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I bought the property below market value. I now have $50,000 equity in the property.” —California
How to Acquire More Residential Income Properties
To acquire your second residential income property, follow the same steps you did for your first purchase of income property. The five steps are:
1. Start by preparing a Summary Sheet of offerings in your area. You can also refer to your earlier Summary Sheet to see if it has good properties still remaining in it.
2. Get out and visit the buildings that interest you. Carefully inspect each. If you feel at all doubtful about a building, but think it would be a good buy, get a building inspector to go through it with you. This will cost you a few dollars, but it is worth it.
3. Keep looking until you find the building you want. Negotiate to take it over for zero cash down. Concentrate on deals in which there has been some kind of loss—divorce, death, or illness in the family owning the building. You will find many buildings in such families are often available for no or very little money down.
4. When you cannot buy a building for zero cash down, try to borrow the required down payment. When you list your first building as an asset on your financial statement, you should be able to get a loan for a large enough down payment for your second building.
5. Use the services of your attorney and accountant to guide you on the takeover of your second building.
Once you have your second building, you’ll find you are much more relaxed than you were with the first. Why is this? Because you learned many valuable lessons from your first takeover. Likewise, the same will be true, of course, of your third, fourth buildings.
“Mud Flats” Can Be Money Machines
Daily, on my way to my New York City office, I pass a group of residential buildings that are sometimes called “mud flats" The owner of these buildings never refers to them as his mud flats. Instead, he calls them his rental income “money machines" His 1,000 apartments in these money machines each give him a Positive Cash Flow income of
How to Base Your Real Estate Riches on Borrowed Money
$300 per month, ($300,000 per month). And—I’m sure—he is eating very regularly!
“But,” you say, “I don’t want to take over as many as 1,000 rental units. Just 100 units at $300 per month each will give me an income of $30,000 per month. That’s enough for me because the yearly income (before expenses) will be 12 x $30,000 = $360,000! I don’t need any more income than that!”
That’s fine with me, your friend, Ty Hicks. All I want for you is a good, dependable income from your real estate. And that income should be large enough so you can have all the good things you want in life.
Expand Your Ownership to Larger Properties
You have an unlimited potential, good friend, in what you can do in residential income real estate! For instance, you can start with single-family units, as many of my readers have. Or you can start with 10-unit buildings. Either way, you can earn an excellent income every month of the year.
Given this, here’s what—as your good friend—I want you to do:
• Get out a pencil and piece of paper and write down what you want in life.
• Specify the exact income you want—a net income of $8,000 per month, $15,000 per month, or $90,000 per month, for example.
• After you decide exactly how much income you want from your residential real estate, convert this into the number of rental units you need.
• Do this by dividing your desired monthly net income by the amount of Net Positive Cash Flow you can expect from each rental unit in your area of the country. A good number for most areas today is $100.
• Adjust it upwards—or downwards—to reflect your personal experience.
Thus, in rural areas, the $100 might be accurate. But in large-city areas the number might more accurately be $200—or even $300—per month. Use your knowledge of your area to choose your number!
The $100 number is suggested because by using it you will be on the safe side. It will give you a result that will probably show a higher number of rental units than you actually need. So if you acquire the number of rental units indicated by dividing by $100 per month, you will have an income higher than you expected! And—good friend—I’m sure you won’t criticize me for this. Now, let’s see how this might work for you.
You want, we’ll say, a net income of $10,000 per month, or 12 x $10,000 = $120,000 per year, from residential income property you will rent to people. Exactly how many rental units do you need to obtain this net income?
Trusting me, and using the above rule of thumb, you figure the number of rental units you need this way:
Number of rental units = $10,000 per month / $100 per unit = 100 units. If your average building has 20 rental units, then you will need 100/20 = 5 buildings. You can probably take over 5 buildings in about two years.