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How To Become Wealthier Faster Investing in Real Estate
By David Lindahl
From the very beginning
of my investing in real estate, I liked the idea that a group of people (the
tenants in a building) would get together and pool their money to pay down the
mortgage on a property, and I liked the idea that they would also pool their
money together to pay for all of the maintenance work for a building.
I especially liked the idea that they would give an owner so much money that the
owner would have a bunch of money left over at the end of every month that could
be used to either re-invest, save or to go out and have a good time with.
Essentially, I like the idea that other people were willing to help make me
wealthy.
The first property I purchased was a three family apartment house. I used credit
cards to fund the down payment. When I began to purchase my third three family,
I realized that there were a lot of good deals out there and I needed a system
to come up with down payments.
That’s how I developed my “Chunker Strategy”. What I do is buy a single family
house with little or no money down (through private money or partners), flip it
and use a chunk of money to live today and use the other chunk for another
apartment house.
I became an expert at flipping single-family houses. I learned to wholesale,
retail, pre-foreclosure, rehab, subject to and lease option single-family
houses. I became a transaction engineer because I didn’t want to lose any
potential deal that might be available to me.
I soon came to realize that I could also wholesale, retail, pre-foreclosure,
rehab, subject to and lease option apartment houses as well.
You see, when I throw out my marketing dragnet for single family houses, I find
that I was also attract motivated sellers of smaller apartment houses. If for
some reason I wasn’t interested in holding an apartment house for cash flow, I
could make a chunk of money flipping it using one of the methods that I
described above.
Learning how to invest in apartment houses is like adding another tool to your
tool box. You might not need it every day, but when you get the chance to use
it, it pays for itself over and over again.
Every once in a while, you come across a great deal on an apartment house. A
deal that is going to bring you in a great monthly cash flow of eight hundred
dollars a month or more. These deals are actually more common than you think,
you just haven’t trained your mind to recognize them.
Imagine for a minute, as you are buying and selling your single family houses,
you start “collecting” apartment houses with cash flows of at least eight
hundred dollars a month (if you are buying 3+ units, you will want at least a
net positive cash flow of eight hundred dollars a month, unless you are in a
first half of a rising market, and then and only then should you get less).
You will find these deals by dealing with motivated sellers. These deals do not
commonly come through real estate agents. There are many good marketing courses
available that teach you how to attract motivated sellers, get one and prosper!
Let’s say that you collect just four apartment houses a year, one every 3
months. At the end of the first year you will have a net positive cash flow of
$3,200 per month. That would equal $38,400 per year.
Now let’s say that you continue to flip single family houses, get chunks of
cash, and when the opportunity arises you continue your shrewd method of
investing and continue to collect four apartment houses the next year. You have
just increased your monthly income to $6,400 per month and your total yearly net
positive cash flow from your apartments to $76,800.
Let’s jump forward to the end of year four. You have now collected a total of 16
apartment houses. Your monthly income from your apartments is $12,800 per month,
your yearly net positive cash flow from your apartments is $153,600!
That means that if want to take all of year five off and do nothing, no flipping
single family houses, no buying more apartments, no doing nothing, you would
still get $153,600 in as a net positive cash flow from your existing apartments.
With $153, 600 you can do a whole lot of nothing!
Now you might be thinking whoa! What about all those tenants! I don’t want to
deal with any tenants…you don’t have to. As your purchasing your property, you
factor in the cost of a good management company. If the property still cash
flows properly, buy it. If it doesn’t…next!
Some people don’t have a problem managing their own buildings. I did it for my
first two and one half years in business but I soon realized that dealing with
my tenants took time out of me going out and finding more deals, so I systemized
the management of my buildings and hired a girl to work in my office and manage
them for me.
I haven’t talked to or taken a call from a tenant in over four years and yet I
happily deposit those cash flow checks in my bank account every month!
When I buy properties out of state, I hire local management companies to manage
them for us. The rule of thumb is to pay them 8 –10% of the gross collected
rents for buildings with 20 units or less and 5 – 8% for buildings with 20 units
or more.
Let’s get back to the cash flow because cash flow is the real reason you should
consider buying apartment houses while your doing your single family investing.
The cash flow gives you the freedom to do what you want when you want, go where
you want when you want, and buy what you want when you want. This is exactly why
we are in the real estate game.
What if you don’t decide to invest in apartment houses? It’s now four years
later, you’ve been flipping a lot houses and are making some good money, heck,
you’ve even got some single family houses that your holding for long term cash
flow.
Let’s look at the reality of the situation. If you want another payday, you have
to buy and sell another house. The cash flow on your single family keepers
average $300 per month, what happens if you lose your tenant for just one month?
You’ve probably lost your profits for most of the year.
If you were collecting apartment houses during that same four years while buying
those single family houses, you would have a pay day in the tune of $12,800 per
month each and every month for doing nothing (your net positive cash flow). The
management company does all the work! If you lose a tenant in your three family
building, no problemo! The other two tenants still pay enough to cover the
expenses and also give you a little cash flow.
Not only that, you are creating more and more equity in those apartment
buildings through the pay down of the mortgage and the appreciation that takes
place each month that goes by. Your setting yourself up for some huge paydays
further on down the road.
How do you become wealthier faster investing in real estate? Start collecting
some apartment buildings as you buy and sell those single family homes.
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