People constantly ask me, "What kind of investing do you recommend for ordinary working folks with only a few dollars to invest and a limited amount of time to do it?" I have no trouble whatsoever answering these questions because in my opinion, the same answer fits for all ordinary working folks. My "one fits all" recommendation is to invest your money and your time in income-producing residential properties—THAT'S IT!
Whether you decide to plunge headlong into real estate investing like I did or take it slow and easy, it makes no difference in what type of property you should buy when you have limited funds. The period of time it takes to reach whatever financial goals you have set for yourself should be the only variable in your early investment planning.
Most everything in life has trade-offs! Early on in my investment career I made a searching and fearless examination of my financial situation. It didn't take very long—especially adding up my assets. I determined rather quickly that what I needed from any investment plan was cash flow. Whatever else I thought I might need would have to line up behind the cash flow. It's a very simple strategy, with cash flow you survive and grow—without it, you won't.
Over the years, investing for cash flow as my number one priority has paid big dividends for me. Cash flow is what I always advise new investors to think about first. It's a basic rule of investing the way I see it. When you have cash flow, money coming in, you are growing financially. I call this "Green and Growing." When you are green and growing all things are possible, investment-wise. Without money coming in, nothing grows except discontentment and the constant worry about financial disaster!
Going for cash flow as a first priority is one of the most important differences between investing, which is what most of us think we're doing—and speculating, which most of us should not be doing. Certainly, I’ll be the first to admit that investing is not nearly as exciting as speculating, but it's much healthier financially. Folks who intend to stay in the investing business for the long haul have do not have any good reason to speculate until their bank account is strong enough to sustain a sudden jolt—that means a loss.
I have several friends in Southern California who purchase expensive houses when they think prices are appreciating rapidly. When their timing is right, they make a killing. When it's not, they get killed. They get stuck in a holding pattern. Mortgage payments and expenses quite often add up to double the rents they can collect. Not only that, but all their capital is tied up—which means they are effectively shut down from doing business. One good friend of mine has been a millionaire five times already. Each time he loses everything. That's what I don't like about speculating. When I get the money I intend to keep it.
Investors who think like speculators often tell me: "It takes money to make money." Yet, many of these same folks spend thousands of dollars for "No Down" tapes and "Easy Street" seminars. Obviously they need to think a little harder about planning and goals. "Speculator Thinking" often tends to make new investors feel like they can start right out with immediate success! They can skip the hard work, multiply their investments by huge dollar amounts and be rolling down the road in a new Mercedes within a short period of time.
That's exactly how one of my Southern California friends thinks. Lately he's had some serious setbacks—things are not so well in the city right now. Like they say in the car business, "He's upside down in several high ticket properties." He has already owned the Mercedes of his dream. In fact, he's had three of them—but for now, he's driving his son's VW!
Let's assume you wish to acquire income or profit-producing real estate with very little money and using what you can contribute, mainly time and personal effort. We'll also assume you have the time and are willing to provide your personal labor. In other words, you are ready to go right now! First; I want you to ask yourself a couple of questions. The answers are intended to guide you, as well as maximize the use of your personal efforts. This idea might seem a little strange to you at first, however, once you find a good deal, strange ideas will begin to seem a lot more natural to you. I can promise you that, so bear with me as I explain!
Question One: What kind of property might you expect to purchase without a cash down payment? Here are some suggestions to help you decide:
The reason you are looking for ugly, distressed-type properties is because they represent big problems for their owners. The idea is to use your time and personal efforts to fix these problems in lieu of paying the regular cash down payments. Correcting problems have cash values. Often the price to correct big problems can amount to a much higher dollar value than the normal cash down payment may have been. The point is your ambition and ability to fix problems for others can create an excellent opportunity for you. Few investors are willing to put in the effort, so you'll stand out!
Many investors, including myself, have used this wealth-building technique to quickly develop large real estate portfolios. It's a perfect solution for someone without down payment cash—which of course, is almost everyone who subscribes to my ideas.
Question Two: What kind of sellers are likely to own the type of property described in question one? Here are some likely candidates:
§ Out-of-town owners who are not paying attention to what goes on at their rental properties.
§ Owners with financial problems.
§ Family problems (divorce, death, lifestyle change).
§ For-sale-by-owner ads (all newspapers).
§ Owners who have lost jobs and can't pay their bills. F. Elderly or disabled.
§ Inherited property owners—easy come, easy go mentality.
§ Owners who advertise lease-option or even houses for rent.
§ Job transfers: owner moved, now has two house payments.
Owners Will Seldom Tell You Like It Is
An important point to remember is that people don't always tell you what their true motivation is. An owner who advertises a property seeking a lease-option could easily be searching for a way to rid himself of managing a property he can't sell. Most out-of-town owners don't like long-distance renting, especially with problem tenants, but they seldom tell you that's the reason. You must learn to be like Lt. Columbo and find the answers yourself!
Reprinted by Permission. The author, known to many as “Fixer Jay,” is a seasoned real estate investor with more than forty five years of hands-on experience. Nearly half of the time has been devoted to his specialty: fixing up run down houses and adding value. Many years ago, Jay began teaching others about his moneymaking strategies at seminars and at his popular house fixer camps, in Redding, CA. Visit www.fixerjay.com