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Why low-end houses make the ideal Cash-Flow vehicle |
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The principles of creating a long-term, on-going cash flow can be applied to
most kinds of real estate investments. Mobile home lots, apartments,
garage/storage units, and houses all make excellent income producing assets.
Houses, in particular, low-end houses, make an excellent vehicle for creating
long-term profit-streams for a multitude of reasons.
First, houses are abundant. Every city, town, and neighborhood has houses.
Houses are probably the easiest to buy because they are the most common. Houses
are also probably the easiest to buy at a discount, since there are so many
sellers who own them in some sort of crisis ownership position: Vacancy,
disrepairs, judgments/liens, back taxes, etc.
Houses are probably the easiest to manage, with the possible exception of
storage/garage unit rentals, since these are occupied with stuff and not people,
thereby making evictions easy. Well-maintained houses will often keep tenants
for a 3-5 year cycle, sometimes longer. Most of the other vehicles have
shorter-term occupancy.
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| Sell on Payment Contract
for 10-15% Price Premium |
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Houses are by far the easiest to sell
because of the naturally large demand for places for people to live. In most
cases the property will sell without holding paper, but many smart investors
will sell their houses on some sort of payment contract and be able to charge
a 10-15% price premium to the buyer without using a Realtor!
The so-called low-end house can be very desirable from an investor's
standpoint. First, lower-end housing doesn't mean bombed-out slums. It means
basic, starter homes that are located in good, but not necessarily great
locations. These marginal areas typically are more of a buyer's market,
thereby, tilting the negotiation in favor of a hard-cash buyer or a buyer
seeking owner financing. Actually, owner financing is easier, much easier in
these slightly marginal areas.
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Deep Discounts- High ROI |
Next, these lower level houses can frequently be purchased at various
distress auction (tax, foreclosure, estate) sales. In many areas of the
country, these houses are bought for prices anywhere from as low as $3000 to
$25,000, without a lot of difficulty (after you know the many inside
strategies and secrets).
Finally, these homes can typically be rented for rents of $350-500 per month,
which based on the low purchase price makes an outstanding return on
investment. Returns of 25-40% per year are common.
The ultimate goal is to get these basic houses paid off. Which is truly an
accomplishment that will reward you for many, many years into the future. It's
not uncommon for good managers to receive income for 20 years or better from
their houses. After this period of ownership many owners will find a stable
buyer and sell the house on a payment contract and receive another 10 to 15
years of "mortgage" payments! |
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If Houses aren't feasible... |
If you live in one of those few areas where
house prices are just inflated far too high to make the numbers work, don't
worry, these same concepts and techniques work with small apartment buildings,
mobile homes/lot rentals, rooming houses, and almost any other lower-scale
income property. You don't have to be stuck on houses. In fact, I'm always
open to buying great deals on anything people will rent. By the way, most
folks don't believe it, but rooming houses can be a gold mine - and the
management isn't as tough as you might think!
This is all about buying and managing income streams. Remember, perpetual
income. |
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