by Jay DeCima
Think about this for a moment! When I buy I an income property for $40,000 less than its true market value using my investment knowledge, how much tax do you suppose I have to pay on the $40,000 I've just earned using my buying skills? No matter how you do the math, the answer is zip -like in none! Now think about the same $40,000 that you earned last year at the factory in wages. Assume you're a family of four. I'd bet that when we add up the state, federal and social security taxes withheld from your earnings, you'll be lucky to take home $28,000 for a whole year's worth of work.
You're talking about giving up or losing $1,000 every month. I'll earn the same $40,000, but the difference is that I'll end up keeping it all and it didn't take me a year to earn it. Remember we're only talking about one small deal here. This stuff gets real exciting when you start thinking about several deals going on at the same time.
If you follow my reasoning, you'll understand that the quickest way to become a successful investor is not so much dependent on how much money you have, but rather skillfully using all the dollars you earn to advance yourself. The idea is to quickly build up your money-making assets and substitute your tax battered wages with cash flow earnings from your investment houses. Living off tax sheltered rents allows you to legally beat the tax man and keep all your earnings to build your own wealth.
Changing careers like I did is not for everyone, nor should it be. Folks have different goals and dreams. For those who wish a change in their everyday life or have decided what they do now to earn a living might be temporary or shaky, allow me to give you a few insights into the world of a full-time real estate investor. I'm qualified because I am one and I've made some serious money doing it.
I decided to buy older houses and small apartments that needed fixing up. My reasoning was: I could do much of the work myself. Plus, I could buy them for much less cash down because there are fewer serious buyers for unsightly distress-type properties.
I also thought that once fixed and cleaned up with a new paint job, older rental houses would command about the same rents as equivalent sized newer houses. The same thing is true with the older rundown apartments, although I've always favored houses because tenants rent houses quicker than apartments.
Once I decided where I wanted my plan to take me and were choosing inexpensive fix-up houses as the vehicle to get me there, I considered how much risk would be involved. Shopping centers are high risk properties and land speculation is more like gambling. Bare land can go for years without any income or payback. Special use buildings like airport hangers, bowling alleys, auto factories and resorts can sink an investor quickly if the tenant moves out.
You limit yourself to a very specialized group of tenants when you own "special use" properties. It's dangerous for beginners who normally don't have holding power (extra cash reserves). I knew from the beginning I could not stand many vacancies. Too much risk of any sort was not what I wanted or needed.
It's very important to stay within your means financially and to acquire the type of properties you can personally handle yourself. If you do that, you can almost write off the risk factor. Inexpensive rental houses and small apartment buildings will always have long waiting lists of qualified tenants if you keep the proper ties looking attractive and in good repair.
According to HUD (Housing and Urban Development), about 60,000 lower income rental units are disappearing in this country annually. They are being torn down for urban expansion, condomized and some like the ones I buy, just fall down. The reasons they're disappearing don't matter much. The point is they're becoming scarce.
In some cases the federal government is already subsidizing landlords who own what's left. Certainly that makes as much sense as paying farmers to plow their tomatoes under or feeding fat kids pizza and French fries for lunch under the federal nutritional lunch program at school.
Because they are scarce and in such high demand, the risk of owning and operating inexpensive rental houses is almost nonexistent. That's exactly what new investors need -non-existent risk. There are plenty of other things to worry about.
The single most dangerous roadblock facing every career-changer is procrastination.
There is no doubt that many folks with the bet intentions and even a good workable plan will procrastinate forever. Look around you. How many people change careers versus how many simply talk about it? Don't let the odds hold you back. Remember, financial success is not about having good luck. It's about having a good workable plan and your writ king that plan.
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