 rental units combined – you’ll be able to create a six figure annual income, total financial independence and a worry-free retirement without ever reducing your active investment income. SOUND INTERESTING? Take a look at the next page, I’ll show you what they look like!
- 61 -
LIVING THE DREAM
Multi-Unit Rentals
The Colony Concept
- 62 -
LIVING THE DREAM
Referring to the sketch – six properties or colonies with 5 to 8 rental units at each location. In the center is the owner or investor! I often describe this configuration as my investment wheel! The hub or the center represents the owner. Those straight lines running out to each colony location are the spokes of the wheel! The properties themselves make up the wheel, although they’ll likely be scattered around your town or buying area!
These colonies are small multi-unit properties, generally groups of houses or apartments all together on an oversized city lot. They are mostly older property 45 to 70 years old, and most were built or established back when zoning laws and building codes were far more lenient. There’s no need to fret over codes and zoning because in most cities, towns, rural areas and just about anywhere else, so long as they’re still standing and being used as rentals – they’ll be grandfathered in if you keep ‘em that way.
The units themselves can be detached houses (my favorite), duplexes, small apartments, individual mobile units and even an old motor lodge might be converted to monthly rentals (like my Hillcrest units). Also, any combination of these types will work just fine! Often I’m asked --- Is it okay to have larger or smaller size properties? The answer is yes, but my investment model (sketch) is based on sizes that I believe most investors (even beginners) can handle – or manage!
Multi-units or colony investing can make you rich for a number or reasons, but to start with, the competition is at least a thousand times less! I can’t begin to tell you how important this is! Most small-time, Mom and Pop investors are chasin’ after - 63 -
LIVING THE DREAM
single family homes, especially in the foreclosure – short sale markets.
The
competition is fierce and the rewards are mediocre at best! Mediocre rewards might well be good enough for the other guys, but it’s never been good enough for me! As I told you earlier – my goal has always been to become rich, at least rich by my definition, during my lifetime and enjoy a financially secure ride during my sunset years. Even though I began investing many years ago, it took me a little time before I eventually discovered that “highly leveraged”, single family houses weren’t keeping pace with my dreams - or my version of financial freedom! My version means never again having to worry about money problems – plus, having enough personal freedom to pretty much do as I please!
For these reasons, I switched to multi-units or colonies as I like to call them! Colonies have not only met my expectations, but they’ve exceeded most of them when it comes to producing income and profits. Additionally, multiple unit properties are much easier to manage, which allows me the time to enjoy my personal activities! To me, colonies are simply the greatest investment strategy and the fastest wealth building vehicle available to everyday, start from scratch, investors like me.
SO YOU WANTA BE A MILLIONAIRE
If I got you all worked up and excited when I told you about my Cherry Street houses (pages 2 thru 8), just hang on – ‘cause I promise you’re gonna fall in love with my lifetime investment model – six separate properties just like Cherry Street and I guarantee, they’ll make you a wealthy tycoon! I say lifetime model because - 64 -
LIVING THE DREAM
six multi-unit properties with 40 individual rents coming in every month will make you financially independent – and eventually give you all the personal freedom you deserve with the money to enjoy it!
SIX (6) COLONY MONEY SHEET GROSS ANNUAL INCOME $333,600 40 RENTAL UNITS @ $695 PER MONTH = $27,800 OWNER/OPERATOR’S SHARE (30%) $100,000
TAX SHELTER FROM PROPERTIES --- $80,000 DEPRECIATION (REAL & PERSONAL PROPERTY)
Sheltered income earnings mean little or no personal income taxes for owner/operator. Rental income is pretty much indexed to inflation. When “pork-n-beans” go up at the supermarket – so do rents! This means if you can make it on $100,000 today, chances are; you’ll be just fine in future years. How long will it take you ask? The answer my friend, it’s up to you! Obviously, you will need to educate yourself, but I will help you shorten the time it takes by teaching you the fundamentals. You can start immediately by ordering my - 65 -
LIVING THE DREAM
home study course; “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”. My course is designed to help you achieve the following three (3) primary goals:
BUILD $100,000 ANNUAL INCOME BECOME FINANCIALLY INDEPENDENT & SECURE DEVELOP A WORRY-FREE RETIREMENT
- 66 -
LIVING THE DREAM
6 Multi-Unit Properties (Colonies) Location
Description
# Of Units
Monthly Rents
Annual Rents
#1
Duplex + 5 Houses
7
5,130
61,560
#2
6 Houses, 2 mobiles
8
5,400
54,800
#3
6 Unit Apt. Building
6
3,675
44,100
#4
6 Houses , 1 Mobile
7
5,275
63,300
#5
4 Unit + 3 Unit Apt.
7
4,475
53,700
#6
5 Detached Houses
5
3,845
46,140
TOTALS
Small Apt & Houses
40
$27,800
$333,600
Above Properties = 40 Individual Rents / Month Locations
Loc. #1
Loc. #2
Loc. #3
Loc. #4
Loc. #5
Loc. #6
Unit #1
775
685
600
775
650
800
Unit #2
695
695
600
675
650
750
Unit #3
795
625
600
750
650
795
Unit #4
695
675
625
725
650
775
Unit #5
695
650
625
750
625
725
Unit #6
725
675
625
750
625
Unit #7
750
700
850
625
Unit #8
___
695
___
___
___
___
TOTALS
$5,130
$5,400
$3,675
$5,275
$4,475
$3,845
- 67 -
LIVING THE DREAM
SPECIALIZATION QUICKLY MOVES YOU TO HEAD OF THE CLASS Doctors, teachers and corporate CEO’s all understand the power specialization! Learning to be the best there is at something – meaning your specialty! Should something go haywire with your ticker, wouldn’t you want the best heart specialist you could find? Just say yes!
For real estate investors, specializing works exactly the same way by making you the best! If you start out tomorrow morning and make it your goal to concentrate on multi-unit properties like I suggest – it won’t be very long before you’ll become the best multi-unit investor in your area. You’ll no longer be wasting your time looking at every property for sale like the other investors do.
Your
concentration on just one type of property will soon make you the expert or specialist! When you talk to most rich folks, you’ll find they understand the power of specialization – that’s why they’re rich! Master sales trainer, the late Zig Ziggler, used to say: “If you don’t zero in on a specific target or goal, and continually strive to become the very best you can – you’re pretty much destined to wind up a wandering generality with very little direction – or results.”
- 68 -
LIVING THE DREAM
Chapter 11 ANSWERS TO THE MOST COMMON QUESTIONS
1.
How would you suggest I start? Whether you’re a beginner, intermediate or seasoned investor, colony house investing begins with one, your first one. Congratulations, now you only have 5 more to go. Acquiring one property (colony) per year is a very reasonable plan.
2.
What’s in the future for these kinds of properties? It’s very bright – multi-unit colonies are basic affordable rental stock. Nearly 50% of the population in my state (California) are renters. Of those who rent, 60% have lower paying service-type employment. For this group, housing is scarce as “hen’s teeth” and no one is building anymore. Preserving what we have now will only become a higher demand product. Besides that, investing in one of people’s basic necessities (housing) can’t be anything put positive.
3.
How quick might a new investor expect monthly cash flow from a multi-unit property? Faster than any type of real estate I know of. I explained how this can happen on pages 19 thru 20. Naturally, much will depend on financing! Financing controls cash flow! That’s why seller financing is so very important. My home study course; “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”, covers many lessons on financing and negotiating with sellers. My course will help you - 69 -
LIVING THE DREAM
determine how much to pay – and when to walk away. A complete financial analysis with samples are provided in the course materials. 4.
How can I keep buying when my funds are limited? Obviously, negotiating will determine your down payment or how much cash you may need to close. My average down payments have been around 10% of the purchase price, but sometimes trades of personal items can be substituted! Cash savers – I call them! More about this in my home study course. If you improve properties like I do (adding value), it’s quite likely you’ll never again need out-of-pocket cash for another down payment. Your first property will grow in value enough to pay the down payment on the next purchase. Refer to Jay’ generous offer, page 29 thru 34 (adding value).
5.
Will managing overwhelm me? The colony concept – having all your units in one location – or six locations later on will greatly help your management task. Scattered units hither and yawn are much more difficult to manage when you consider travel time and service calls. Having multiple units at a single location allows for killing several birds with one stone. Combined service calls; reduce trips to the hardware store and save both time and gas – much greater efficiencies.
6.
Is family investing a good idea? Multi-unit investing as a family partnership is as good as it gets if you can pull it off. In many ways, it can strengthen families by creating common goals. Each member works at the property and earns his share. An excellent way to help junior buy his first truck by managing family properties. In this day and age, having a reliable family income, employment for the kids and assets to pass along makes a whole lotta sense!
7.
What’s the hardest part starting out? Finding and acquiring your first multi-unit! This breaks down into two major challenges! First; finding the right properties to begin with. New investors will struggle with this for a while! Then suddenly, like when - 70 -
LIVING THE DREAM
the fog lifts, they begin popin’ up everywhere. Hope this helps you, but it’s the same for every new investor! Acquiring the right property and passing over the ones that won’t work – here again, it’s a matter of education and developing your skills. If you’ll furnish the time and effort, I’ll contribute the “how to” part! Don’t miss my next INVESTOR TRAINING SEMINAR. It makes this much faster. If you can’t attend, then order my home study course; “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”. Let’s get started! 8.
Does multi-unit investing work for women? Very well indeed – years ago at my seminars, 2 or 3 women showed up. Today, most classes are nearly 50/50! Gender has very little to do with making money with real estate. My most famous female student, Beth. R.; fixed up properties in the San Francisco bay area with her two small children by her side. She’s famous because she was interviewed by the local TV channel, which publicized her success.
9.
Are bank mortgages available for colonies? Mostly not! When you acquire multi-unit properties with more than four (4) units (which I recommend), bank loans (mortgages) would be classified commercial lending. For Mom and Pop investors acquiring older, often non-conforming properties, most banks are not interested! The good news is; sellers of small multi-unit properties know this too. This is the main reason that nearly 85% of all my deals are seller financing! Believe me, you want seller financing.
10.
How does income property ownership compare with owning any other kind of business? Very well indeed! For starters, income property owners are providing one of the basic necessities (food, clothing, shelter), therefore; in terms of stability, rental units are here to stay! Secondly, the ability to acquire properties using high leverage (small down payment) and yet become the 100% owner and collect 100% of the income – that’s a tremendous advantage for average folks without much money to start. - 71 -
LIVING THE DREAM
Perhaps the biggest advantage in the investment business is the assets themselves. Not only do the properties provide monthly income, but the real estate (assets) are growing in value. When it’s time to quit; properties quite often sell for two or three times what they cost, creating a guaranteed retirement plan! Contrast this with operating a restaurant – not nearly as stable. It’s possible to earn decent wages working your tail off – but when it’s time to quit or retire – no more wages and the worn out fixtures – worth maybe - ten cents on the dollar, if you’re lucky! Not very much to compare, I’d say!
- 72 -
LIVING THE DREAM
Chapter 12 DREAM A LITTLE PLAYIN’ “WHAT IF” WITH YOURSELF
Suppose I take Jay’s advice and acquire my first multi-unit property – then for whatever reason I don’t buy anymore! Would that be worth my effort? For heaven’s sake yes – just one property like Jay’s Cherry Street houses would earn you more money than many employees make during their entire working lives. As you might recall; Jay’s annual earnings for the time he operated the property and financed the sale, averaged more than $53,000. Granted, we’re talkin’ gross income, but do the math! Even if you only got to keep half of $4400 per month for a very long time, would that work? Would that be a good return on your $20,000 down payment? Think about that! Lots of folks don’t earn that much money from Social Security, so in terms of planning for your future, just one Cherry Street property could well become your personal retirement plan! Don’t forget, after Jay sold out and no longer had anything to do with managing the property or tenants – the income from his carryback financing was $3250 every single month for 20 years. I can’t speak for other property owners, but receiving $780,000 for financing fees works for me! - 73 -
LIVING THE DREAM
Besides, all I have to do is boogie down to my mailbox every month in my pajamas to pick up the check!
DREAMING BIGGER Now close your eyes and just pretend. Say you fall in love with Jay’s lifetime model and you begin to wonder --- How far can I go? How much money can I make? First of all – the sky’s the limit! Even though Jay’s six (6) property model with 40 rental units has a beginning and end. Yet the truth is; there is no limit! Jay has owned and operated lots more than 40 units at his “high water” mark! Still, 40 units will make you a millionaire several times over! 40 units is a very reasonable goal or target to shoot for! Since we’re only dreaming here – what if you owned and operated Jay’s six (6) property model with 40 rental units for the next few years? How would you fare financially? To begin with, you’d have a great income! Even using Jay’s hometown rents of $695 per unit – your gross income would be nearly $28,000 per month! Roughly one-third or $9300 would be yours to keep. By the way, very few people in my town earn that much, so you’d be on all the local charities mailing lists. Obviously, you’d have created yourself “full-time” employment along the way!
- 74 -
LIVING THE DREAM
WHY LONG-TERM INVESTING PAYS OFF Rents go up like peanut butter and pork-n-beans! Let’s assume that down the road aways they’ve increased to $825 per month! Now, what happens to the extra money? The answer, my friend – it’s yours to keep! You’ll immediately become more popular with all your long lost relatives. They’ll begin showing up outta nowhere! It’s hard to keep success under wraps!
Finally the time comes to cash in your chips. What happens now? If you follow my teachings, you’ll carefully begin selling off properties to the next generation of investors! Hopefully, you will have learned the right way to do this! But since I don’t want you guessing – I’ll teach you at my Investor Training Seminar or you can learn from my home study course: “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”. Either way, selecting the right buyers and setting up your carryback financing to provide you maximum safety, are the keys to a quality retirement. I HAD A DREAM – I’M RICH If you’re like me – you’ll be a lot richer, than you ever dreamed – you’ve got my word on that! Let’s say I sold six colony properties, providing selling financing; just like Jay’s plan! Is there anyway to know how rich I might be? Not exactly, but we can look back to Cherry Street for some guidance. I owned the property for 26 years and the value increased nearly four and a half times. That’s just a smidgen over $19,000 per year. When I bought the property, I could have never guessed; but an up and down economy always favors real estate. It’s hard to look forward and imagine prices going up – yet, they always do! - 75 -
LIVING THE DREAM
For the sake of comparing, I’ll use my Cherry Street to calculate how rich you might end up. Today, Cherry Street properties will cost a skilled buyer in my town between $350,000 and $400,000. Even if we estimate values three (3) times higher when you decide to sell out and retire – that would be 6 to 7 million dollars! I’ll assume you follow my advice and sell for about 10% down and carry back $6,000,000 or so. Financing at 6.0% interest only on the unpaid mortgage debt would allow you to live quite happily with a monthly income of $30,000. Unlike rents, your mortgage payments won’t go up! But by now I’m assuming, you’ll be old like me and you’ve adjusted to $30,000 per month! Regarding the principal! Let the kids have it when it comes due; they’ll know how to spend it – agreed!
- 76 -
LIVING THE DREAM
- 77 -
LIVING THE DREAM
THE BUSINESS OF MULTI-UNIT INVESTING Learn this business – there are basically three (3) stages of development – and there are no shortcuts. LEARNING STAGE ONE is learning how to buy the right kind of properties that produce cash flow the quickest. This will be your most challenging – and exciting learning period. You should expect to read lots of books, purchase home study courses and attend training seminars in order to develop your investment skills. You’ll begin acquiring properties and you’ll make the usual beginner mistakes. Money will always be tight. This is the stage you’ll work most of the bugs out as you “fine tune” your investment skills. OPERATING STAGE TWO will find you a much more sophisticated “deal maker”. You will now have the knowledge and skills to “flush out” properties with the highest potential for quick cash flow and long-term profits. By now your abilities are good enough to attract equity investors should you choose. With money available from “deep pocket” investors, the sky’s the limit. But with or without financial assistance, your cash flow should allow you to pick-n-choose new investments more carefully. You must continue your education and training to broaden your knowledge. By now, your investments are taking good care of you – life is good! SMELL THE ROSES STAGE THREE is about reaping the harvest. By now you’re living well – and “cashing out” will put you on Easy Street. You’ll begin selling off your properties selectively – taking back wrap-around notes for monthly payments. You may even consider hard money lending to support your twice a year cruises. At this point, you can pretty much do as you please, so long as you manage your business well. The time has come to pull over in the slow lane. Your biggest chore now will be making those daily jaunts down to the mailbox in your pajamas to pick up your wrap-around note payment checks! Ain’t life grand – or what!
- 78 -
LIVING THE DREAM
THE BALL’S IN YOUR COURT IT’S NOW UP TO YOU Well my friends, there you have it! I’ve given you a good look at what my kind of investing can do for you. I even warned you at the beginning about reading this book and doing nothing! You’re now at the crossroads. It’s your chance to become wealthy – or simply do nothing! That you must decide for yourself. If you like what you’ve read and you choose financial independence; here’s the next step. Order my training course; “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”, and let’s get started today. See the description on the next page. –Click www.fixerjay.com/info/7050-2 – or call 1-800-722-2550, ask for Kathy – or fax the order form to 1-530-223-2834.
- 79 -
LIVING THE DREAM
Much like leveraged real estate will increase your yield – this home study course will do the same for you. This course is specifically designed to “speed up” the time it takes between your education and ownership of your first multi-unit property. Each chapter moves you closer to your goal of financial freedom, more income and the security you get with income-producing real estate. Starting with Chapter One, you’ll learn Jay’s insider secrets to finding the kind of properties that produce income quickly. How to acquire properties not listed for sale is covered in Chapter 3. Jay’s special “Cold-Calling” technique using letters is in Chapter 4, along with how much to pay.
- 80 -
LIVING THE DREAM
The four methods to acquire properties, as well as instructions for writing “ColdCall” letters, are covered in Chapter 4. You’ll also find examples – how much you should pay. Leverage & Compounding are explained in Chapter 5 with examples – how it works. Understanding jay’s isolation factor is important before you buy. Chapter 6 tells you how to use it! Also avoiding most risks when buying multi-unit properties is explained clearly to help you avoid early mistakes. You find 10 things you shouldn’t be doing in this chapter. Six studio recorded CD’s help you understand each chapter fully explained by Fixer Jay and Dan S., Jay’s millionaire student. Chapter 7 is about building your own “money machine” – adding value and learning how to spot opportunity. Chapter 8 shows you how to develop a wider vision and the principals of operating your own business compatible with managing your real estate. The benefits will totally eliminate paying income taxes. Chapter 9 shows you how to select the right real estate agent, what you should expect and where to find “Mr. Right”. Planning is covered in Chapter 10 – how much to spend for fix-up. Chapter 11 is extremely important – all about creative financing, explained so you understand it. In Chapter 12 creative techniques continue and Chapter 13 fully explains how wrap-around can make you rich. Shows you examples – how it works and teaches you the benefits and how to avoid any risk.
- 81 -
LIVING THE DREAM
Online: www.fixerjay.com/info/7050-2 Phone: 1-800-722-2550 TOLL FREE FAX: 1-530-223-2834 – 24 HOURS Mail: KJAY Publishing PO Box 491779, Redding, CA 96099-1779 - 82 -
Published and Distributed by: KJAY Publishing Co. P.O. Box 491779 Redding, CA 96049-1779 www.fixerjay.com 1-800-722-2550 COPYRIGHT by KJAY Publishing Co. First Publishing 2013 All rights reserved. No part of this book may be reproduced in any form, by any means, without written permission from the author, except when used in advertisements for this book or other written material by this author. Manufactured and printed in the United States of America. Library of Congress Catalog Card Number ISBN 0-9621023- 4-2
ii
LIVING THE DREAM PRODUCT 8210
CONTENTS -WHO IS FIXER JAY -WARNING TO READERS
CHAPTER 1
PAGE NO.
Become the First Millionaire on Your Block
1
2
Seller Financing – Investor
11
3
The Power of Leverage And Compounding
17
The Best Stay At Home Business Opportunity
21
5
Your First Gold Mine Opportunity
28
6
Financing and Control
37
7
Rent to Value Ratio
42
8
Dreams Can Come True At Any Age
50
9
The Right Vehicle – 5 Units or More
53
10
Investing With a Different Twist
61
11
Answers to Most Common Questions
69
Dream a Little Playing What-If
73
The Ball’s In Your Court – It’s Up To You
79
4
12
iii
LIVING THE DREAM
WHO IS FIXER JAY? Jay P. DeCima (“Fixer Jay”) is a seasoned investor/landlord and a national bestselling real estate author. Over the past 30 years, Jay’s popular books and “Investor Training Seminars” have helped thousands of small-time investors create second incomes and launch “full-time” investment careers. Jay’s unique investment strategies are ideally suited for small-time, “Mom and Pop” investors who most often have very little money to start with! By developing their personal skills and learning the right kind of income-producing properties to acquire, Jay’s students are soon competing with their wealthier competition! Today, Jay spends his time managing and overseeing his investment properties and teaching others who wish to learn more about building their personal real estate wealth! Jay’s current hobbies are visiting Civil War battlefields, cruising on the high seas and writing more books about his life-long passion, building real estate wealth starting from scratch!
iv
LIVING THE DREAM
WARNING TO READERS If you happen to be an “eager beaver” or wanta-bee investor searching for the best way to invest in real estate – and you also have a very limited start-out budget, which includes almost all regular working folks – this book might read like a miracle from heaven – or, your constant reminder how close you came to the gold mine – but walked away! First, I’d like to show you how one small six unit investment property can literally make you a millionaire landlord!
Then I will tell you about my personal
investment plan that can help you become totally financially independent within a very reasonable period of time. I intend to let you in on a variety of moneymaking opportunities that can ultimately put you and your family on “Easy Street”. I call my plan “INVESTING WITH A DIFFERENT TWIST”, and although it’s not really new or original – I often describe it as a revised version of an older model with a brand new “hi tech” carburetor. Best of all, my plan works extremely well for both part-time investors and career changers alike! I’ll show you how to maximize your monthly income in the shortest amount of time, build yourself a million dollar investment portfolio and retire like a king!
v
LIVING THE DREAM
There is however an unfortunate downside for looky-loo’s and dreamers. It comes from learning about this lucrative profit-making opportunity I’ll be sharing – and then doing absolutely nothing about it! Failure to take action can have a devastating effect on your financial aspirations for many years to come, therefore; please be advised – reading any further shall be at your own risk! FIXER JAY
vi
LIVING THE DREAM
Chapter 1 BECOME THE FIRST MILLIONAIRE ON YOUR BLOCK
Folks who’ve read my books, newsletters or attended my Investor Training Seminars already know something about my background and experiences as an investor. I’m pretty much a two career guy who worked more than 20 years for the phone company, then spent the rest of my life up till now as a full-time investor. I began investing in real estate while still in my 20’s – and basically “moonlighted”, fixing up junky houses nights and weekends while splicing telephone wires during my day job. After 50 years investing, a good number of successful “money-making strategies” have rubbed off – and without trying to toot my own horn too loudly, they’ve made me financially independent. That said, there’s one strategy in particular I want you to know about! Pay close attention here because what I’m about to show you is the best one I’ve ever found for regular everyday investors without a suitcase full of money to start with. I will promise you this much – if you’ll take what I tell you seriously and learn the ropes, financial independence can be yours as well!
It took me 20 long years of my investing life to make the switch over to properties like Cherry Street, and during most of that period, my bank hovered around -1-
LIVING THE DREAM
“almost empty”! All the while, I desperately tried to make my single family houses cash flow! Suddenly one day I finally figured out that highly leveraged houses with big mortgage payments take way too many years before there’s hardly a whiff of cash flow! Friends, Cherry Street is 100 times better, and I’m about to show ya why!
MY MILLION DOLLAR VEHICLE
Cherry Street (not real name) was not any different than hundreds of other small multi-unit rental properties you’ll find in almost every decent size town or city in my state (California). In fact, you can find Cherry Street properties in just about every state in towns or communities with populations of 4500 or more. Many newbie’s, or start-out investors claim they have great difficulty finding these small multi-unit properties – however; I’ve found the main reason is because their sights are generally set on finding single family bargains rather than small multiple unit properties like Cherry Street. If your goals as an investors are anything like mine – that is, you’d like to “speed up” your cash flow earnings and start making profits in a much shorter period of time – pay very close attention to what I’m about to tell you next. It’s what I call my millionaire strategy for Mom & Pop investors!
CHERRY STREET – MILLIONAIRE MAKER
My first real up close look at six older houses all snuggled together on an oversized city lot with a skinny dirt driveway running down through the middle sorta reminded me of an old Norman Rockwell painting with the paint all smeared together!
About sixty years old I’m guessing – each house had two small
bedrooms and a single bath! They were pretty much typical of the smaller homes -2-
LIVING THE DREAM
built during the late ‘50’s and early ‘60’s. Small “cottage style” houses like Cherry Street, are an excellent find for investors like myself because they are extremely easy to rent – and they’re affordable for most of my customers (tenants). Purchased at the right price, I can easily afford to spend a few bucks to spiffy ‘em up, making them very attractive for my rental customers! Best of all, I can still make a decent profit for myself.
Before moving on, I want you to underline those last two sentences and never-ever forget them! They contain 38 words that are the essence of making a million dollars in the income property business. Let me say this one more time so it’s perfectly clear! Investors who are willing to step outside the box - learn a few new investment skills, can acquire these properties – rent them at affordable rates and earn very respectable profits while the tenants are paying off the mortgages and all the expenses along the way.
When you compare my results to investing in single family homes or flipping properties, you’ll be absolutely amazed at my huge profit advantage. Naturally, you must keep the properties and manage them, but in the end they’ll make you a wealthy investor. If becoming a financially self-made millionaire is your goal – stay tuned! I’ll show you exactly how it’s done. Take a close look at my Cherry Street property showing the actual dollar numbers my six little houses produced! I think you’ll be thoroughly convinced that my multiple unit strategy is the best game in town! Before I show you Cherry Street, let me make something clear – I love all income-producing real estate, including single rental houses. However, it’s the order of buying where I’m different than most other teachers.
-3-
LIVING THE DREAM
I believe small-time beginners need to develop dependable cash flow or monthly income first! Cash flow is what keeps the doors open! Once you have money coming in every month that you can count on - then buying good solid break-even houses is just fine! To accomplish this goal – buy Cherry Street properties first
-4-
LIVING THE DREAM
Purchased Many Years Ago With The Following Terms: Purchase Price: Down Payment Seller Carryback
$145,000 20,000 125,000
Terms: 15 Years – Seller Financing
-5-
LIVING THE DREAM
CHERRY STREET HOUSES I operated the property for 26 years, then – I sold with the following terms:
Selling Price
$650,000
Down Payment Received
50,000
I Carried Back A Note For 20 Years with the Following Terms:
600,000
Payments to Jay $3250 per Month Interest Only 6.5% with Principal of $600,000 – All Due In 20 Years.
-6-
LIVING THE DREAM
TOTAL OF ALL MONIES RECEIVED BY JAY
Total Rents Received Down Payment from Sale
$999,010 50,000
Interest Income Seller Financing
780,000
Jay’s Note Principal Payment (End of 20 Years)
600,000
TOTALS – START TO FINISH
$2,429,010
-7-
LIVING THE DREAM
FINANCIAL RESULTS – BENEFITS
Jay Earned Back His Initial Investment Down Payment of $20,000 --- 121 Times
For Every Year Jay Owned – And Financed The Property – Cherry Street Provided An Average Annual Income of $53,000
Average Rents During Jay’s Ownership Less Than $550 per Month per House
-8-
LIVING THE DREAM
Pretty impressive earnings – wouldn’t ya say? Some may argue that $2,429,010 is indeed a lot of money, but its gross earnings! Fair enough - it is gross, and I paid mortgage payments as well as normal expenses along the way while I operated the property. Still, $2,429,010 far exceeds all the money I ever spent on Cherry Street. You also need to understand this – before I reached my seventh year of operation, I had all my fix-up expenses, plus my down payment money back in my pocket! In other words; I had none of my own money left in the deal – and here’s the beauty. From the seventh year until I sold Cherry Street, my tenants paid for everything! They paid all my expenses – plus every single mortgage payment till they were all gone!
-9-
LIVING THE DREAM
REASONS TO CONSIDER INVESTING IN MULTI-UNIT PROPERTIES 1.
Investment not affected by an up & down economy – or recession.
2.
Not dependent on bank financing.
3.
Much easier to create your own employment.
4.
Monthly income indexed to inflation.
5.
Keep your money – no FUTA, FICA, state withholding.
6.
Ideal family business – generous write-offs.
7.
Easy to expand in any economy.
8.
Many “high Profit” related benefits.
9.
Rapid wealth builder for net worth.
10.
Guaranteed retirement income.
- 10 -
LIVING THE DREAM
Chapter 2 SELLER FINANCING INVESTORS MUST LEARN HOW
During my book tours, almost everyone who saw my Cherry Street slides were absolutely “blown away” by the impressive dollar numbers generated by the property! Remember, the numbers are gross earnings – not net, and of course, I did have mortgage payments and expenses. Still, as you probably have already guessed, there was plenty left over for me!
McGraw Hill, my giant New York publisher called me several times during their review of my manuscript! At first, they told me their real estate staff didn’t believe I could negotiate seller financing in an age when real estate mortgages were at their lowest rate in 60 years. One expert (so he calls himself), told me that seller financing only happens when banks charge high interest rates for mortgages or when they stop lending altogether like during the Jimmy Carter years.
I invited my personal editor to fly out to California and review my closing files since I’ve kept them all from day one. After I told the crew at McGraw Hill that not only was Cherry Street financed by the seller, but also more than 80% of all my deals are financed by sellers – plus, I can prove it! That really snookered ‘em! - 11 -
LIVING THE DREAM
Apparently they didn’t know what else to say, so they just quit calling. Needless to say, they didn’t bother flying out to visit me either. In all fairness, I did convince them that properties like Cherry Street with more than five rental units on a single lot are considered commercial mortgages at the bank – and for older properties like Cherry Street; new mortgages are pretty much out of the question!
YOU MUST HELP YOUR AGENT HELP YOU
Negotiating seller financing and convincing reluctant real estate agents to help you is something all successful investors must learn how to do! Buyers need to personally talk with sellers, look them straight in the eye and negotiate seller financing. This idea pretty much flies in the face of real estate agent training 101! Agents are taught that principals should always be kept separated – much like bulls from the heifers!
No seller, including me; is likely to ever carry long-term
financing for a buyer unless they can meet him or her personally and judge for themselves whether they seem like a reasonable risk! Underline this next sentence, its important! Real estate is always about people and their needs! You need to meet ‘em to find out what those needs are!
Because seller financing is one of the most valuable benefits to my investing strategy – my home study course, “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”, dedicates several chapters and CD lessons to the subject. Seller financing is a big money-maker when you’re the buyer – and again, when it’s time to sell as you’ve already observed with Cherry Street. Since wrap-around financing is also very important, and is always recommended, when you are selling a property with existing mortgage debt, my study course will teach - 12 -
LIVING THE DREAM
you how to write up or draft the mortgage contract. I’ll also tell you how to avoid a huge tax bill when you decide to sell a property with existing mortgage debt. This one lesson is worth the price of my entire course many times over!
MORE INCOME IS ALWAYS BEST
Properties like Cherry Street are not the best real estate investment because I say so! They’re best because they have more benefits that can make you richer – and, they can do it a whole lot faster than most other investments can!
A bit later, I intend to show how six (6) small properties like Cherry Street can provide you lifetime security, financial independence and a worry-free retirement far superior than Social Security. If you happen to be a two career person like me – take ‘em both! If you’re fairly young, Cherry Street might just be all that’s left – don’t worry, earning $100,000 a year should keep you outta the poor house – more about this later.
- 13 -
LIVING THE DREAM
In my slide presentations, I show an example of a medium priced single family house in my town that rents for $1100 per month. As an investor – or nonoccupying owner, it will cost me 20% for the down payment. The balance (80%) can be financed with a traditional investor mortgage. In this particular case, the asking price was $149,000 for the 3 bedroom house, so I felt pretty good when my offer of $125,000 was accepted! Here are the purchase numbers:
Purchase Price
$125,000
Down Payment
25,000
Bank Mortgage
100,000
Terms: 6.25% amortized 30 years - payments: Estimated operating expenses (35%) of income: CASH FLOW:
$ 615.72 385.00 $ 99.28
- 14 -
LIVING THE DREAM
MORE INCOME IS ALWAYS BETTER
A small six unit property that looks trashy and rundown with deferred maintenance, as they call it, would likely sell in my town for around $300,000. Depending on the seller’s motivation, a $25,000 cash down payment would probably be enough to purchase the property I’ve just described. Over the years, my average down payments to acquire these small multiple unit properties has been about 10%, depending on how the property looks.
CASTING A WIDER INCOME NET Let’s assume my out of pocket cost or the down payment is $25,000 (same as the house purchase), but for six units instead! Obviously, there’s no difference there! However, there’s a huge difference in the income these properties produce! The house earns $1100 per month or $13,200 annually, while each of the six multiple units bring in $625 per month or $45,000 annually. That’s almost 3 ½ times more income for the six units with exactly the same amount invested. My return on the investment (ROI) jumps from 53% for the house to 180% for the multi-unit property! Leveraging down payment dollars is truly like leaping tall buildings in a single bound! Remember Superman?
- 15 -
LIVING THE DREAM
Important Reasons to Invest In Income-Producing Real Estate 1. Investing the way I teach is guaranteed employment for your family if they wish. And most important of all – you become your new boss – and kiss your old boss goodbye.
2.
Investing the way I teach works the same in a good economy – or bad! It
don’t run hot and cold because shelter is needed by all of us. When you acquire affordable rental houses as I suggest – you’ll be setting up a guaranteed income for life.
3.
One of the best features of becoming a house provider is you can earn while
you learn. Investing is about learning new skills. Beginners are wise to learn a few basics before buying their first investment property. Be extra careful about who you select as a teacher. My advice – check ‘em good.
4. You do not need to be a genius or have a college degree! High school drop-outs can succeed same as anyone else who has discipline, determination and willingness to learn.
5.
This business can set you up for life! It can provide a sizable monthly income
of your choosing – build a large net worth for you and your family – and a very comfortable retirement you can depend on. reward for your efforts.
- 16 -
Financial freedom will be the
LIVING THE DREAM
Chapter 3 THE POWER OF LEVERAGE AND COMPOUNDING
Leverage and its twin sister compounding are two of the most powerful tools in your investor’s financial kit. You must learn to use them safely! Please underline safely because leverage can destroy your dreams of riches and security almost as quickly as it can create them! Just be aware, it’s a double edge sword that can cut both ways! Safe leverage will make you richer and a whole lot faster – let me explain how!
Referring back to the example of six rental units purchased for $300,000 with a $25,000 cash down payment – I want you to understand why leverage is such a powerful wealth builder. Since the entire property cost $300,000, that means the price for each rental unit would be $50,000 ($300,000 divided by 6 units = $50,000).
But because we are paying only $25,000 down, we are actually
investing just $4167 for each of the six units. That’s only about 08% of the total cost – but here’s what’s really exciting! We get to collect and keep 100% of all the rent money each unit generates because we were smart enough to be the owner. From an earnings standpoint, our $4167 investment will generate $7500 in income during our first year of ownership! Think about that for a moment! How much do you think you might have earned if your $4167 was in some bank account! If you - 17 -
LIVING THE DREAM
earned 10%, that would only be $417! This is how super leverage can speed up your wealth plans if you’ll invest your limited funds wisely.
THE MAGIC OF COMPOUNDING Albert Einstein is reported to have said: “Compounding is the most powerful force in the universe”! Let me explain my version of what Einstein is talking about.
Say for example; you decided to invest $1000 per month into real estate trust deeds that will pay you 12% annual compounding interest. It might be your personal savings account or retirement plan, but you must promise me you’ll leave the money alone for 20 years. In other words, you can’t withdraw or borrow any money from the account until after you’ve been investing for 20 full years. That’s my only rule! Now fast forward to 20 years from now! Can you make a guess how much money you’ll have in your account after investing $1000 a month for 20 years?
Would you ever guess you’d be a
millionaire? If you did, you’d be pretty close – you’d have $989,255 in your bank account! WOW – that’s a lot of money. I’m churning the numbers around in my head, but I’m coming up way-way short! When I multiply $1000 per month times 240 month (20 years), it only comes to $240,000! That’s absolutely correct, but what you forgot to plug in is the 12% compound interest earnings over 20 years. That number, my friend, is $749,255! Altogether you’ll have $989,255.
- 18 -
LIVING THE DREAM
Okay, I can hear ya thinkin’ out loud --- All this sounds like peaches and cream, but where does Jay think we’re supposed to find a $1000 every month to invest? Well – no one said this was easy. Still, lots of folks spend that much money on car payments, TV’s and new iPhones!
Eventually if you follow my investment
strategy, buying small multiple unit properties, you’ll create the extra income outta thin air – keep reading, I’ll show you how!
SELF-HELP AND SWEAT EQUITY
Earlier I told you why I was able to purchase a six unit income property in my town for $300,000 with only $25,000 down! Do you recall what I said about the property when I described its condition or how it looked? Almost all of us judge value based on the looks. Bad looks will greatly reduce the competition for these properties. Bad looks and ugliness also tend to lower the seller’s expectations - or his asking price. When you’re the buyer – this is exactly what you want. This is the situation where you make your biggest profits! Here’s what I told you earlier!
A small six unit property that looks trashy and rundown with deferred maintenance would likely sell for $300,000 in my town. Of course, that’s why the rents were only $625, even though comparable units in the neighborhood were renting for $795. Why the difference in the rents, you ask? Tenants won’t pay top rents for trashy and rundown units! Paint ‘em, clean ‘em up and plant nice green lawns with flowers and in a couple years or so, you’ll be able to get $795, just like the nicer units. By the way, this is where you’ll find that extra $1000 a month you need for investing in trust deeds. The difference between $625 rents and $795 equals $170 per unit. Multiply that times six rents and presto - you’ll have your thousand bucks. - 19 -
LIVING THE DREAM
THE BEST I CAN OFFER YOU
Earlier I told you I love all kinds of residential real estate investing from one room shanties to larger apartment buildings, but they all have their positive advantages, as well as their negatives. Since I’ve done ‘em all; I feel more than qualified to present you with what I consider the very best of the best for ordinary working folks who’ve been bitten by the investment bug! People I often refer to as “Mom and Pop” investors, much like myself when I first started. As a group, we’re very energetic working folks with a common desire to improve our financial lot! It’s also quite likely that we don’t have a great deal of money to start with! If my description fits you like it did me 50 years ago – you need to keep right on reading because I intend to let you in on a very special investment plan with more than enough income and profits to change your life forever – even the lives of your family if you choose. The beauty of my plan is that it works for part-time investors and full-timers alike!
It’s also perfect for career changers, family
business ventures and small informal partnerships. The nuts and bolts of my plan are covered from A to Z in comprehensive detail in my home study course: “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”. However, allow me to share some of the major benefits to show you exactly what I mean! Perhaps best of all, you won’t need a Master’s degree to be successful! Of course you will need some education – but that’s where my study course will come to your rescue!
- 20 -
LIVING THE DREAM
Chapter 4 THE BEST STAY AT HOME BUSINESS OPPORTUNITY I KNOW
Before I let you in on my wealth builder plan, which can greatly improve your financial security – I first want you to think long and hard about your future. If you’re young – what are your future job prospects? If you’re older, what about your retirement or your standard of living later on? If you’re somewhere in between – do you need more income now? Do you need a financial backup plan? Almost everyone fits in here somewhere, I’m sure! Assuming you do – then here’s the deal? If you are truly sold on the idea of owning income-producing real estate – and you wish to take full advantage of the extremely lucrative benefits it can provide for you – just keep reading!
I’m about to show you how you can
accomplish the task. Also, I want you to know you can do this a lot quicker than you might think if you’ll attend my INVESTOR TRAINING SEMINAR or educate yourself using my home study course to help you get started.
Many real estate book writers claim you need a special team of experts in order to be a successful investor! That’s pure horse pucky! These so-called experts won’t ever show up until after you’re already successful because you can’t afford to pay ‘em! There’s an old saying about banks and their lending policies – they’re willing to loan you money when you don’t need it. The same thing is true about the - 21 -
LIVING THE DREAM
experts. What you really need instead, is a good workable plan that you can adopt and make it work all by yourself. That’s exactly the kind of plan I’ll be telling you about. CHERRY STREET REVISITED
Back on Page 7, I showed you the financial rewards associated with my long-term ownership of six little houses on Cherry Street. Over the course of my ownership and the seller financing profits when I sold the property – my average gross earnings were approximately $53,000 per year – or about 121 times my initial investment of $20,000. This happened because I employed the two most powerful investor tools – leveraging and compounding! You’ve read how the magic of compounding works on Page 17! Well, guess what – it works the same way for all properties like Cherry Street! Talk about “hamburger helper”, you can’t leverage anything and get better results. This is exactly what broke investors need to get off the launching pad! A little later on I’ll introduce you to my lifetime investment model. It consists of six (6) separate properties containing 40 rental units. In my town, even with very modest rents of $695 per month, you’ll gross $333,600 annually and keep more than $100,000 for yourself. Right now however, allow me explain how you can accomplish this task without a ton of money to start with!
YOU MUST SELECT THE RIGHT VEHICLE You can’t drive up the side of a mountain in a regular passenger car, but it’s easy as pie with a rugged four-wheel drive “off road” vehicle! Passenger cars are just fine for highway driving, but they’re almost useless on the mountain side because - 22 -
LIVING THE DREAM
they don’t have the right stuff! Investing is much the same way! You need the right vehicle with the right stuff to earn the biggest paydays! To begin with, let’s assume your plan – or goals are to earn $100,000 annually and develop a cash flow stream quick as possible. I’ll assume, you’d like to accomplish these things before you’re as old as the instructor. To make this happen, you must first choose the right vehicle that can get you there! Buying single family houses with 80% mortgages simply won’t cut the mustard! Why not – you ask? It’s because mortgaged houses take too long! Remember, it took me 20 years to figure that out! (See Page 1) Whether your plan is part-time investing or you’re hoping to make real estate your new career – the vehicle should be the same! Why? Because I’ve yet to find an investor who told me cash flow doesn’t matter! It always matters to me, so I’ll just assume it matters to most other investors as well!
QUICKER CASH FLOW REDUCES RISK
The opportunity to acquire the type of property (right vehicle) that allows you to quickly increase the income – as well as the property value, is very important to any investor, both newbies and ol’ salts alike! The reason is --- Because it reduces risk and eliminates the fear of going broke! This is particularly appealing to family investment teams where everyone can feel much safer.
My example of a single family house with an 80% mortgage payment (Page 14) clearly shows why you need a better vehicle if your goal is to earn any serious money while you’re still a resident of this planet! You’ll note that my example - 23 -
LIVING THE DREAM
shows cash flow less than $100 in the best case scenario! With a two month vacancy, I’d be completely under water! I’ve been there, done that and believe me – it sucks! It’s far better to pin your hopes and dreams on a plan that can produce a lot more money – and much faster too! AGREED!
FINDING A DIAMOND IN THE ROUGH Under-performing properties, they’re called! It means the property is trashy, rundown and probably butt-ugly. The owner is likely to be a “milker”! Every month he sucks all the money (rents) from the property and never spends one thin dime to fix anything or even perform routine maintenance.
As a result, the
property is caught in a downhill spiral, looking shabbier every month, and attracting only marginal tenants who can’t pay regular market rents.
Finding the property I just described is like discovering gold in your backyard! Obviously, you’ll need to beef up your skills to take advantage here, but assuming you have my home study course; “Earn $100,000 Annually With Small Income Properties”, you’ll have the proper guidance to keep you in the moving forward mode!
HOW VALUE IS DETERMINED
Your first big profit opportunity could come rather quickly when you learn and understand how property values are determined! With single family houses, it’s pretty much cut ‘n dried! A licensed appraiser is summoned with his measuring tape and “boiler plate” forms! He draws a few sketches and then searches through the current records to find out what the same size houses in the neighborhood are - 24 -
LIVING THE DREAM
selling for. He then basically copies those prices, jiggles the numbers a little – and BINGO, there’s your appraised value! When the houses all look about the same, with roughly the same measurements, it’s hard to get much of a price break when you’re a house buyer. This is called comparable value or “comp’ing”.
MULTIPLE UNITS ARE MUCH DIFFERENT During my 50 years investing, I’ve yet to see two income properties (the kind I buy) that look very much alike! The kinds of properties I buy are actually called income properties. Houses are not called income properties! This is a very important distinction – and here’s why!
Income property values are mostly
determined by the income they generate along with two other factors – the condition of the property and its location! I want you to underline what I’m about to tell you next! Under-market rents can artificially lower an income property’s true value, but more importantly – it’s selling price! This can create a super opportunity to buy properties at a substantial discount for investors who have learned a few basic detective skills. Skilled investors buy income properties for income! When the income is not up to par – or it’s less than it could be; buyers will pay accordingly. Sellers (owners) who let their properties run down and become ugly will always suffer at the sales table! To repeat; multi-unit property values are primarily based on the following three (3) items:
AMOUNT OF INCOME LOCATION OF PROPERTY CONDITION OF PROPERTY - 25 -
LIVING THE DREAM
The two most commonly used methods to determine the value of income properties
are
CAPITALIZATION
and
GROSS
RENT
MULTIPLIER.
Capitalization is the most precise or accurate measurement because it’s based on net income, however; the gross rent multiplier is more widely used because it’s an easier calculation, and it’s close enough to establish a reasonable “ballpark” estimate of value. In my 50 year career, it’s about the only method I’ve ever used.
HOW TO HELP YOURSELF LEARN VALUES You’ll find using the GROSS RENT MULTIPLIER method is easy as pie, but you must first learn the rental rates (prices) in your buying area! You can do this by studying the classified “For Rent” ads – then driving out to the various properties to see what your rent dollar will buy you! Basically, you’ll be pretending to be a rental customer until you’ve developed a pretty fair knowledge about what different properties will rent for. Be sure to check out the various sizes (1BR, 2BR & 3BR), the condition of the property and of course; pay close attention to location! Don’t forget to take good notes for your future reference!
Local real estate agents can help you learn what investors are willing to pay for income properties in your local investment area! Obviously, if you’ll promise to do business with an agent, this learning process might just happen much faster. It’s called the “back scratch’n” formula – I’ll scratch yours if you’ll do mine! As I told you earlier, income property values are almost entirely based on INCOME, CONDITION and LOCATION. Once you learn the rents and property values, you’ll be able to develop your own GROSS RENT MULTIPLIER CHART for your area like mine on Page 27.
- 26 -
LIVING THE DREAM
GRM CHART (Gross Rent Multiplier) JAY’S INVESTMENT AREA 6 UNITS – HOUSES OR APARTMENTS
GRM
DESCRIPTION
RENT
ANNUAL
VALUE
13X
Snob Hill
$1,000
$72,000
$936,000
12X
Primo
950
68,400
820,800
11X
Deluxe
895
64,440
708,840
10X
Desirable
845
60,840
608,400
9X
Average
795
57,240
515,160
8X
Deferred Maint.
715
51,480
411,840
625
45,000
315,000
510
36,720
220,320
7X 6X
Trashy-Rundown Butt-Ugly
- 27 -
LIVING THE DREAM
Chapter 5 YOUR FIRST GOLD MINE PROPERTIES
You won’t find multi-unit income properties for sale sittin’ on every street corner like bank repo houses! The reason is because multi-unit properties generally make money for their owners – houses don’t! Therefore, one of the most important lessons you’ll need to learn is how to find them, or dig ‘em out! Like gold, they’re often hidden in the older established neighborhoods or tucked in out of sight behind the main house on an older residential street! Often you’ll find ‘em mixed in with small commercial properties where you would least expect to look. Don’t fret, there’s plenty enough to go around – and once you begin looking in the right places, they’ll start pop’n up like targets on a rifle range! Several chapters in my home study course, “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”, are dedicated to helping students find these properties – and how to contact owners with “cold-call” letters. When you can deal “one on one” with property owners, you’ll be in the driver’s seat! The reason is because it’s the owners who can make the kind of deals that will help you the most! This is one of the keys to negotiating seller financing with the kind of terms that can help you get cash flow! Besides, when dealing with an owner, there’s no commission to pay. Every little bit helps when you’re running on empty – agreed!
- 28 -
LIVING THE DREAM
SCOUTIN’ THE NEIGHBORHOOD
Suppose I learn about six (6) small houses in a desirable rental area that have suddenly become available for sale! I’m told the elderly couple that owns the property can no longer physically do the upkeep and they’ve decided to move to Florida! During the 30 plus years they’ve owned the property – their church friends have also become their tenants! This has worked out quite well because managing has been a breeze! Their only problem however – they’ve failed to keep their rents at current market rates because the tenants are their friends – plus they rarely call for repairs! As I’ve already told you – income properties are pretty much bought and sold based on the income they generate. As a rule, the higher the income, the more valuable the property. Obviously, lower income means less value! Most real estate salesmen or brokers will generally express an income property’s value in terms of gross earnings! For example; in my town, a six unit property in good condition, located in a desirable rental area would likely sell for about 10 times gross rents (see Page 27). For 2 bedroom units, each house would rent for $845 per month – therefore, 6 units renting for $845 each = $5070 per month or $60,840 annually. 10 times the gross rents would equal a sale price of $608,400.
The GROSS RENT MULTIPLIER CHART on page 27 shows you how values increase or decrease as the income goes up or down! Understand, these values are based on what investors are willing to pay for a specific amount of income. They can vary somewhat with inflation, scarcity and the interest (returns) what other investments are paying. Investors must study their particular market area before
- 29 -
LIVING THE DREAM
they can develop their own chart like mine. A knowledgeable real estate agent can help you a great deal, particularly in the beginning!
Now back to my example about the elderly couple wanting to sell! I told you they have a problem and I immediately realized there was great opportunity for me if I could strike a deal! Their average rents were only $695 per month in a desirable area where neighboring units similar to theirs, were renting for $150.00 more per month. This situation often occurs when landlords rent to their friends at below market rents – or when the owners no longer have mortgage payments to make (meaning they have more cash flow). Obviously, the most common reason for lower than market rents is when owners allow their properties to run down and they simply cannot charge market rents because of the condition. Each of these situations are “gold mines” in disguise for educated investors.
Referring to my gross rent multiplier chart on page 27, you can see that $695 rents would translate to slightly under an 8 x (times) gross rent multiplier (GRM). Yet, as I’ve already told you, the elderly couple’s property was located in a desirable rental area! Once again, referring to the chart, you will note that rents in a desirable area are $845 per month. This is what investors refer to as an underperforming property. Notice that six (6) units renting for $695 per month – or $50,040 annually would likely have a value between $375,000 to $400,000 (see chart Page 27, far right column).
- 30 -
LIVING THE DREAM
STRIKING A DEAL
Lots of money can be made by finding under-performing assets; both real estate and small businesses alike – then turning them around. Corporate raiders become rich and famous when they possess the ability to do this! But they are not alone however! Small-time real estate operators can become very wealthy tycoons doing the same thing. A good start would be acquiring the elderly couple’s six (6) small rental houses using my example on the previous pages.
In my town, a fair offer for six small 2 bedroom rentals (detached houses) earning $50,000 annually would be somewhere around 8 times the gross annual income. 8 x $50,000 equals $400,000 back when I went to school – I assume it still does! When I say around 8 x gross; the word around always means a bit less to me. Thus, my offer will be $360,000, which translates to $60,000 per unit. The rent-tovalue ratio is still over one percent (.011), which I consider good. ($695 rent per month divided by $60,000 unit price) If the seller agrees to carry the financing giving me what I consider good terms; who knows – I might even show my generous side and pay up to $450,000. Good terms to me means – ten percent (10%) down payment and a monthly mortgage payment of around 50% of the total monthly income. In this example; the total monthly income is $4170, therefore; a mortgage payment of $2100 per month is about what I’m shooting for. Although my first offer will likely be $360,000, let’s assume I’m countered (or got pushed up) to $400,000! Here’s how my offer might look:
- 31 -
LIVING THE DREAM
JAY’S GENEROUS OFFER
Total Selling Price
$400,000
Cash Down Payment Seller Carry-Back Financing
TERMS:
40,000 360,000
Payments to Be $2158.40 per Month Including 06% Interest Amortized 30 Years
Although my monthly mortgage payment is $58 higher than my target mortgage payment of $2100, it’s still within the acceptable range for me.
Remember, this stuff is not set in concrete. There are ways to be flexible! The variables are selling price, down payment amount, and of course, the mortgage interest rate. IT’S NOT THE ECONOMY – IT’S YOUR KNOWLEDGE AND SKILLS Let’s assume we close the deal with the elderly couple like my example above – “Jay’s Generous Offer”! Can you visualize your earnings and profits? In case you can’t – let me tell you that finding an under-performing property is like hitting the super jackpot. If you’re a “do-it-yourself” investor like me; you’ll enjoy cash - 32 -
LIVING THE DREAM
flow starting on day one of your ownership! When you manage the property – and do your own maintenance and repairs, you’ll save yourself about 25% of the operating costs, which in this example will put about $500 per month extra in your pocket.
The real payday comes from your buying skills because almost immediately you can begin raising rents to match the neighborhood units, which we’ve already determined are $845 per month. As a rule, I do these rent increases gradually as new tenants move in. It’s also my policy to make a few improvements – paint the units, build some new fences and upgrade the yards so new tenants – and even the existing residents see they’re getting some real value along with their increased rent payments. My time limit for bringing rents up to the current market value is generally about 18 to 24 months. I raise the rents in modest amounts during this period and try to reach full market rates by 24 months or so.
Gradual rent
increases while making visible property improvements along the way won’t stir up the tenants like big rent increases for no obvious reason!
FORCED APPRECIATION ALWAYS WORKS The beauty of what I’m about to tell ya is that you can have absolute total control when you acquire the kind of income properties I suggest! It don’t matter a “hill o beans” whether there’s inflation or mortgage funds available! Neither does it matter if the economy is completely in the dumper or if your credit score is less than the days in a year! Why – because everything I’ve told you so far is 100% within your control. Personal control is one of the key factors to becoming financially independent and rich by the time you’re old like me!
- 33 -
LIVING THE DREAM
Let’s fast forward about two years from now and take a quick peak at our six little houses example! If you did what I’ve suggested, you should have the rents up to the market rate by now ($845 per month)! Like I’ve already told you, the value for rental units is primarily based on the income they generate. In this case $845 x 6 units equal $60,840 annually. We know the property is located in a desirable area – thus the value is $608,400 as shown on my GRM chart on Page 27.
As the owner, you would now enjoy rents of $900 more than when you acquired the property – plus equity of nearly $250,000 – life is good. Best of all – you did it all by yourself because you were serious about the value of educating yourself before you struck
out on your own and made some stupid mistakes.
Congratulations!
If for some reason you believe my only purpose in telling you my million dollar secrets is to sell you my training course – give yourself some credit – but you’re only half right! The other half is because I have 50 long years experience doing this stuff and you really need my help! If your goal is to speed up your success, and make money a whole lot quicker than you can by yourself – I’m your shortcut! Remember, I spent 20 years buying houses with hardly any cash flow and without any help! Believe me when I tell ya – that’s like a slow boat to China – you and I together can beat the pants off of that - GUARANTEED!
LEVERAGING PROPERTIES AND THE TENANTS WHO PAY You don’t need 20 or 30 houses scattered hither and yawn like I once owned. You’ll be light years ahead acquiring just six multiple unit properties with 40 - 34 -
LIVING THE DREAM
rents coming in every month. That will make you a millionaire several times over; with a whole lot less effort. My home study course; “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES” is an inexpensive way to get you started down the right path today! Believe me, right now is the investor’s perfect storm! Here’s what several of my “die hard” students have said about my training over the years. And no – I didn’t pay ‘em either!
- 35 -
LIVING THE DREAM
WHAT OTHERS HAVE TO SAY Jay: I love your courses. I’ve been an investor since 1978. I now own 20 units. I have applied your knowledge to my recent rehab and I’m very satisfied. I’ve listened to your tapes over and over and they’ve really helped me. I’m your best customer for any new courses you write – especially about landlording. Thanks much - Brian Felch, Columbia, MD Hi Jay: I’m probably your biggest fan. Being a single mother with two small children, I’m especially grateful for your help. I was able to acquire 5 rundown houses in 2 years, which I sold so I could be a stay at home mom with a good income. You were a life saver to me. Beth Rosander, San Francisco Area, CA First Jay: Thank you so much for all your help. Your counseling has been extremely valuable to me. After attending your 3 day seminar in Las Vegas, I returned home (Sacramento, CA) and purchased 24 houses in one location using the seller financing you taught me. Thank you Dan Shea, Kentfield, CA I just wanted to thank you for a wonderful course this weekend. Your course was extremely practical and useful – and thankfully lacking the puffery of so many real estate gurus. I was very impressed by the breadth of your knowledge and by your generosity of sharing it with us. Thanks for a great seminar. Cheers! Richard Kelly – San Francisco, CA Jay’s Fixer Camp is the absolute “Gold Standard” when it comes to learning all about adding value to multi-unit properties. Jay’s cash flow techniques are nothing short of amazing. I highly recommend Jay’s seminar. John Schaub, Investor, Author, Educator – Sarasota, FL Great seminar Jay! Boy did you ever open my eyes to a whole new way of thinking. A job well done! I really enjoyed the whole experience and plan to send others to see the light. Mike Cantu – Alta Loma, CA - 36 -
LIVING THE DREAM
Chapter 6 FINANCING AND CONTROL
How you finance your real estate holdings makes all the difference in the world. One of the major reasons I invest the way I do and in the kind of properties (multiunits) I’m writing about –properties I often call “the right vehicle”, is not because I’m in love with these properties.
It’s because they create the biggest
opportunities for the biggest paydays in the quickest amount of time! When banks loan money for mortgages, after you’ve paid 10 or 20% down – would you care to make a guess about who might have the most control or say-so about your property! If you guessed the bank – give yourself an A+, you’re catchin’ on! Bank mortgages control what happens to the property with fancy clauses like “Due on Sale”, meaning no one else can assume or take over the mortgage without their permission. Also, unless the mortgage is for your personal residence (owner-occupied), you are generally personally liable for any monies less than a full payback should the property ever be sold for less than the mortgage balance; such as foreclosure auctions or a short sale. That just plain sucks, in my opinion!
- 37 -
LIVING THE DREAM
When you purchase five or more units; the bank calls this a commercial loan or mortgage! These are very difficult to get unless you’re building a shopping center or new commercial development! So if you follow my advice about buying older multiple unit properties (over 5 units) and they look a bit shabby and rundown – you can forget about your prissy little loan officer at the downtown branch. Don’t even bother bringing the pictures either! He’ll throw up! Banks don’t do commercial mortgages for older junky lookin’ rental properties. Besides, they understand that Mom and Pop investors are generally highly leveraged. Many are investing on a shoe string – and some don’t even have a W-2 from a regular job! Banks really hate that!
SELLER FINANCING IS THE ONLY GAME IN TOWN Since the banks won’t come out and play, small-time investors like myself must look for long-term financing elsewhere. In short, we must ask the sellers to participate! Most sellers who own the kind of properties I’m looking for already know that banks won’t provide mortgages, therefore; these owners are fully aware that financing will be up to them! You could say that buying the older multiple unit properties (5 or more units) like I’m suggesting, actually forces seller financing if the owner wishes to sell his property! When sellers agree to “carry paper” or finance your deals, it’s far different than a bank mortgage! To start with, bank mortgages are actually a loan – meaning real money was used! When the bank provided a mortgage so you could buy the property, they actually used depositor funds to pay off the seller! In turn, you - 38 -
LIVING THE DREAM
signed a promise to the bank that you’ll pay the money back along with interest over a period of 20 to 30 years. The bank earns a profit on the money in the form of interest income until they are paid back all the original loan (mortgage) amount. Seller financing is not a loan – real money is not being used! The seller is simply allowing you terms; say like 10 years, to pay for his property. He’s not loaning you one stinkin’ dime. He’s extending credit to you because you cannot pay for his property all at once! Instead, after an agreeable down payment – say 10%, he allows you to make payments over a certain period of time until he receives the total “Agreed-To” price for his property! Just remember; bank mortgages mean real dollars have been loaned – with seller financing, that’s not so!
Seller
financing is only about terms! I need you to understand this distinction because one will make you rich – the other a whole lot poorer!
BUYING BACK YOUR OWN DEBT If you have a bank mortgage, you can keep reading, but you’ll hate yourself in the morning! Why is that, you ask? Because I’m about to tell you about a big profit opportunity that won’t work with bank financing – yet, it’s quite common with seller financing (terms).
Sellers who own properties (multi-units), the kind I buy, will generally accept 10% cash down payments when they sell to me. Would they like more cash if they could get it? The answer is yes; but with older properties, especially if they’re rundown looking and not kept up too well, most investors are simply not willing to pay much more than 10% down! As a general rule, the kinds of investors who are interested don’t have much more than 10% to give! Also you mustn’t forget, the - 39 -
LIVING THE DREAM
competition to purchase six junky looking rentals on a single lot is only a small percentage of all the wanta-bee investors roaming around looking for properties to buy! Roughly 95% are looking at single family houses! When you negotiate seller financing on your property – as opposed to a bank mortgage, you’ve set yourself up to earn bonus profits in the future buying back your own debt – or financing! I’ve found the type of sellers who allow their income properties to run down (often called milkers) are always needing more money! They seem to manage money about the same way they manage their properties!
MAKING $85,000 THE EASY WAY
Years ago I purchased a six (6) unit rental property for $200,000 with 10% down ($20,000). My payments on the balance ($180,000) were $1200 per month. Just thirteen months later the seller needed cash to open a new restaurant. He was more than happy to take my $95,000 cash as the full payment for his 20 year, $180,000 promissory note.
I borrowed the $95,000 to pay him, cutting my monthly
payments to $765 per month. These large discounts for cash are not the least bit uncommon when you acquire properties financed by the seller.
Think about this for a moment!
Only thirteen months after I purchased my
property for $200,000, I get $85,000 back in the form of a discount! This means I’ve actually acquired my six (6) rental units for only $115,000. This is only possible when you buy properties from sellers who provide the financing (terms). Dealing with people, rather than banks is one of the most profitable benefits when you invest the way I teach. Buying back debt at super discounted prices works - 40 -
LIVING THE DREAM
equally well when you purchase my kind of properties and assume or “take over” the existing private financing that comes with the deal! Learn more about this in my home study course, “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”.
The more you can learn about creating your own financing – which sometimes includes paying no interest at all, the more money you’ll start making – and keeping for yourself. Once again, I’ll remind you what I’ve told you several times already. You must select the right vehicle to enjoy the kind of benefits we’re talkin’ about.
- 41 -
LIVING THE DREAM
Chapter 7 RENT TO VALUE RATIO
Investing is about $ numbers and investment returns and you don’t need to make it too complicated or difficult to figure out. My RENT-TO-VALUE measurement works just fine for me because it’s easy to use and gives me a good feel about how much money each one of my rental units is earning in relationship to its worth or value! For example; suppose I purchase a six unit property for $300,000 – and further, each of the six units is valued at $50,000 ($300,000 divided by 6 units = $50,000), lets also agree that each unit will rent for $750 per month after a few repairs and a spiffy new paint job! My rent-to-value formula is calculated as follows! $750 rent divided by $50,000 value = .015 or as I call it, a 1.5 ratio. This 1.5 ratio means my $50,000 asset, the rental unit, is earning or bringing in an 18% annual rent return! To verify the math; multiply 0.18 x $50,000, which equals $9000. Obviously, $750 per month for 12 months = $9000.
By comparison, a single family house in my town with a value of $150,000 only rents for $1100 per month! Therefore, $1100 rent divided by $150,000 value = .007 or as I call it, a 0.7 ratio! This means the house brings in or earns less than half the annual rent return compared to my multi-unit property above! A 1.0 ratio - 42 -
LIVING THE DREAM
equals 12% annual rent return or the equivalent of 01% per month. As you can see, my vehicle of choice (multi-units) blows away the competition when it comes to the return on my investment!
QUALIFICATIONS FOR REAL ESTATE INVESTING The real beauty of real estate investing is that it’s wide open to everyone regardless of education, age, background, male, female or the size of one’s savings account. Much like any other business venture; having a few bucks saved up can make getting started a bit more comfortable!
However, far more important than a
savings account is one’s commitment to learning what to do (education), then quickly following through with a plan of action.
Basically, it means learning enough about rents and values so you can go out and acquire your first property if you’re just a beginner – or you can make a quick switch if you feel your current plan is not up to snuff! More than anything else however; you must follow your dream and stay totally focused until you achieve the goal. Along the way you must constantly “muster up” the discipline to stay on course! Professional golfers will tell you, the toughest tournament they’ve ever won was always the first one and it often took many years!
Fortunately, real estate
investing can produce far better results – and a whole lot faster; if you stay motivated and keep your plan moving forward.
This is where the personal
discipline comes in. In football jargon, you mustn’t stop until you’ve clearly reached the end zone! - 43 -
LIVING THE DREAM
HILLCREST COTTAGES WAS MY EARLY DREAM
Had you driven by my Hillcrest property when I finally mustered up enough courage to buy it, a dream would have been the furthest thing from your mind. “A nightmare” would have been a much better description! Looking back now, I should have won a medal for bravery on the day I closed escrow. After all, not another soul even made an offer so far as I know!
Still, I’ve never lacked
confidence in my own ability to clean up a stink’n mess no matter how many “looky-loo’s” around me thought I was nuts! I did prove to myself that if you’re willing to roll up your sleeves and take on the challenge, you can make yourself a ton of money if you’ll stay the course!
Hillcrest was an old outdated motor lodge (the forerunner to modern day motels) with 23 small cottages all snuggled together on a two acre parcel (city lot). It was my plan to switch the cottages over to individual senior apartments and rent them on a monthly basis. The sellers were still trying to compete with modern day motels when they finally decided it was time to give up. Fortunately for me, they were quickly going broke so their motivation level was a near perfect 10, and rising! As it turned out, they agreed to my no cash offer, accepting instead, a single family house I owned as a trade. I learned early on, the toughest jobs – often the dirty jobs will produce the biggest rewards! Properties like Hillcrest present broke buyers like I was back then, a great deal of flexibility when it comes to the down payment and extra special creative terms! Trading my house for the down payment was a good example.
- 44 -
LIVING THE DREAM
MAKING $69,000 OUT OF THIN AIR
I had just purchased a commercially zoned property (my house) a short time before finding Hillcrest! I had paid $80,000 with a $20,000 cash down payment. The owners had agreed to sell me Hillcrest for $234,000. I agreed to assume (take over) three (3) existing mortgages, which added up to $143,000. That meant I would still need $91,000 to close escrow! By now my house mortgage balance was paid down to $58,000, so I simply added $91,000 to $58,000 – and presto, my new house value, appraised by me, was now adjusted to $149,000. I could now trade equities straight across for Hillcrest Cottages – no cash would be needed. Many folks have asked me – how can you purchase a house for $80,000 and sell it a few months later for $149,000? That’s an 85% markup. Is that legal? It’s not only legal, but the sellers were pushing me hard to make the deal happen – can’t we close any faster, they asked? There’s a valuable “profit-making” lesson clearly demonstrated in my Hillcrest transaction! When sellers are determined to dump what they own – when they’re highly motivated to sell! There are many ways to close a deal. It often takes very little cash, sometimes none and most motivated sellers don’t pay a whole lot of attention to trade values like my “puffed up” house value! They’re main concern is getting out from under the property they’re trying to sell – or dump! Finding these sellers is worth big bucks to investors who wish to “speed up” their wealth building plans. This may be a great opportunity to join the “one percenters”.
- 45 -
LIVING THE DREAM
CHANGE THE USE – INCREASE THE PROFITS I’ve written a lot about Hillcrest Cottages because it’s the kind of deal that can move “small-time” players (investors) to the big leagues rather quickly. Almost two years to the day, and after spending nearly $50,000 (borrowed funds) for fixup, clean-up, rewiring and hooking up the units to city water; I sold Hillcrest along with a couple other rentals for almost $600,000 to a local physician looking for a tax shelter. Naturally, I was more than happy to carry the financing when I sold! My interest income alone was nearly a million dollars, well, $939,077 if you wanta be picky! Later on when I tell you about “selling out” at the end of your investment career, like when it’s time to smell the roses – I want you to remember the term wraparound financing and make it your primary selling tool – we’ll call it, funding your retirement!
Selling Hillcrest along with a couple other rental units earned me $260,945 in sales profits – but when you add on the $939,077 I earned from interest income during the 27 years I carried the seller financing – it adds up to some serious money! Wouldn’t you agree? You’re gonna want to learn all the details how wrap-around financing works ‘cause it can easily earn you a million bucks on every multiple unit property you sell – the same way it’s done for me! Think about wrap-around financing as your old age retirement plan. You can’t find a better plan anywhere! You’ll also need to understand the six (6) important reasons for using “wraps” when you sell your properties so you don’t miss out on the extra profits. In my home study course; “EARN $100,000 ANNUALLY - 46 -
LIVING THE DREAM
WITH SMALL INCOME PROPERTIES”; you’ll not only learn these six (6) important reasons – but how and when to use them! My home study course devotes nearly a full chapter showing you examples about how to draft up your wrap-around notes, plus I’ll show you where the extra profits come from. Wraparound financing will also eliminate most of the seller carryback risks the way I teach you! That’s especially important at my age – but still, you’re gonna want to know for yourself!
- 47 -
LIVING THE DREAM
WHEN YOU HAVE NO MONEY – THEN USE WHAT YOU HAVE
People often ask me --- How do you find these special deals like Hillcrest? Many investors tell me they’re willing to tackle almost any kind of problems in order to save money on the down payment - or acquire properties at a substantial discount! It’s no big secret, if you’re willing to do some work yourself and crappy lookin’ rentals don’t frighten you away, you can earn yourself some serious profits! As a general rule; you’ll be able to negotiate far better terms – meaning longer terms, with easy pay seller financing. Always remember – terms control the cash flow.
Obviously, there are some investors who want no part of hauling away trash and facing goofy lookin’ tenants. Some may not have the skills to fix anything! Still, you can make a ton of money without having any hands-on skills, but you must promise me you’ll make a double effort to learn what things cost. In the long run, the biggest profits will come from your negotiating skills and your ability to obtain seller financing with the kind of terms that allow you to operate with cash flow.
The following chart gives you some idea, based on my experiences, about on the range of discounts you might expect if you’re willing to tackle the clean-up problems and people issues. Remember, ugliness and people problems always cause sellers the most grief! Most buyers shy away from rundown ugly properties, which means; if you can jump in and fix these problems, you’ll have automatically eliminated most of your buying competition. Being one-on-one with the seller, with no other buyers in sight is the ultimate dealmaker’s goal!
- 48 -
LIVING THE DREAM
Range of Discounts for Various Conditions
Condition of Property
Discount Range
1. Ugliness – Pigsty lookin’ with tons of junk on property. Major clean-up.
30-50%
2. People problems – dirty unruly deadbeats, often non-paying tenants.
30-40%
3. Old junky houses/apts. Lots of deferred maintenance and repairs.
25-35%
4. Rundown properties Out-of-town owners, often a tenant manager.
20-30%
5. Cosmetic fixer Mostly needs clean-up and paint – general “tune-up”
10-15%
- 49 -
LIVING THE DREAM
Chapter 8 DREAMS CAN COME TRUE AT ANY AGE
At seminars I’m often asked about age. Students ask --- Can you still become successful after 50, 60 and so forth? My answer; without the slightest hesitation is yes – you most certainly can! You can do almost anything you set your mind to, I’ve found, if you will stay focused, maintain discipline, avoid negative friends and all the “nay-sayers” who will always tell you why you can’t!
An excellent role model in my opinion was the late Harland Sanders - an Indiana born, grammar school dropout, who wouldn’t give up! Harland’s working career began at age fifteen doing back-breaking, labor intensive jobs – but Harland had a very special dream! He loved to cook! As a young boy he’d learned how to pan fry chicken and make scrumptious homemade biscuits from his mother. Harland decided to open his own restaurant in a 12’ x 15’ storage room in the back of a local service station. By the time he was 42 years old, his fried chicken dinners had gained a wide reputation in the county allowing Harland to open up a full size restaurant, which he named – Sander’s Café! Business was good, but pan frying was way too slow, so Harland developed a pressure cooking system that worked much faster. At the same time, he kept improving his special blend of spices!
- 50 -
LIVING THE DREAM
A DREAM - PLUS ACTION WAS HARLAND’S MAGIC INGREDIENTS Harland was not your ordinary day dreamer. He had a clear vision he’d soon become successful!
When he was 59 years old, he was presented with a
prestigious Kentucky Colonel’s commission from the governor’s office. He even had his picture taken dining with the governor!
In 1959, Harland was offered $164,000 to sell his popular roadside restaurant, but he turned it down! He dreamed of much bigger opportunities, perhaps expanding his building size or opening up a second location! However, fate was about to play a dirty trick on Harland and his popular highway café.
Expecting a brand new freeway interchange that would literally dump hundreds of new customers on his doorstep, it wasn’t to be! Instead, the U.S. highway that ran directly past the front of his restaurant was re-routed several miles away. Harland was forced to sell out for just enough money to pay his bills.
With his restaurant gone, the Colonel now faced the prospect of living on his paltry Social Security check of $105 per month. He was now 66 years old. Down but never out, Harland wouldn’t even think about giving up! With an overabundance of lifetime experiences, he was “dead-bang” certain there was one thing he could always do better than anyone else – fry chicken with homemade biscuits! Loading up his herbs and spices in the trunk of his aging white Cadillac, Harland took to the road! He convinced himself, he could still be a success.
More
importantly, he never gave up on his dream, even though he was now almost 68 years old! He would stop at every restaurant and offer to cook for free, just to - 51 -
LIVING THE DREAM
prove that diners would fall in love with his special southern style chicken formula. Harland would then convince the owners to pay him four cents for every chicken they cooked using his now famous herbs and spices.
A bit slow at first, but by 1960, there were more than 200 Kentucky Fried Chicken outlets in the United States and Canada. The Colonel could now afford to stop his traveling! While his wife Claudia kept the books – Harland would mix and mail out his herbs and spices working from home. The Colonel had now reached 70 years of age, but he wasn’t done by a long shot! Successful folks never are!
By 1963, the popularity of Kentucky Fried Chicken had expanded to more than 600 outlets. By now, the Colonel and his wife employed 167 employees to keep the operation running – but it soon became too much! The Colonel sold his business to a Nashville millionaire for two million dollars cash and a $75,000 annual lifetime salary to travel around the country in his white linen suit, promoting his famous chicken. With his bleached white hair, neatly trimmed goatee and a black string tie, the Colonel would soon become one of the most recognized marketing personalities in America.
By 1971, just seven years after the sale, the number of Kentucky Fried Chicken stores grew to 3500 – and before it was bought out by the giant Heublein Corporation in 1995, there were 9400 KFC outlets worldwide with reported annual sales of seven billion dollars. When members of the U.S. congress asked Harland Sanders what one should do to prepare for retirement, the Colonel replied --- “Give him the opportunity to do for himself! A person should never stop dreaming or stop working to achieve his dream – a man will rust out long before he wears out!”
- 52 -
LIVING THE DREAM
PROOF THE AMERICAN DREAM IS STILL ALIVE Colonel Sander’s life is an inspiration for entrepreneurs everywhere! Harland’s story should be a constant reminder that no matter how old you are, the best is yet to come. To be a successful real estate investor, you must never recognize defeat. To keep trying is not the mark of a loser. As the Colonel no doubt would tell you – it’s the mark of a millionaire in the making!
- 53 -
LIVING THE DREAM
Chapter 9 THE RIGHT VEHICLE 5 UNITS OR MORE
I’m sure you’ll agree – it’s much better to collect six (6) rents instead of just one like I already told you back on Page 15. $45,000 annually trumps $13,200 per year any day of the week! It’s only fourth grade math, but yet, I know PhD’s who can’t figure out how to make a profit!
I also told you the down payment cost to purchase six units instead of buying just one would be the same amount, $25,000! How can that possibly be, you’re probably wondering! WELL – here’s the reason! All real estate investing don’t follow the same set of rules. Take financing for example! It’s customary for most houses (homes) to be financed by banks and mortgage companies using traditional 30 year amortized mortgage or at least some form of institutional financing. Yet, when you inform your banker the house will be occupied by renters – they charge more interest because banks consider renters to be higher risk compared to owner occupants. Banks also have tons of restrictions written into their mortgage documents telling borrowers what they cannot do. One such restriction (clause) says that if you sell, lease or encumber the property – they want all their money back right now! This restriction is known as the DUE- 54 -
LIVING THE DREAM
ON-SALE CLAUSE, and you’ll find one written in every bank mortgage you sign! Banks also require that house buyers sign mortgages which say – they agree to be personally liable if the property gets foreclosed and is sold at auction for less than the mortgage balance when the property is being used for business – like a rental.
FINANCIAL SUCCESS CREATES FREEDOMS
After being both a W-2 wage earner and full-time investor; I can honestly tell you – there’s no way I’d ever switch back. From a financial standpoint; they’d have to pay me more than the President. Still, it’s not just the money – it’s the lifestyle! As a general rule; investors like myself start out with a goal of FINANCIAL FREEDOM. Once we learn the business well – work hard and achieve success, we soon realize there’s another equally important goal we need to conquer! It’s called PERSONAL FREEDOM! It’s having enough free time to do all the personal things we’d like to do. With enough money jingling in our pockets, we can now set our sights on doing all the things that regular wage earners with a boss, can’t ever do! For example; in the past 20 years or so, I’ve become quite fond of annual cruises – sometime I’ll even sail twice!
Another personal freedom, which of course,
financial freedom has given me are my trips to visit Civil War battlefields. There’s simply no way I could have ever dropped everything – jumped on a jet plane, headed for Miami and a two week cruise while working for the phone company.
Back then, I found myself in a rather peculiar situation! After twenty years of service, I had earned my full four weeks vacation, but I only had enough money saved up to pay for one week’s worth! Working for the other guys has severe - 55 -
LIVING THE DREAM
limitations! Seems like in the beginning, I couldn’t get enough time off, then finally, when I could – I was broke! Jumping on a plane to visit Civil War battlefields without advance permission - and having some extra money in my pocket, was only a distant dream before my real estate success! WHEN THE LIVIN’ IS EASY I don’t wish to suggest that real estate is ever easy, but like most opportunities in this life – with the proper education and a strong desire to succeed, it does become much easier! It also becomes a lot more fun because your deals will keep getting better, which generally means more cash flow! Now that’s real fun - agreed! I’ve concluded that investor benefits come in two different flavors! We tend to think first about the money benefits – as in getting rich – and obviously, that’s a very important part! But I also believe almost equally important are the lifestyle benefits! It’s all the personal freedoms I have which are far superior than working for someone else.
- 56 -
LIVING THE DREAM
LISTED BELOW ARE 13 INVESTOR BENEFITS THAT I TREASURE VERY MUCH! 1. I can earn a very good income; the amount is up to me. The sky’s the only limit! 2. I can work whenever I choose – no specific hours or days. When I’m not working – I’m free. 3. I can take time off my job anytime I need to because I’m the boss. I’ve got permission! 4. I’m both the boss and CEO. I hold my strategy meetings every morning in the shower. Needless to say – I’m in total agreement. 5. My earnings are never frozen or voted on by others. My rents are indexed to normal inflation. Rents go up just like pork-n-beans at the supermarket. 6. I enjoy the best home business opportunity in America. My assets are income real estate, which continually increase in value, unlike personal property assets, which wear out and generally decrease. 7. I get to keep most of my income because Uncle Sugar allows me very generous business write-offs, therefore; less taxes to pay. 8. I’m layoff proof – no pink slips or downsizings – plus, my earnings don’t stop when I’m sick. Rents keep coming in around the clock. 9. I’m like a walking tax deduction. A large majority of my expenses are what accountants call “above the line” tax deductions. They’re legally paid by my business – not me! 10. Driving and auto expenses – most are management expenses - driving back and forth to my rental properties or other business related trips. 11. Invisible earnings without any taxes due – when I acquire a $250,000 property for $150,000, I’ve earned $100,000 without a tax bill. Try this if you earn an extra $100,000 on your job!
- 57 -
LIVING THE DREAM
12. My business assets, my properties, are being fully paid off by my customers (renters). I get the deeds, they get rent receipts. Which do you like the best? 13. Best retirement plan in the world – “Pajama Money” I call it! Payments from my carryback notes – comes from the financing I provide to the buyers when I sell my properties! It’s now time to smell the roses, but my income never stops!
If your dream is to enjoy the same benefits like me, this could be your lucky day! You can start right now with my home study course; “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”. You’ll be glad you did!
ONLY FOOLS RUSH IN There’s not one single reason to race out quickly “halfcocked” to purchase income properties!
You need to understand a few basics first!
I’m familiar with
investors who set strict goals for themselves to acquire at least one house every month – sometimes even more! That’s kinda what I did when I started nearly 50 years ago and it don’t work any better today than it did back then! When you’re a brand new investor just starting out – you’re bound to make beginner-type mistakes. If you keep repeating these same mistakes twelve times in a year; you might very well be going backwards with each new purchase! Take my advice here – slow down, there’s really no hurry. Ya got it!
Preparation and quality rather than speed and quantity will bring you far better results no matter which kind of properties you acquire. But as you shall learn, it’s a lot more profitable when buying multiple units or colony properties, as I call them. Once again, let me repeat myself – take your time – there’s absolutely no hurry! - 58 -
LIVING THE DREAM
Buying just one multiple unit property each year will make you a millionaire if you follow my strategies! Just imagine where you’ll be financially if you decide to own six!
WORKS FOR NEWBIES & OLD SALTS ALIKE The genius of my multi-unit strategy is that it works for newbies and ol’ timers alike! It’s also an excellent investment strategy for part-time investors like I was starting out – yet, it’s perfect for “full-timers” and “career changers” as well. I’ve already told you – I began investing nights and weekends while working my day job at the phone company. One of the biggest benefits that comes from investing in multi-units – or colonies, is much quicker cash flow – and more of it! On Pages 19 & 20, you may recall my example showing how rents were increased more than $1000 during the first two years of ownership. That was no misprint or Disneyland fairytale! The fact is, it’s really quite common when you choose the right vehicle – multi-units, like we’ve been talking about!
Also, I want you to consider the huge returns on your initial investment dollars! In our example; the down payment was only $25,000 needed to acquire a $300,000 property. Just two years later, with increased rents, the property was earning or taking in $12,240 more annually. With the added rents, you’ll soon be able to recoup your total down payment back - roughly 2 years. For Mom and Pop investors hoping to expand rapidly – there’s no better game in town!
- 59 -
LIVING THE DREAM
The beauty of multi-unit investing is versatility! You can make some serious money even if you decide to acquire just one property and keep it for monthly cash flow until you sell out and retire! See my Cherry Street property on Pages 2 thru 8. On the other hand – you can go for the gusto! Keep right on buying and become the first millionaire in your family. Don’t forget, this is America; every family deserves at least one!
- 60 -
LIVING THE DREAM
Chapter 10 INVESTING WITH A DIFFERENT TWIST
I call it my lifetime investment model! Six (6) multi-unit properties or colonies – six separate locations with 40 rental units! It’s more than enough to make you a millionaire several times over and will guarantee financial freedom for you and your family for as long as you stay invested.
This model is my personal
investment plan of choice.
I call it lifetime because if you follow through and accumulate six separate properties with 40 rental units combined – you’ll be able to create a six figure annual income, total financial independence and a worry-free retirement without ever reducing your active investment income. SOUND INTERESTING? Take a look at the next page, I’ll show you what they look like!
- 61 -
LIVING THE DREAM
Multi-Unit Rentals
The Colony Concept
- 62 -
LIVING THE DREAM
Referring to the sketch – six properties or colonies with 5 to 8 rental units at each location. In the center is the owner or investor! I often describe this configuration as my investment wheel! The hub or the center represents the owner. Those straight lines running out to each colony location are the spokes of the wheel! The properties themselves make up the wheel, although they’ll likely be scattered around your town or buying area!
These colonies are small multi-unit properties, generally groups of houses or apartments all together on an oversized city lot. They are mostly older property 45 to 70 years old, and most were built or established back when zoning laws and building codes were far more lenient. There’s no need to fret over codes and zoning because in most cities, towns, rural areas and just about anywhere else, so long as they’re still standing and being used as rentals – they’ll be grandfathered in if you keep ‘em that way.
The units themselves can be detached houses (my favorite), duplexes, small apartments, individual mobile units and even an old motor lodge might be converted to monthly rentals (like my Hillcrest units). Also, any combination of these types will work just fine! Often I’m asked --- Is it okay to have larger or smaller size properties? The answer is yes, but my investment model (sketch) is based on sizes that I believe most investors (even beginners) can handle – or manage!
Multi-units or colony investing can make you rich for a number or reasons, but to start with, the competition is at least a thousand times less! I can’t begin to tell you how important this is! Most small-time, Mom and Pop investors are chasin’ after - 63 -
LIVING THE DREAM
single family homes, especially in the foreclosure – short sale markets.
The
competition is fierce and the rewards are mediocre at best! Mediocre rewards might well be good enough for the other guys, but it’s never been good enough for me! As I told you earlier – my goal has always been to become rich, at least rich by my definition, during my lifetime and enjoy a financially secure ride during my sunset years. Even though I began investing many years ago, it took me a little time before I eventually discovered that “highly leveraged”, single family houses weren’t keeping pace with my dreams - or my version of financial freedom! My version means never again having to worry about money problems – plus, having enough personal freedom to pretty much do as I please!
For these reasons, I switched to multi-units or colonies as I like to call them! Colonies have not only met my expectations, but they’ve exceeded most of them when it comes to producing income and profits. Additionally, multiple unit properties are much easier to manage, which allows me the time to enjoy my personal activities! To me, colonies are simply the greatest investment strategy and the fastest wealth building vehicle available to everyday, start from scratch, investors like me.
SO YOU WANTA BE A MILLIONAIRE
If I got you all worked up and excited when I told you about my Cherry Street houses (pages 2 thru 8), just hang on – ‘cause I promise you’re gonna fall in love with my lifetime investment model – six separate properties just like Cherry Street and I guarantee, they’ll make you a wealthy tycoon! I say lifetime model because - 64 -
LIVING THE DREAM
six multi-unit properties with 40 individual rents coming in every month will make you financially independent – and eventually give you all the personal freedom you deserve with the money to enjoy it!
SIX (6) COLONY MONEY SHEET GROSS ANNUAL INCOME $333,600 40 RENTAL UNITS @ $695 PER MONTH = $27,800 OWNER/OPERATOR’S SHARE (30%) $100,000
TAX SHELTER FROM PROPERTIES --- $80,000 DEPRECIATION (REAL & PERSONAL PROPERTY)
Sheltered income earnings mean little or no personal income taxes for owner/operator. Rental income is pretty much indexed to inflation. When “pork-n-beans” go up at the supermarket – so do rents! This means if you can make it on $100,000 today, chances are; you’ll be just fine in future years. How long will it take you ask? The answer my friend, it’s up to you! Obviously, you will need to educate yourself, but I will help you shorten the time it takes by teaching you the fundamentals. You can start immediately by ordering my - 65 -
LIVING THE DREAM
home study course; “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”. My course is designed to help you achieve the following three (3) primary goals:
BUILD $100,000 ANNUAL INCOME BECOME FINANCIALLY INDEPENDENT & SECURE DEVELOP A WORRY-FREE RETIREMENT
- 66 -
LIVING THE DREAM
6 Multi-Unit Properties (Colonies) Location
Description
# Of Units
Monthly Rents
Annual Rents
#1
Duplex + 5 Houses
7
5,130
61,560
#2
6 Houses, 2 mobiles
8
5,400
54,800
#3
6 Unit Apt. Building
6
3,675
44,100
#4
6 Houses , 1 Mobile
7
5,275
63,300
#5
4 Unit + 3 Unit Apt.
7
4,475
53,700
#6
5 Detached Houses
5
3,845
46,140
TOTALS
Small Apt & Houses
40
$27,800
$333,600
Above Properties = 40 Individual Rents / Month Locations
Loc. #1
Loc. #2
Loc. #3
Loc. #4
Loc. #5
Loc. #6
Unit #1
775
685
600
775
650
800
Unit #2
695
695
600
675
650
750
Unit #3
795
625
600
750
650
795
Unit #4
695
675
625
725
650
775
Unit #5
695
650
625
750
625
725
Unit #6
725
675
625
750
625
Unit #7
750
700
850
625
Unit #8
___
695
___
___
___
___
TOTALS
$5,130
$5,400
$3,675
$5,275
$4,475
$3,845
- 67 -
LIVING THE DREAM
SPECIALIZATION QUICKLY MOVES YOU TO HEAD OF THE CLASS Doctors, teachers and corporate CEO’s all understand the power specialization! Learning to be the best there is at something – meaning your specialty! Should something go haywire with your ticker, wouldn’t you want the best heart specialist you could find? Just say yes!
For real estate investors, specializing works exactly the same way by making you the best! If you start out tomorrow morning and make it your goal to concentrate on multi-unit properties like I suggest – it won’t be very long before you’ll become the best multi-unit investor in your area. You’ll no longer be wasting your time looking at every property for sale like the other investors do.
Your
concentration on just one type of property will soon make you the expert or specialist! When you talk to most rich folks, you’ll find they understand the power of specialization – that’s why they’re rich! Master sales trainer, the late Zig Ziggler, used to say: “If you don’t zero in on a specific target or goal, and continually strive to become the very best you can – you’re pretty much destined to wind up a wandering generality with very little direction – or results.”
- 68 -
LIVING THE DREAM
Chapter 11 ANSWERS TO THE MOST COMMON QUESTIONS
1.
How would you suggest I start? Whether you’re a beginner, intermediate or seasoned investor, colony house investing begins with one, your first one. Congratulations, now you only have 5 more to go. Acquiring one property (colony) per year is a very reasonable plan.
2.
What’s in the future for these kinds of properties? It’s very bright – multi-unit colonies are basic affordable rental stock. Nearly 50% of the population in my state (California) are renters. Of those who rent, 60% have lower paying service-type employment. For this group, housing is scarce as “hen’s teeth” and no one is building anymore. Preserving what we have now will only become a higher demand product. Besides that, investing in one of people’s basic necessities (housing) can’t be anything put positive.
3.
How quick might a new investor expect monthly cash flow from a multi-unit property? Faster than any type of real estate I know of. I explained how this can happen on pages 19 thru 20. Naturally, much will depend on financing! Financing controls cash flow! That’s why seller financing is so very important. My home study course; “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”, covers many lessons on financing and negotiating with sellers. My course will help you - 69 -
LIVING THE DREAM
determine how much to pay – and when to walk away. A complete financial analysis with samples are provided in the course materials. 4.
How can I keep buying when my funds are limited? Obviously, negotiating will determine your down payment or how much cash you may need to close. My average down payments have been around 10% of the purchase price, but sometimes trades of personal items can be substituted! Cash savers – I call them! More about this in my home study course. If you improve properties like I do (adding value), it’s quite likely you’ll never again need out-of-pocket cash for another down payment. Your first property will grow in value enough to pay the down payment on the next purchase. Refer to Jay’ generous offer, page 29 thru 34 (adding value).
5.
Will managing overwhelm me? The colony concept – having all your units in one location – or six locations later on will greatly help your management task. Scattered units hither and yawn are much more difficult to manage when you consider travel time and service calls. Having multiple units at a single location allows for killing several birds with one stone. Combined service calls; reduce trips to the hardware store and save both time and gas – much greater efficiencies.
6.
Is family investing a good idea? Multi-unit investing as a family partnership is as good as it gets if you can pull it off. In many ways, it can strengthen families by creating common goals. Each member works at the property and earns his share. An excellent way to help junior buy his first truck by managing family properties. In this day and age, having a reliable family income, employment for the kids and assets to pass along makes a whole lotta sense!
7.
What’s the hardest part starting out? Finding and acquiring your first multi-unit! This breaks down into two major challenges! First; finding the right properties to begin with. New investors will struggle with this for a while! Then suddenly, like when - 70 -
LIVING THE DREAM
the fog lifts, they begin popin’ up everywhere. Hope this helps you, but it’s the same for every new investor! Acquiring the right property and passing over the ones that won’t work – here again, it’s a matter of education and developing your skills. If you’ll furnish the time and effort, I’ll contribute the “how to” part! Don’t miss my next INVESTOR TRAINING SEMINAR. It makes this much faster. If you can’t attend, then order my home study course; “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”. Let’s get started! 8.
Does multi-unit investing work for women? Very well indeed – years ago at my seminars, 2 or 3 women showed up. Today, most classes are nearly 50/50! Gender has very little to do with making money with real estate. My most famous female student, Beth. R.; fixed up properties in the San Francisco bay area with her two small children by her side. She’s famous because she was interviewed by the local TV channel, which publicized her success.
9.
Are bank mortgages available for colonies? Mostly not! When you acquire multi-unit properties with more than four (4) units (which I recommend), bank loans (mortgages) would be classified commercial lending. For Mom and Pop investors acquiring older, often non-conforming properties, most banks are not interested! The good news is; sellers of small multi-unit properties know this too. This is the main reason that nearly 85% of all my deals are seller financing! Believe me, you want seller financing.
10.
How does income property ownership compare with owning any other kind of business? Very well indeed! For starters, income property owners are providing one of the basic necessities (food, clothing, shelter), therefore; in terms of stability, rental units are here to stay! Secondly, the ability to acquire properties using high leverage (small down payment) and yet become the 100% owner and collect 100% of the income – that’s a tremendous advantage for average folks without much money to start. - 71 -
LIVING THE DREAM
Perhaps the biggest advantage in the investment business is the assets themselves. Not only do the properties provide monthly income, but the real estate (assets) are growing in value. When it’s time to quit; properties quite often sell for two or three times what they cost, creating a guaranteed retirement plan! Contrast this with operating a restaurant – not nearly as stable. It’s possible to earn decent wages working your tail off – but when it’s time to quit or retire – no more wages and the worn out fixtures – worth maybe - ten cents on the dollar, if you’re lucky! Not very much to compare, I’d say!
- 72 -
LIVING THE DREAM
Chapter 12 DREAM A LITTLE PLAYIN’ “WHAT IF” WITH YOURSELF
Suppose I take Jay’s advice and acquire my first multi-unit property – then for whatever reason I don’t buy anymore! Would that be worth my effort? For heaven’s sake yes – just one property like Jay’s Cherry Street houses would earn you more money than many employees make during their entire working lives. As you might recall; Jay’s annual earnings for the time he operated the property and financed the sale, averaged more than $53,000. Granted, we’re talkin’ gross income, but do the math! Even if you only got to keep half of $4400 per month for a very long time, would that work? Would that be a good return on your $20,000 down payment? Think about that! Lots of folks don’t earn that much money from Social Security, so in terms of planning for your future, just one Cherry Street property could well become your personal retirement plan! Don’t forget, after Jay sold out and no longer had anything to do with managing the property or tenants – the income from his carryback financing was $3250 every single month for 20 years. I can’t speak for other property owners, but receiving $780,000 for financing fees works for me! - 73 -
LIVING THE DREAM
Besides, all I have to do is boogie down to my mailbox every month in my pajamas to pick up the check!
DREAMING BIGGER Now close your eyes and just pretend. Say you fall in love with Jay’s lifetime model and you begin to wonder --- How far can I go? How much money can I make? First of all – the sky’s the limit! Even though Jay’s six (6) property model with 40 rental units has a beginning and end. Yet the truth is; there is no limit! Jay has owned and operated lots more than 40 units at his “high water” mark! Still, 40 units will make you a millionaire several times over! 40 units is a very reasonable goal or target to shoot for! Since we’re only dreaming here – what if you owned and operated Jay’s six (6) property model with 40 rental units for the next few years? How would you fare financially? To begin with, you’d have a great income! Even using Jay’s hometown rents of $695 per unit – your gross income would be nearly $28,000 per month! Roughly one-third or $9300 would be yours to keep. By the way, very few people in my town earn that much, so you’d be on all the local charities mailing lists. Obviously, you’d have created yourself “full-time” employment along the way!
- 74 -
LIVING THE DREAM
WHY LONG-TERM INVESTING PAYS OFF Rents go up like peanut butter and pork-n-beans! Let’s assume that down the road aways they’ve increased to $825 per month! Now, what happens to the extra money? The answer, my friend – it’s yours to keep! You’ll immediately become more popular with all your long lost relatives. They’ll begin showing up outta nowhere! It’s hard to keep success under wraps!
Finally the time comes to cash in your chips. What happens now? If you follow my teachings, you’ll carefully begin selling off properties to the next generation of investors! Hopefully, you will have learned the right way to do this! But since I don’t want you guessing – I’ll teach you at my Investor Training Seminar or you can learn from my home study course: “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”. Either way, selecting the right buyers and setting up your carryback financing to provide you maximum safety, are the keys to a quality retirement. I HAD A DREAM – I’M RICH If you’re like me – you’ll be a lot richer, than you ever dreamed – you’ve got my word on that! Let’s say I sold six colony properties, providing selling financing; just like Jay’s plan! Is there anyway to know how rich I might be? Not exactly, but we can look back to Cherry Street for some guidance. I owned the property for 26 years and the value increased nearly four and a half times. That’s just a smidgen over $19,000 per year. When I bought the property, I could have never guessed; but an up and down economy always favors real estate. It’s hard to look forward and imagine prices going up – yet, they always do! - 75 -
LIVING THE DREAM
For the sake of comparing, I’ll use my Cherry Street to calculate how rich you might end up. Today, Cherry Street properties will cost a skilled buyer in my town between $350,000 and $400,000. Even if we estimate values three (3) times higher when you decide to sell out and retire – that would be 6 to 7 million dollars! I’ll assume you follow my advice and sell for about 10% down and carry back $6,000,000 or so. Financing at 6.0% interest only on the unpaid mortgage debt would allow you to live quite happily with a monthly income of $30,000. Unlike rents, your mortgage payments won’t go up! But by now I’m assuming, you’ll be old like me and you’ve adjusted to $30,000 per month! Regarding the principal! Let the kids have it when it comes due; they’ll know how to spend it – agreed!
- 76 -
LIVING THE DREAM
- 77 -
LIVING THE DREAM
THE BUSINESS OF MULTI-UNIT INVESTING Learn this business – there are basically three (3) stages of development – and there are no shortcuts. LEARNING STAGE ONE is learning how to buy the right kind of properties that produce cash flow the quickest. This will be your most challenging – and exciting learning period. You should expect to read lots of books, purchase home study courses and attend training seminars in order to develop your investment skills. You’ll begin acquiring properties and you’ll make the usual beginner mistakes. Money will always be tight. This is the stage you’ll work most of the bugs out as you “fine tune” your investment skills. OPERATING STAGE TWO will find you a much more sophisticated “deal maker”. You will now have the knowledge and skills to “flush out” properties with the highest potential for quick cash flow and long-term profits. By now your abilities are good enough to attract equity investors should you choose. With money available from “deep pocket” investors, the sky’s the limit. But with or without financial assistance, your cash flow should allow you to pick-n-choose new investments more carefully. You must continue your education and training to broaden your knowledge. By now, your investments are taking good care of you – life is good! SMELL THE ROSES STAGE THREE is about reaping the harvest. By now you’re living well – and “cashing out” will put you on Easy Street. You’ll begin selling off your properties selectively – taking back wrap-around notes for monthly payments. You may even consider hard money lending to support your twice a year cruises. At this point, you can pretty much do as you please, so long as you manage your business well. The time has come to pull over in the slow lane. Your biggest chore now will be making those daily jaunts down to the mailbox in your pajamas to pick up your wrap-around note payment checks! Ain’t life grand – or what!
- 78 -
LIVING THE DREAM
THE BALL’S IN YOUR COURT IT’S NOW UP TO YOU Well my friends, there you have it! I’ve given you a good look at what my kind of investing can do for you. I even warned you at the beginning about reading this book and doing nothing! You’re now at the crossroads. It’s your chance to become wealthy – or simply do nothing! That you must decide for yourself. If you like what you’ve read and you choose financial independence; here’s the next step. Order my training course; “EARN $100,000 ANNUALLY WITH SMALL INCOME PROPERTIES”, and let’s get started today. See the description on the next page. –Click www.fixerjay.com/info/7050-2 – or call 1-800-722-2550, ask for Kathy – or fax the order form to 1-530-223-2834.
- 79 -
LIVING THE DREAM
Much like leveraged real estate will increase your yield – this home study course will do the same for you. This course is specifically designed to “speed up” the time it takes between your education and ownership of your first multi-unit property. Each chapter moves you closer to your goal of financial freedom, more income and the security you get with income-producing real estate. Starting with Chapter One, you’ll learn Jay’s insider secrets to finding the kind of properties that produce income quickly. How to acquire properties not listed for sale is covered in Chapter 3. Jay’s special “Cold-Calling” technique using letters is in Chapter 4, along with how much to pay.
- 80 -
LIVING THE DREAM
The four methods to acquire properties, as well as instructions for writing “ColdCall” letters, are covered in Chapter 4. You’ll also find examples – how much you should pay. Leverage & Compounding are explained in Chapter 5 with examples – how it works. Understanding jay’s isolation factor is important before you buy. Chapter 6 tells you how to use it! Also avoiding most risks when buying multi-unit properties is explained clearly to help you avoid early mistakes. You find 10 things you shouldn’t be doing in this chapter. Six studio recorded CD’s help you understand each chapter fully explained by Fixer Jay and Dan S., Jay’s millionaire student. Chapter 7 is about building your own “money machine” – adding value and learning how to spot opportunity. Chapter 8 shows you how to develop a wider vision and the principals of operating your own business compatible with managing your real estate. The benefits will totally eliminate paying income taxes. Chapter 9 shows you how to select the right real estate agent, what you should expect and where to find “Mr. Right”. Planning is covered in Chapter 10 – how much to spend for fix-up. Chapter 11 is extremely important – all about creative financing, explained so you understand it. In Chapter 12 creative techniques continue and Chapter 13 fully explains how wrap-around can make you rich. Shows you examples – how it works and teaches you the benefits and how to avoid any risk.
- 81 -
LIVING THE DREAM
Online: www.fixerjay.com/info/7050-2 Phone: 1-800-722-2550 TOLL FREE FAX: 1-530-223-2834 – 24 HOURS Mail: KJAY Publishing PO Box 491779, Redding, CA 96099-1779 - 82 -
