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This is a GOOD piece of pie I'm eating...

Investors are a niche market that have kept my business booming through good and bad markets. Buying to HOLD is one of the smartest ways to build a legacy of wealth. As I wrap up my 90th transaction this year, I would like to thank my investors for their continued business.

Real estate has historically created more wealth than any other investment platform. This exchange or transfer of wealth has happened over and over again and most clearly during the tough economic times of recession.

I believe we are experiencing the greatest transfer of real estate wealth of our generation.  Understanding the dynamics at play in the current market and how to position to leverage the voids in the market with low downside risk is the key to your wealth and income.

More Income Streams = More Cash Flow

your cash flow machine

With the right strategy and systems you can safely create income streams from today’s opportunities.

Is it as easy as firing up your own money machine? Not quite, but with the rightstrategy and systems you can safely create income streams from today’s opportunities.  Real estate is a diverse asset class that includes single-family homes, land, commercial, and multi-family opportunities.

The good news is real estate is on sale, and there is a lot of distressed inventory to choose from.  You can create a lot of different income streams from today’s opportunities–even without cash on hand or having good credit.

Here are some of the income streams you can create with the real estate opportunities right now.  Each of these income streams is highlighted in my new book: Cash Flow Now: How to Create Multiple Streams of Real Estate Income.

Active Income Streams

1.  Wholesaling Houses:  This is the income stream that set me free from “corporate America.”  It is essentially selling your equitable interest in houses you don’t yet own, without needing cash or credit.

As a wholesaler, you create an income stream by getting into the middle of real estate deals.  You find a super motivated seller, control the house with an option, and sell your option (or assignment) to an investor who wants to rent or rehab the house.

Your income stream is the difference between the price at which you are buying and selling the house.  For example, you find a house needing a lot of work that you can control for $35,000; then you find an investor to buy the house from you for $42,000.  Your gross income for this transaction would be $7,000.

2.  Flipping Houses (rehabbing houses):  House flipping is an income stream created by buying cheap houses, adding value with the right renovations and then re-selling the home for more than your invested capital. Rehabbing and flipping houses can create large chunks of income, but things have to go just right in order to capitalize on the opportunity.

First you have to find the right house, in the right location, and at the right price.  Typically it’s the worst house in a nice area with good schools that will appeal to home buyers. Once you find the house, you need to pay for it.  Houses are still big-ticket items and most people won’t be able to simply write a check.

The best way to buy houses to flip is with “easy money loans” using joint ventures and private money, so that bank mortgages, cash, and credit are not required.

Once you buy the house, the joys of renovation begin with finding the best contractor and completing the renovation on-time and on-budget.

Finally, the house must be sold. The keys to selling are in the marketing. Today’s market is excellent for flipping houses. Just be aware that a lot of things have to go just right.

Passive Income Streams

1. Buy and Hold Rental Property:  Today is the perfect market to establish your plan tobuy and hold rental property.  Why?  Because the returns are so much better than they were just a few years ago, and investors from coast to coast can now establish strategies to earn positive cash flow from rentals.

My advice is to buy houses for the positive cash flow, not to merely build your real estate empire or net worth. If you focus intensely on cash flow, your investments will pay you an income stream every single month.

Buying and holding rental property can create cash flow for today, long-term wealth, and huge tax savings.  Consider using joint ventures and equity financing rather than the traditional approach of bank financing. Long-term, every investor needs to buy assets and switch from active/transactional income streams into passive/residual income streams in order to become financially free.

2. Lending income streams:  If you are fortunate to have significant funds and are tired of not earning a return that keeps pace with inflation, you are a prime candidate for lending income streams.  People are tired of watching their stocks, bonds, and mutual funds drop and need an alternate approach to the safe, but poor earnings of CDs.

There are some excellent passive income streams in real estate that do not require time, toilets, or tenants. There are two basic types of financing you can structure to provide great returns for everyone involved.

Debt financing – This is typical bank-style financing that includes an interest rate and points. Points are essentially another form of interest, but it is pre-paid. For example if a bank is loaning $100,000 on a mortgage and they charge two points, the two points equals $2,000 and they collect that upfront when the loan is originated, rather than on a monthly basis.  Real estate investors are able to pay a very fair interest rate to put your money to work and earn you a great return.

Equity financing  – An alternate form of financing that that does not include interest or points. Instead the borrower pays the lender with a portion of the equity and dividends in the form of rental income.  This works perfectly in a joint venture strategy to buy and hold rental property.

There are a lot of income streams available using real estate as an investment platform.  Which ones you choose depends on where you are at, where you want to go, and the amount of work and risk you are willing to take.

About the Author…

Jim Ingersoll is a real estate entrepreneur who has bought and sold hundreds of homes. He is the author of Investing Now, and enjoys speaking and coaching others on how to obtain their financial freedom. You can request Jim’s special report on Private Lending by emailing him at jim@investingnownetwork.com.

His website is http://www.investingnownetwork.com. You can find Jim on Facebook andTwitter.

Do you remember the Clint Eastwood western movie, “The Good, The Bad and The Ugly”? Renting to Section 8 tenants is pretty much the same. Some landlords love Section 8, and some landlords try it and find it is bad and ugly to deal with.

section 8 rental

With Section 8 tenants, you are guaranteed on-time rent every month.

What is Section 8

Section 8 is a government program that dates back to the Housing Act of 1937. Section 8 pays rent for over 3 million low-income households. A variety of Section 8 programs are available to low-income tenants, but the most popular is the voucher choice program. This program will pay either a portion of the tenant’s rent or all of the tenant’s rent depending on the individual tenant’s financial situation.

Most tenants pay about 30% of their take-home adjusted income for Section 8 housing. The adjusted income takes into account deductions for dependents, disabilities, and other medical expenses. If the tenant is unemployed or has a several children they may become eligible to have their entire rent paid by this program.

The Good

Most Landlords either love or hate the Section 8 program. They love it because they don’t have to worry about receiving full payment of their rent on-time, every single month. They don’t need to worry about checks being “lost in the mail” and a million other excuses tenants use to not pay their rent on time every month. And they love it because they can charge a lot for their rent.

Depending on their voucher, tenants are fitted for a 1 – 3 bedroom property. Rent for each of these properties is pre-set by the local agency administering the housing voucher. The good news is that the monthly rent is often a little higher than they can achieve with non-Section 8 tenants.

The Bad

One of the reasons that some landlords don’t like Section 8 is the government regulation involved. They don’t want the government involved with their rental properties. The government puts regulation on all Section 8 properties. The regulation includes a safety inspection when the tenant moves in and ongoing inspections at least annually.

After the inspection process, you’ll need to fix every item on their list before the tenant is approved for move-in. The inspection criteria is more stringent than most landlords expect, so the expense can be costly.

Because Section 8 is a government subsidized housing program, you can expect the process to move very slowly. The Section 8 workers are always under-staffed and over-worked. They are not able to provide the level of service you’d expect. This results in a slow process of getting through the inspections, the contracts, tenants moving in, and waiting for your first check to arrive.

The Ugly

Another primary concern is the quality of the tenant. Landlords fear that Section 8 tenants will be rough on their property, not change the furnace filters, call the landlord for leaking water, and generally not properly maintain the house.

Sometimes the tenants have large families or invite others to move in with them to share remaining expenses or even sublet out the couch.  Extra people can lead to heavy wear and tear on the property.

The way to minimize this is to fully screen Section 8 prospects just as you would non-Section 8 tenants. Landlords need to pull criminal background checks, call previous landlords, and check everything regardless if the tenant is in the Section 8 program or not.

Bottom Line

Some landlords love the Section 8 program. I know real estate investors who have 100% of their rentals filled with Section 8 tenants. Others hate Section 8 because of the challenges managing the whole process. How about you? What are your Section 8 experiences? Did you try it out, stay with it, or drop it as fast as you could? Share your Section 8 stories with us right here in the comments section.

About the Author…

Jim Ingersoll is a real estate entrepreneur who has bought and sold hundreds of homes. He is the author of Investing Now, and enjoys speaking and coaching others on how to obtain their financial freedom. You can request Jim’s special report on Private Lending by emailing him at jim@investingnownetwork.com.

His website is http://www.investingnownetwork.com. You can find Jim on Facebook andTwitter.

Scam rental postings – They are becoming an increasingly common problem on craigslist.  Craigslist can be a powerful tool to locate your next home, or help rent your next home in the greater Seattle area.  However, more and more ‘scam’ postings are showing up each day that might depict an actual rental property, but will advertise it for a much lower price and direct inquires to a fake person – usually overseas.

What is a ‘scam’ posting on Craigslist?  Say you search for Bellevue rental property on Craigslist.  You find a great 4 bedroom, 3 bathroom home with 3 car garage.  The photos look great and the asking price is WAY below market, let’s say $800.  This is what the typical ‘scam’ posting looks like.  Often there is an email address that will go to a person who then will give a great story about how they just moved overseas, and if you mail them the deposit in certified funds, they will get you the keys and you can move in!  Great deal right?  Wrong.  You’ll send money and never have rights to the property, and worst of all, never see your money again.

How to avoid a scam.  Search for properties through a reputable search engine or Local Property Manager.   If you use a free posting site like Craigslist, follow these rules to avoid being a victim:

  • Never send money to a perspective “Landlord” via Western Union, Moneygram or other wire service.  It is best to refrain from sending any money overseas at all.
  • Be sure there is someone you can meet in person to see the property and fill out the needed paperwork.
  • Never email or scan personal information or identification documents.
  • If you see a property listed on different sites (or the even different ads on the same site) for two different prices, the lower priced ad is generally a scam.  Contact what seems to be the legitimate ad and discuss what you are seeing.

 REMEMBER, if a deal sounds too good to be true, it usually is.  Trust your instincts and follow the simple rules above to avoid becoming victim of a craigslist scam.

Feeling Overwhelmed?

Feeling Overwhelmed?

It’s normal. Calls, texts, emails, appointments and deadlines. It can feel like an endless sea of never ending crashing waves. Shorten your “To-Do” list! Don’t overwhelm yourself with 100 tasks. Narrow it down to 10 or 5 for the day. Cross them off and pat yourself on the back for getting 10% done. Any progress is a good thing.

Assume the worst, first…(with a smile).

 

With so many people in unique situations today, it can often become a gray area between business-as-usual and matters of the heart.  Yes, you can get better results when you run a business with a strong element of compassion for the public, but be careful!  It’s important that you trust your gut and continue to run your rental business as exactly THAT, a business.  Assume the worst first, simply means do your due diligence the SAME WAY every time.  If something doesn’t add up, it’s important that the other party prove their abilities in REAL TIME data.  If they can’t prove their story, it’s not worth your time.

 

Communicate in writing

 

When you come to terms or begin to negotiate with anyone, repeat the understanding and generate a written milestone.  Say things like, “so if I understand you correctly, you are offering to do X by Y date for a total cost of Z?”  Do not assume that both parties are in agreement until there is something in writing.  This includes vendors, industry associates, marketing designers and brokers/agents.  By being direct and putting it in writing fully acknowledges one another’s intentions and demands credibility and builds stronger relationships moving forward.  If someone avoids or delays your progress in writing, then they could be hiding something or may not be someone you want to do business with.  Expect the best and hold people accountable!

 

Build a Network

 

Don’t stop building your team of resources.  Look around, you may know a lot of talented people and everyone can bring a talent to the table.  However, if people are taking 2 days to 2 weeks to respond, then they are either too busy or not capable of delivering excellent service.  This is an exciting time building your rental portfolio, invest your time in people who act with integrity, are quick to respond and focus on the one’s who are grateful for the opportunity to be part of your TEAM!

 

 

Never Stop Learning

 

There is so much information coming from everywhere.  So how do you handle it all?  Well, we suggest being a sponge and don’t stop soaking it up!  Find something in the game that YOU are passionate about and then dive in.  Read about it, blog about it, share other people’s stories about it.  Have an opinion and become an expert.  At the very least listen to your market.  They need a lot of help and if you STOP learning then you won’t be able to adapt to their needs.  Surround yourself with knowledgeable people and use tactics that make you a magnet to success.

 

 

Outsource, outsource, outsource

 

More and more people are working for themselves.  Do not try to wear all the hats.  It is impossible that you are THAT good at EVERY position.  Once you build your network, use them as examples and promote their abilities.  Being surrounded by talented people that actually appreciate the business you are sending their way, creates a synergy that gains speed rapily.  Give up some control and outsource the parts of your business that are scalable. You will be amazed how it frees up your time to concentrate on taking your projects to the next level.  When it works well ~ you will never go back to the one-person show again.

 

Be a Budget Machine

 

It’s time to keep your profits high and expenses low.  You can do this by delivering top notch services and properties at premium rates.  When it’s a well-oiled machine the expenses are accounted for in a cost-per-lead equation.  If you are not seeing a measurable return on your efforts then TEST, ADJUST and IMPLEMENT a better way.  Run it like a machine, not a just a means to an end.  Create systems, policies and procedures that document you are working at the optimal level.  Being a budget machine means you track not only your money but your TIME as well.  Time well spent is money well spent.

 

Happy growing and closing in 2012!

Fred and Joe want to share an apartment. They fill out a rental application. Everything seems all right and you rent to them. Both of them sign the rental agreement. Two months later you get a check from Fred for half the rent, but nothing from Joe. Fred says Joe doesn’t have the money right now. What do you do?

Julie and Joan rent the two-bedroom unit of the triplex you own. Three months later Julie and Joan have a major disagreement. Joan can’t stand Julie’s boyfriend–who has moved in–and Julie is moving out. She wants her share of the security deposit back. Do you refund half of it? What about the boyfriend?

Ruth, Roxanne and Roger want to rent the three-bedroom townhouse you own. They look like good tenants, good credit, good rental history, plenty of income, so you rent to them. Roger is a long-haul truck driver, so is gone for several days at a time. Roger just wants to rest up when he’s in town, so he’s quiet and doesn’t disturb anyone. But Ruth and Roxanne are a party girls. While Roger’s out on the road they throws wild parties that disturb the neighborhood and bring the police. Your rental agreement is clear that that kind of behavior is not acceptable. But it’s only Ruth and Roxanne causing the problem, if Roger was home they would be fine tenants. What is the appropriate action for you to take?

You show up at the door of one of your rental properties to make a repair and someone answers the door wanting to know who you are. The same question had popped up in your mind. You reply “I’m the landlord, and who are you?”

“Oh, I live here,” says your “new” tenant. Mind you, you have never seen this person before, you have never received a rental application from him, and certainly have at no time given him permission to move in. You wonder who else is living there you don’t know about.

All four of these situations are common with landlords who rent to roommates. It seems as if there is always turmoil, part of the rent not paid, complaints from neighbors, and people moving in and out. You get stuck in the middle.

If you handle it properly from the beginning, while you will still face the same situations, at least the procedures for dealing with them will be spelled out in advance. That way you will know exactly what to do when each occurs and there should be no question from the tenants.

Landlords have problems when they don’t take charge of their properties. Roommate squabbles and “events” are some of the most frustrating for landlords, since it seems as if everything is always in turmoil. The only way to control these situations is to tak charge from the beginning, to know exactly how you will handle every permutation of what the roommates throw at you.

Your first job is to make sure that your rental agreement doesn’t have any language in it which creates separate tenancies for each of the roommates. Then, to make sure that each roommate understands the rules, have a special roommate addendum. Your apartment or landlord association may have one available.

If you have separate tenancies for each roommate, sorting out problems and incidents becomes a tangled web or he said-she saids, claims and counter-claims. You don’t want to be in the middle of such a situation, you only want the rent paid and a simple way to account for deposits and damage.

There must be one and only one rental agreement, signed by all roommates. If you have a separate agreement for each roommate, then you have created separate tenancies and have to deal with each roommate separately. That means if you get only part of the rent, you are stuck going after the roommate who didn’t pay. If one roommate moves out, you have to try to sort out how much of the security deposit is going to be refunded and how much goes to damage (as well as trying to figure out who caused the damage).

Here are the rules for roommates.

First, every roommate is equally responsible for what occurs in the property and the rent. Over and over landlords hear the excuse “Joe didn’t have his share of the rent this month, it’s not my responsibility.” Well, yes it is. It is one tenancy, and each roommate is jointly and severally (that’s legalese for equally and totally) responsible for all the rent.

That means if one roommate doesn’t have his or her share of the rent this month, it is all of the roommates’ problem, not just the one who doesn’t have the rent, and certainly not yours. You either get all the rent or they all move out. Don’t ever accept partial rent, unless, of course, you have a signed “One-time Partial Rent” form.

Second, when one roommate moves out, you don’t refund part of the security deposit to the one moving out. You refund it only when the tenancy ends, that is when all current and/or subsequent roommates move. Then you provide an accounting according to state law. (Some state laws differ as to how security deposits are handled, and you need to check your law to see if you can use this system for your properties.)

Roommates who are vacating the unit need to get their portion of the security deposit from a roommate who is moving in. It is not your concern if a vacating roommate gets his or her deposit back or not, since the tenancy paid the deposit, not the roommate, and the tenancy consists of all roommates living in the property.

Third, all new roommates must have approved rental applications before they move in. Furthermore after they are approved they must sign on as an additional roommate and sign the roommate addendum.

Under no circumstances should the new roommate sign a separate rental agreement, rather you need to create an addendum that states that the new roommate is becoming a part of the tenancy created by the original rental agreement and acknowledging the existing rental agreement.

New roommates, since they are part of the existing tenancy, also take on the existing state of the tenancy. So if any rent is owing, that rent is also owed by the new roommate; if there is any damage to the property, the new roommate assumes joint and several liability for that damage. It is up to the new roommate to get an accurate accounting of any rent owed or any damage from either or both the other roommates and you, the landlord. You can have the accounting of the rent ready, but accounting for the damage will require an inspection of the unit.

If the new roommate has any questions or concerns, those must be resolved before move-in if he or she is to avoid responsibility for rent owed or damage. Rent owed must be settled with you and damages paid for if the new roommate is going to avoid responsibility for one or both.

If you already have roommates whom you have rented to as separate tenancies, you are probably stuck with the existing situation. Changing the rules would require that you terminate each tenancy and start over again with a new agreement putting everyone together under one agreement. The existing tenants probably wouldn’t go for it, since it is not to their advantage.

Renting to roommates, as opposed to couples or single people, presents its own special challenges and aggravations. What you need to do to make it as painless as possible is make sure that first, you understand what the roommates rights and responsibilities are and, second, that they know what they are.

If you don’t do that you will have one headache after another trying to collect rent, assess damages and keep track of whom you are renting to.
–Originally published in the December 2001 Rental Property Reporter

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