Excerpts

HOW TO GET THE MOST OUT OF THIS BOOK

You will quickly notice that this book is not laid out in the typical fashion with line after line of uniform text forming paragraph after paragraph. I wanted the text to be very readable with lots of white space. The message is presented with many sections of bullet points, so that the delineation of the subject matter can be clearly seen for easy reference. This way, it is much easier for you to highlight items and make notes in the margins.

You will also notice that many sentences are in bold type like this. And if it’s really important, I’ll underline it!

INTRODUCTION

INTENTIONS

My purpose is to show you how you can add to your life—to whatever extent you want—the investment of income-producing rental real estate, and enjoy it. It is the single investment category that has made more people/families/companies rich over the entire span of human existence than anything else. How? From cash flow and equity growth.

This book will change your mind if you are a skeptic, and it will give you confidence if you do not believe you can “deal with tenants.” You are about to learn about plain and simple real estate investing that will, at the very least, get you rich slowly. This is about the simple rentals to own and operate—the single-family or two to four-unit properties or even small apartment complexes. Not the big stuff—just the smaller properties that can barely be a distraction to you while you are living your life.

This is a book about growing your income…perhaps to the point of financial independence, which I define as the ability to do what you want (only the stuff you like to do), when you want (on your own schedule) and with whom you want. You may not want to follow the path to the type of complete financial independence which allows you to leave behind everything you do now for money, and that is OK. You may have a passion for a career or a job or a hobby or a volunteer position or anything that brings you significant fulfillment, but which leaves you hoping for more fulfilment in the bank account area. But you do not feel you want to give up fulfillment from your passion just for more money. Still, something tells you that things would be better if you just had an extra source of income, and you are willing to dedicate at least part of your life to growing that extra income.

Chapter One

EDUCATION (SITE CLEARING AND BREAKING GROUND)

By getting some education, you are clearing your mind of unwanted vegetation (confusion about the rental property business), so you can see more of what the land (the business) has to offer. Also, when you break ground, you’re digging under the surface (getting more facts) so that you’re on solid footing (confidence) for laying the foundation (starting to buy property).

If you can:

Grasp some basic math
Will yourself to interact professionally with tenants and contractors
Exercise some discipline with handling money
Use some basic tools (hammer, screwdriver, pliers, and a saw) for minor repairs
Pick up the phone to call someone to do whatever you don’t know how to do
Set aside false preconceptions (both positive and negative) about the business

…then you can probably accumulate significant wealth with income property. And remember, you can do it while you are still involved with some other vocation.

Chapter Two

ACQUIRING PROPERTIES (THE FOUNDATION)

I think it’s fair to say that, after looking back over around a half century of investing in rentals, I believe the hardest part is finding good deals. It’s the weakest link in the chain, so to speak, not because of the actual mechanics of purchasing property, but because you can’t control the deal flow as we call it. Even finding the money to buy the property is easier than finding the property itself. You can control virtually every other aspect of this business from property improvements to tenant selection to selling your property, but you can’t just go into the income property section at a big box store and grab a 2-unit off the shelf when you decide it’s time for another property. You can affect your deal flow with your search efforts, but sometimes the availability of a good deal boils down to simply good fortune.

I’m going to take you through the phases of acquiring property which I consider to be:

Creating the legal entity which will hold title to your property
Searching for property that fits your criteria
Negotiating the deal to buy the property
Checking out the facts relating to the property (doing due diligence)
Financing the purchase
Preparing for the closing

Chapter Three

PREPARING YOUR PROPERTY FOR TENANTS (FRAMING)

By now you should have some idea as to the extent of the work you will do yourself. This can range from securing all materials and pounding every nail to hiring a general contractor who will do everything. Considering that most landlords fall somewhere in between, having relationships with contractors and suppliers is paramount for being able to proceed quickly with turning around a property for new tenants. Contractors and suppliers are two of the most important links in the chain, but be prepared for them to sometimes be among the weakest links.

Before you offer your units for rent, you will need to concern yourself with:

Your repair and maintenance team

Your suppliers

Your office files and records

Banking and accounting

Physical preparation of the apartment for viewing

Setting your rent rate

Chapter Four

ACQUIRING TENANTS (ROOFING)

Acquiring the right tenants for your apartments or commercial spaces will make the difference in your rental real estate investments between a good experience and a bad experience. Most components of a rental real estate operation are not recurring enough to be upsetting. If you have made a poor choice in your insurance, record keeping, or financing, for example, you make the correction and move on. If a repair becomes necessary, you fix it, and it’s done. You would be dealing with other professionals when addressing these issues, and none of these examples are likely to be something that would make you sorry you own income property. By contrast, tenants can get under your skin. They don’t have a professional reputation to uphold in their dealings with you, and often they don’t care about their personal reputations. Sometimes, ongoing issues with tenants are not as easily fixed as other problems, so it is imperative to make good choices when selecting residents.

Your objective, when you have a vacant apartment, is to get it rented as soon as possible to the best qualified tenant. Once you have properly prepared the unit for showings, this objective will be met by navigating through the following phases:

Marketing the available unit

Screening callers over the phone

Showing the unit

Taking an application

Processing an application

Approving the applicant and offering them the rental unit

Signing the lease

Arranging the move-in

Move-in day

Chapter Five

PROPERTY MANAGEMENT (UTILITIES)

It is my guess that the prospect of doing property management and tenant management is where you have the most self-doubt. Other phases like property acquisition and financing, which have a beginning and an end, can be stirred up at will when you become interested in a property. Management, on the other hand, goes on every day you own property. Just like with the “back office” management of the paperwork and bookkeeping, you must consistently employ good management techniques, or you will find yourself selling your property to another investor at a “don’t wanter” price because the property and the tenants got the best of you.

Notice I have been mentioning property management and tenant management separately. In the big picture, they are inextricably intertwined since one is continually affecting the other. As long as you have both a property and a tenant, you will be doing both at the same time. If you want to keep a nice property, you must manage your tenant. If you want to keep a good tenant, you must manage your property. However, property management and tenant management are separate sets of tasks done on independent schedules.

Chapter Six

TENANT MANAGEMENT (DOORS AND WINDOWS)

Property management is about the upkeep of land and improvements, while tenant management is about relationships with people. Tenant management is like the doors and windows on a building because it is what you use to allow the good elements to enter and to keep the bad elements out.

Specifically, it’s about interacting with the tenants/customers with whom you are entrusting not only the use but also the occupancy of your valuable assets…with little supervision…for an extended period of time…and you hardly know them…gulp! But with proper application of well-learned, tried-and-true principles, your experience with tenants will most likely be a positive one…both from a personal standpoint and a financial one. In the preponderance of instances, tenants will pay their rent on time, keep your property in decent shape, return it to you reasonably clean when they move out at the end of their lease, and not bother you unnecessarily along the way…if you do your part as their landlord. They are not going to respect you and your property if they don’t sense that you respect them.

Chapter Seven

THE AUTHOR’S BACKSTORY

No matter what the plans are that we make, we must be willing to pivot when a better way comes into view. We must be ready for luck. By the way, when you’re working your way through a plan, there’s no such thing as luck. In those instances, “luck” is more defined as preparation meeting opportunity. But don’t just wait for opportunity; create your own opportunities. Take the initiative, and control your own destiny!

I believe it’s better to tackle something new knowing you don’t have complete knowledge but having enough preparation so that your intersection with opportunity will result in “luck.” Then, commit to working hard. That tact is better than failing to act because you don’t know everything there is to know, or acting recklessly because you think you do know everything.

I will conclude this chapter by emphasizing that, because I took the time to educate myself to a reasonable degree before I bought my first property, I had the confidence to move forward. Although I did not know “everything” about it, I was, however, knowledgeable beyond the most basic phase you can be in before you do something new. That basic phase is called the “I don’t even know what I don’t know” phase. That is when you really are going into something blindly. You have this book and many other resources. Absorb the information, and you will have enough to get started. Experience will fill in the blanks as you go along.

Chapter Eight

HOUSE FLIPPING: THE INS & OUTS AND NUTS & BOLTS

When you operate rental properties, your objective is to build monthly income. Your intention is to enjoy the cash flow until you sell to the next investor. This could be for many years, and most likely the sale will net you a big check in the end. Flipping is an entirely different business model, however, because you are only going to get one check. There is no steady monthly income, only the check from the sale. The model requires a steady stream of properties. There is no more income until the next project is completed, but the attraction is that the profits from flipping can be not only immediate, but significant. It could take many years of rental income from the same property to equal the lump sum profit from selling it right after you finish the rehab.

Chapter Nine

HOW TO GROW FROM $0 TO $10,000 PER MONTH NET CASH FLOW FROM RENTAL PROPERTIES

Ten thousand dollars per month was picked not only because it is a nice round number, but because it represents an amount of income that is greater than most “real” jobs and greater than the net profit of most sole proprietor small businesses. Also, it’s an impactful amount for most people when added to their income from existing sources, and it may be enough to cut the ties with one’s W-2 job if that is their desire. Yet, at the same time, it is an attainable amount in a reasonable length of time in an industry open to anyone who wants to be a player. It doesn’t rely heavily on market conditions, developing technology, product preferences, luck, or multi-level marketing downlines being developed. We’re talking about places to live. Something everybody will always need. It’s “not rocket science.” It’s just a life decision to acquire assets that produce income derived from renting out a universally desired product.

Chapter Ten

TAX IMPLICATIONS FROM OPERATING RENTAL PROPERTY

(FRAMING AND DRYWALL)

We will touch on the various types of taxes you may encounter while owning and operating an income property. Some taxes are the kind where the taxing body sends you a bill, and you pay the amount on the bill. But what everybody thinks about when it comes to rental real estate is the unique ways it can impact any taxes on one’s income. In these cases, you are reporting your income and expenses using your own accounting records, and then they tell you how much of your net income they want you to send in instead of giving you a bill for the set amount of a tax.

I have often said that there is no harm in paying taxes if you actually made the income. While I do not want to pay any more taxes than necessary, I do not believe the driving force behind your rental real estate investment decisions should be the tax implications. Just get out there and generate revenue, then let the tax chips fall where they may. Report all your income honestly, but take every deduction to which you are entitled without fail.

Chapter Eleven

THE IMPACT OF WEALTH (PAINT)

Stating that “everyone can get rich quick in real estate” is partly true though. But the only true part is that you can get rich in real estate. It’s just probably not going to be quick, and not everyone can do it. In fact, nobody can do it unless they get a good education on the subject, and apply themselves diligently, unless they receive an inheritance of properties with management in place. If you are reading this, I am probably not out of line to predict there is a strong likelihood you will find some level of success in rental real estate, and that you will be adding to your income and net worth over time. So, let’s drill deeper into this rich/wealth subject.

Most people equate being rich with being wealthy. They are synonyms as are the terms well-to-do, affluent, prosperous, and well off. But their meanings are not the same. I wish I could use something other than Rich in the subtitle, because my real purpose is to give you the tools to accumulate wealth, not just money. There is a difference.

You might think I am trying to say that money cannot buy happiness, but I actually do not think that is universally true if you know how to handle your cash. Certainly, the lack of enough money to acquire the necessities of life can create unhappiness. Conversely, having abundant cash can create the happiness of not having the stress of scarcity. But the happiness that comes from material things is only part of the wealth equation. Though some level of happiness can be found in having “things,” the concept of money buying happiness in relationships has its limitations. Abundance must take its proper place in your life, or it will influence you to ruin your relationships.

Chapter Twelve

HOW TO PAINT A PICTURE WITH YOUR PERSONAL FINANCIAL STATEMENT

Every bank has their own form, but the purpose and the categories of information are the same. This statement would cover the personal aspects of your existing financial picture, and it would be accompanied by any financial statements related to, for example, the specific property you are trying to borrow money to buy. If you already have an operating business or property, those financials would be attached, but only the net value of that business or property along with the net income (or loss) from its operation would be fed onto designated areas on the Personal Statement to be combined with your personal assets and income. The ultimate aim of this form is to present to the bank a bottom-line view of your net income and your net worth as of the date of the statement. They then apply their secret ratios and other qualifiers to decide on whether to give you the loan. It goes without saying that you will want your Personal Financial Statement to look as attractive as possible with both the information contained as well as the appearance of the data entered.

In many cases, providing an updated Personal Financial Statement annually will be part of the requirements from your bank once you have the loan. This is especially true if you have a large loan with them, or if you have several loans with the same bank. They want to develop a relationship with you, and part of that is requiring you to annually submit things like this statement along with your personal and entity tax returns. The fact is that you may gain more from the exercise of preparing the statement than your banker will get out of it in terms of seeing where adding rental real estate to your life has gotten you.

Chapter Thirteen

SELLING RENTAL PROPERTIES (FIXTURES)

In Chapter Two, which is about acquiring properties, I explored subjects such as:

Searching for property that fits your criteria

Negotiating the deal to buy the property

Checking out the facts relating to the property (doing due diligence)

Financing the purchase

Preparing for the closing

If you think about what it would be like on the opposite side of the equation in the above areas, much of what you need to know regarding selling your rental properties will become clear to you. This will be especially true if, by the time you go to sell a property, you have already been through the purchasing of multiple properties. By then, you will know how to connect with your potential buyers, how to negotiate the deal, how to present the facts about your property for buyers to evaluate, what financing options to offer, and what to expect while preparing for the closing.

Chapter Fourteen

BEST PRACTICES (FLOORING)

Certainly, this is not an exhaustive discussion on how to run your life, but these are some things which came to mind that I believe to be useful in addition to the rental property-specific concepts already covered. You routinely hear about employing principals in your life and business such as honesty, integrity, promptness, loyalty, responsibility, recognition of others, continuous learning, time management, planning, communication, innovation, team building, goal setting, and perseverance. These are all great concepts to follow, and I recommend all of them. However, in this chapter I am going to take a more “nuts and bolts” approach on both financial and personal topics. Contained here are specific ideas on how to do things that will help you succeed and/or avoid unnecessary trouble.

Chapter Fifteen

THE CONCLUSION (LANDSCAPING)

I hope that, after you have read this book, you no longer believe that real estate investing is for other people, and not for you. My purpose was for you to be inspired to give it a try, and significantly alter your life for the better. I am counting on any readers who are stuck in a JOB (stands for Just Over Broke) to gain control over their finances and time with the information I have presented. But I also wrote this for the readers who prefer to stay in a vocation related to their passion, and who wish to augment their income with rental real estate or house flipping so they can have some nice extra things or a more secure retirement than their job allows.

You may not be ready to invest yet, and you fear the opportunity to get into rental properties will pass you by. First, remember that you do not have to know everything before you get started. Secondly, unlike technology or trend-based businesses, one of the advantages of the rental property game is that little about it changes, at least not quickly. Nothing happens that suddenly makes your product outdated. There can be subtle changes in the laws or in décor preferences, but you’ll never have to scrap a warehouse full of outdated inventory with rentals or flips.

Education removes fear. The lack of fear creates confidence. Confidence minimizes discouragement from setbacks. Not feeling discouraged means regrets are quickly forgotten. Sometimes you win, and sometimes you learn. So, either way, you’re further ahead having learned one more thing not to fear.

Chapter Sixteen

BONUS FROM “REAL ESTATE STEVE” SZUMIGALE

Let’s hear from Real Estate Steve:

In 2016, I discovered something that I know you will pick up on too: Cash Flow = Freedom. I realized that it was better to keep 100% of a property by owning it, and getting paid on it repeatedly, than it was to get a 2% to 3% broker commission for selling property since you only could get paid one time, and then you would have to do it again. When I first started, I had all the things working against me that could have all been excuses. I had no money, bad credit, bad mindset, bad addictions, lacked confidence, and I had a lot of life’s baggage like one can accumulate over the years. Any one of those things could have stopped me from greatness, let alone the full gamut of them. You can have the life of your dreams, or you can make excuses, but you can’t do both!

Your future success will be 100% dependent on your ability to not only obtain the correct information, but to be able to properly put it into action. This, like Joel Miller says, is the difference between knowledge and wisdom.