Building Wealth One House At A Time

1. Houses: Your Best Bet for Building Wealth

Houses make me more money with less work than any other investment.

Houses vs. Other Investments. Single-family homes offer a unique blend of profitability and manageability compared to apartments or commercial properties. Houses provide rental income and appreciate in value, and their value doesn't solely depend on rental income. Unlike commercial properties, houses attract tenants who need housing more than they need to negotiate, giving you the upper hand.

Predictable Performance. Houses have a long history of increasing in value, averaging roughly 5% annually. While there are fluctuations, well-located houses rarely drop significantly in price. This predictability makes them a safer investment, especially when bought at a discount.

Community Impact. Investing in houses allows you to help people by providing affordable housing, relieving sellers of burdens, and helping families buy their first homes. This creates a positive reputation and fosters referrals, further boosting your business.

2. Target the Right House and Neighborhood

Not all houses are created equal.

Strategic Diversification. Owning different houses in various neighborhoods allows for diversification, mitigating risk. Some houses will produce more cash flow, while others will appreciate more rapidly. Diversifying by size, age, and price range creates a safer portfolio than owning a single large property.

Neighborhood Matters. Buyers and tenants are drawn to quiet, safe, well-maintained neighborhoods populated by responsible people. Proximity to good schools, hospitals, and transportation also significantly impacts desirability and value. Investing in the best neighborhood you can afford will yield higher returns.

Right-Sized for Success. Aim for three-bedroom, two-bath houses, as they appeal to a broader range of tenants and buyers. Garages, basements, and fenced yards are also highly desirable features. Focus on functional and well-located properties, avoiding high-maintenance frills like pools or elaborate landscaping.

3. Finding Undervalued Properties: The Art of the Deal

When you can identify a house that an owner wants to sell and that is not listed, you have less competition from other buyers.

Unlisted Opportunities. The best deals are often found off-market, where there is less competition. Focus on empty houses, properties needing work, and those owned by out-of-town landlords. These situations often indicate motivated sellers willing to negotiate.

Questioning is Key. Before investing time and energy, ask potential sellers targeted questions to gauge their motivation and the property's potential. Inquire about their reason for selling, loan balances, and willingness to rent if they can't sell. This helps identify the most promising opportunities.

Motivation and Profitability. Rank both the seller's motivation and the potential profitability of the house on a scale of 1 to 10. This allows for direct comparison of multiple properties and helps prioritize the most promising deals.

4. Financing First: Know Your Numbers Before You Offer

You do not set the rent on a house; the market sets your rent.

Market Rent Research. Conduct a thorough rent survey of competing landlords to determine the amount of rent you can expect to collect. Analyze classified ads, call landlords, and visit properties to understand the market dynamics and identify opportunities.

Rent and Price Cycles. Understand that rents and prices tend to move inversely, with rents rising when prices are flat and vice versa. This is influenced by interest rates and credit availability. Recognizing these cycles helps you anticipate market trends and make informed decisions.

Cash Flow Projections. Project the income and expenses of a potential investment property to determine its cash flow. Factor in property taxes, insurance, maintenance, and potential vacancies. Use this information to calculate how much you can afford to borrow and repay with the net rents.

5. Crafting Offers That Win: Negotiation Essentials

Don't tell me what you won't do; tell me what you will do.

Understanding Seller Motivation. Before making an offer, understand the seller's motivation for selling. This provides valuable insight into their needs and priorities, allowing you to tailor your offer accordingly.

Start with Their Contract. If the seller has a contract, use it. This demonstrates cooperation and can streamline the process. Negotiate smaller items first, such as personal property and closing dates, to build momentum and establish a positive rapport.

Schaub's 10/10/10 Rule. A guideline for making offers: no more than 10% down payment, no more than 10% interest, and buy at least 10% below market value. This ensures a profitable and sustainable investment.

6. Leverage Creatively: Borrowing Beyond the Bank

The terms you get on the money you borrow are more important when you borrow the entire amount than when you buy with less leverage.

Beyond Traditional Lending. Explore alternative financing options beyond banks, such as seller financing, private investors, and other creative strategies. These sources often offer more flexible terms and can be crucial for acquiring properties with limited capital.

Seller Financing. Sellers may be willing to finance the purchase, especially if they have a large profit and want to defer taxes. This can involve taking over existing loan payments or structuring a new note with favorable terms.

Investor Partnerships. Partner with investors who have capital but lack the time or expertise to manage properties. Structure agreements that split profits fairly, allowing you to leverage their resources and build your portfolio.

7. Mastering Contracts: Loopholes and Legal Safeguards

Only sign a contract that you have had time to read carefully and fully understand.

Understand the Fine Print. Take the time to thoroughly read and understand any real estate contract before signing. Pay close attention to clauses related to inspections, closing costs, and specific performance.

The Inspection Loophole. Include an inspection clause that allows you to unilaterally cancel the contract if you are not satisfied with the results. This provides a safety net in case you discover undisclosed problems with the property.

Protect Your Deposit. Make your earnest money deposit payable to an attorney or title company, not directly to the seller. This provides added security and ensures that the funds are held in escrow.

8. Negotiate Like a Pro: Strategies for Success

Negotiating has a bad reputation. It is not the art of taking advantage of someone else. It is the art of putting a deal together.

Fairness is Key. Aim for win-win negotiations where both parties benefit. One-sided deals often fall apart before closing. Focus on building relationships and finding solutions that meet everyone's needs.

Let the Seller Speak First. Allow the seller to set their price before making an offer. This provides valuable information about their expectations and allows you to gauge their willingness to negotiate.

The Power of Silence. Silence can be a powerful tool in negotiation. After making an offer, remain silent and allow the seller to respond. This can create pressure and encourage them to make concessions.

9. Agents: Allies in Your Real Estate Journey

The best deals I have ever made have been brought to me by agents.

Cultivate Agent Relationships. Build relationships with real estate agents and train them to identify properties that meet your investment criteria. Offer incentives for bringing you good deals, such as guaranteed offers and quick closings.

Commission Considerations. Be mindful of agent commissions when structuring offers. Ensure that there is enough equity in the deal to compensate the agent fairly.

Agent as Investor. Consider selling properties to agents on lease options, allowing them to fix up and resell the property while generating income for you.

10. Cash Flow Now: Buying and Selling for Immediate Profit

Buying at a below-market price makes you a profit the day you buy.

Short-Term vs. Long-Term. Buying and selling houses for quick profits requires different skills and strategies than long-term investing. It demands a strong commitment of time and energy, as well as expertise in negotiation and renovation.

Profitability Formula. Your annual profit depends on how far below market you buy each house and how many houses you can buy and sell per year. Focus on maximizing both factors to achieve your financial goals.

The Right Properties. Target houses in high-demand price ranges and neighborhoods. Look for properties that need only minor repairs and can be quickly resold to owner-occupants.

11. Lease Options: Maximize Profits and Help Buyers

You can buy a house without a written contract. You cannot force someone to perform, however, if he changes his mind.

Retail Price, Creative Financing. Lease options allow you to sell properties at retail prices to buyers who may not qualify for traditional financing. This can significantly increase your profits while helping families achieve homeownership.

Qualify Your Buyers. Carefully screen potential lease option buyers to ensure they have a plan to qualify for a loan within the term of the contract. Provide guidance and support to help them achieve their goals.

Setting the Terms. The option payment, monthly rent, and sales price are all interconnected. Adjust these variables to attract qualified buyers while maximizing your overall profit.

12. Foreclosures: Opportunities and Cautions

Most great deals are made because the seller has a financial problem, so a house in foreclosure seems like an obvious opportunity for an investor.

Distress Signals. Foreclosures can present lucrative opportunities, but they also require specialized knowledge and careful due diligence. Look for properties in good neighborhoods with motivated sellers.

Ethical Considerations. Approach foreclosure buying with empathy and respect. Avoid high-pressure tactics and focus on providing solutions that benefit both you and the homeowner.

Lender Negotiations. Contact the lender to negotiate the terms of the loan. This may involve lowering the interest rate, forgiving back payments, or allowing for a loan assumption.

Last updated: February 19, 2025