Archive for April, 2015

The Way You Spend Your Money Can Make a Huge Difference Creating Your Real Estate Wealth – Part 2

The real beauty of owning rental property when the seller will allow you to pay them directly every month allows you to collect rent from each rental property you buy to pay for those properties.

The key to make this strategy work is to buy each income property so a tenant who will be renting the property will pay enough rent each month to cover 1/12th of the annual property taxes, 1/12th of the annual property insurance cost and at least 10% to 15% of the monthly rental income to cover the cost of the maintenance for that property when needed. This money for maintenance is set aside to pay for making the property look new when a tenant moves out such as new carpet, paint and any other damage to the property the tenant did during their stay. Also money for when the roof on that property eventually wears out, when the water heater eventually goes bad or the furnace or air conditioner breaks down and also enough money remaining each month to make the monthly payment to the seller and hopefully provide extra money each month for the owner to put into their pocket. Here is an example to show what I am talking about.

For this example each rental property brings in $1,000 in rent each month. This is the formula I use to determine if enough rent collected for each potential rental property to support itself and also provide extra income for the owner each month.

Example

This excess money from the (9) nine rental properties gives you, in this example, $900 each month to make the payment on the house you and your family live in. If you deduct the $600 from the extra income from the rental properties which is $900 each month ($900 – $600 = $300) leaves you an extra $300 each month to cover the cost of the property taxes and the property insurance for the property you and your family live in. If you did this simple example the house you live in would truly be FREE.

So as you can now see it would be far more advantageous for you and your family if you use the $100,000 dollars you have saved by dividing the money into $10,000 increments to use as down payments and buy a total of ten (10) properties than to buy only one house. Here is how you can use leverage to create wealth using this strategy.

Over the next (15) fifteen to (30) thirty years you not only lived in your home for FREE your tenants went to work every day to earn money to give you every month in the form of rent you use to pay all of the costs of each rental property and give you extra money each month to pay for the house you live in. Someday when all (10) ten properties are completely paid for you then no longer owe any monthly payments to sellers for any of your (10) ten properties and even if the value of all of your properties never increased in value over that time you would still have a net worth of $1 million dollars (10 houses X $100,000 = $1 million dollars).

Once all of your ten properties are completely paid for the rent each property brings in each month minus 1/12th of the annual property taxes and 1/12th of the annual property insurance cost and 10% of the monthly rent from each rental property has been deducted for needed maintenance costs, all of the remaining money will be yours to spend or save as you wish because you no longer have to make a monthly payment to the sellers you bought the property from. This income from all of your rental properties minus these costs could also be used as a nice pension plan to allow you to live a better life in your retirement years. The question you need to ask yourself……

Why Would You Only Want to Own One House Valued At $100,000 When You Can Own $1 Million Dollars Worth of Real Estate With the Same Amount of Money?

This is just one way “Leverage” can help you create wealth for you and your family.

This is why I always tell everyone to definitely be conscious of how they spend their money or their ability to borrow money. By just thinking a little differently, you can and will definitely compound your future financial wealth and get to financial freedom sooner.

Until Next Month, Good Luck and Happy Investing!

Larry

Larry HarboltLarry Harbolt is the nation’s leading creative Seller Financing expert as well as a popular national real estate speaker and teacher whose time-tested strategies and nuts and bolts teaching style has helped thousands of aspiring real estate entrepreneurs realize their financial dreams with little or no money and without the need for credit. Larry has been successful creatively buying and selling real estate for over 30 years and has written numerous popular articles and real estate courses.

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Real Estate at 10,000 Feet Up

I will never forget my first business/real estate mentor. I was set to taxi the plane out to the runway on a flight to Carrabelle Florida. My passenger for the day was a wealthy real estate investor and developer. I was flying him to FL for the afternoon because he was in the middle of developing a new condominium community on a prime piece of water front real estate that I had watched him negotiate and purchase a few weeks prior on a separate trip that I flew him to Florida for.

At this point my real estate career didn’t exist at all. I was a pilot flying for a medical supply company in Macon, GA. My passenger (Lee) was a friend of the owner of the company I worked for. The owner had invested in Lee’s next development and had given him access to the plane (and me) to take him down to the development site when he needed. At this point in time I was working on my flying career but I was slowly getting the real estate bug. Little did I know that in less than a year from that fateful flight, I would be completely out of aviation and full time in real estate, never to look back.

As we taxied out to the runway on a beautiful spring day Lee said something that would change the course of my life forever “what’s that button for?”

That was it. With that one simple question the trajectory of my life changed and I didn’t even know it yet. What I did know was how to be creative. He asked me what some gadget on the plane’s dash was for and I instantly created my first mentor. I looked at Lee and said… “I tell you what, you seem interested in flying and I am interested in real estate and business, let’s trade.” He looked at me with an odd expression and said “what in the world are you suggesting?” I then described how I could give him free flight lessons on our weekly flights to Florida if he would answer my questions and discuss business with me once we got to altitude and put the plane on auto pilot. This mentor was the one that catalyzed my move to go into real estate and business for myself.

I understand that you may not be a pilot and able to trade free flight lessons for real estate advice but you do have something that is of value, you just need to figure out what it is and get creative. Just like I traded those flight lessons for education, you need to find ways to be valuable to someone who can teach you real estate. There have been days that I thought I was going to have to stand on the side of the road with a sign that says “will work for education”.

Once you are willing to do what it takes to get a mentor in place you need to take the next logical step. Find the mentor. There are many places to find mentors. One great place is your local REIA (Real Estate Investment Association. There are many people that have a tremendous amount of experience at your local REIA. Start your search there.

Most people find those mentors through networking. Networking is something that you have to do all the time. It is not something that you do only at a networking event. It’s a life style. Look for people that are doing deals in your area. When you meet, then offer to take them to lunch and YOU PAY. Even if the mentor is already rich don’t think that they should take care of you. When first establishing a relationship with a new mentor don’t make all of the conversation about you or what you need. Make it about them. Find out what they need and then come up with a way that you could be of use to them. I am trying to learn more about commercial retail space. I don’t know much about this type of real estate but a friend and business partner does. I asked him to show me some of the ropes and he said he would. The first task he gave me was to see if I could lease out one of his vacant units in a strip mall. If I can find a tenant he will let me be a part of the leasing process and I will get a firsthand education. Cold calling local businesses to try and get a tenant would not seem like the best use of my time but it is. Remember the “work for education” part. I am willing to do whatever it takes to find teachers and business partners and you should be too.

Good Luck,

Bill Ham

Bill HamBill Ham has been investing in real estate for 8 years and has created a portfolio of nearly 400 apartment units in Macon, GA. He created his entire real estate investing portfolio using creative and seller financing.

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