| Have a Plan | | | | fine (in the thousands of dollars) if the state catches |
| Now that you have decided to build an investment | | | | you in this activity. |
| house or buy one, what will you do with it? It's not | | | | "But," you argue, "I'll just take the test and get my |
| enough just to have a house built. Remember, the | | | | contractor's license." That's all well and good, but it |
| goal is to create wealth. Before you build an | | | | could cost you $25,000 for liability insurance. Just |
| investment house, have a plan in place. The plan can | | | | beware. Talk to your insurance broker and your |
| be as simple as building one house each year for ten | | | | state building department. |
| years and then retiring and living off the income | | | | Lease Option |
| produced by those ten houses. | | | | Let's suppose for a moment that you live in a state |
| That is a simple plan but it works, as I learned from a | | | | where building and flipping is not permitted. Another |
| mentor of mine named Barney Zick. In some of my | | | | viable means of creating wealth is through lease |
| investment meetings I show my | | | | options, sometimes called rent-to-own. This is a great |
| protégés how they can exercise that | | | | way to do business whether or not the state will |
| plan and retire with an approximate income of | | | | allow you to sell you newly constructed investment |
| $100,000/YEAR for the rest of their lives. | | | | home. I do this all the time. I currently have thirteen |
| My son has also developed a powerful, dynamic plan | | | | homes under construction which I will lease option |
| that we offer on our web site. It shows how you | | | | when they're complete. I can sell them right now |
| can create more than $100,000 in less than three | | | | because I'm a licensed general contractor. But I'll hold |
| years using no cash out-of-pocket or credit. The plan | | | | them for at least one year unless something |
| can work even if you have the lowest credit scores | | | | unforeseen comes up. |
| possible - even if you filed for bankruptcy yesterday! | | | | The reason? More wealth created. Consider the |
| The point is, have a plan. | | | | following: |
| Why Have a Marketing Plan? | | | | 1. If I sell today I'm in competition with everyone else |
| 1. You have a business that operates with purpose, | | | | who wants to sell a house. That means I might be |
| not by accident. | | | | forced to negotiate the price. By the way, usually the |
| 2. It allows you set time deadlines, to hold yourself | | | | negotiation is for less money, not more. |
| and others accountable so everything gets done. | | | | 2. If I have more competition I might want to list my |
| 3. It's a concrete result you put out for your mind to | | | | house with a realtor on the multiple listing service. If I |
| focus on and strive to achieve. | | | | do that I will have to take about 6% less for my |
| 4. It allows you to clarify specifically what you want | | | | house after we get through negations. As a matter |
| to accomplish in the next ____ days (you fill in | | | | of fact, when I first started building real estate |
| blank). | | | | brokers often made more money on my houses |
| 5. You can identify the activity needed to achieve | | | | than I did as a general contractor. |
| your plan. | | | | 3. But, as a lease option I get today's appraised price |
| 6. It allows you to plan in advance to delegate tasks | | | | without paying a real estate broker (I save about |
| that would be best outsourced, and | | | | $18,000 on a $300,000 sale), and I add an additional |
| 7. It results in you being free to concentrate on your | | | | 10-15% to compensate me for waiting to close in a |
| highest payoff activity. | | | | year. That means on a house that appraises for |
| Rental House | | | | $300,000 today will earn me an additional $30,000 to |
| There are several things you can do with a house | | | | $45,000 - again without paying a real estate broker. |
| after you build it. You might want to keep it as a | | | | 4. I can almost completely eliminate landlord |
| rental. This is a very good, simple plan with the added | | | | headaches by structuring my lease properly. In the |
| advantage of lowering your tax burden through | | | | lease I created with the help of my attorney, the |
| depreciation and other expenses. | | | | buyer/tenant is responsible for all repairs up to $500 |
| Borrow Against It | | | | per occurrence and we equally share in any repair |
| If you plan it right, you will have a positive cash flow | | | | above that amount. |
| that allows you income each month. Once your house | | | | 5. I get my rent paid on time which means I can |
| appreciates, you can borrow against it. You can | | | | make my payment on the property and have |
| borrow $50,000 on your rental house and it is not a | | | | positive cash flow. I do that by making it very |
| taxable event. I have done this on occasion. Another | | | | expensive for my buyer/tenant to pay past three |
| option is a home equity line of credit (called | | | | days of the official rent due date. I have had only |
| HELOC(s)) and I use mine like cash in a savings | | | | one tenant buyer who failed to pay on time. When |
| account. Again, I do this regularly. | | | | he exercised his option, the late payments cost him |
| Every house I own has a line of credit which I use | | | | over $5,000. |
| very cautiously. If I need $200,000 for a project I | | | | 6. I get a tax deduction if I want to take it. I can |
| write a check from my HELOC(s). Before I use my | | | | depreciate the house because it is a rental house. I |
| HELOC money, I know when I am going to replace it. | | | | can take all the other tax benefits of owning a rental |
| It is a good, very workable strategy | | | | house which can help reduce my already heavy tax |
| Sell It | | | | burden. |
| You can sell your investment house and pocket the | | | | 7. Since I have held onto the property for a year, I |
| profit. If this is your planned strategy, check first | | | | can sell the house when the buyer/tenant exercises |
| with your state regulations to see if this is a viable | | | | the option and roll into an IRS 1031 exchange which |
| option for you. I know several people, including real | | | | will allow me to defer my taxes and use all the funds |
| estate agents and brokers, who got their start in real | | | | for additional real estate investment opportunities. |
| estate investing this way. | | | | As you can see, the benefits are huge if you lease |
| You can make a very nice profit and if you are a real | | | | option. But, having made the argument, if you need |
| estate broker, you can make some fine commissions | | | | or want the cash profit (the wealth you created) sell |
| by listing and selling your own houses. Again, check | | | | (if your state allows you to), pay the taxes, and |
| first with state regulations because not all states will | | | | spend your money. It's okay to take profits. You |
| allow you to do this without being licensed. | | | | need cash flow in order to pay your bills and live a |
| In Oregon, my home state, you can not sell a new | | | | life style you choose. |
| home unless you are licensed as a builder or | | | | Regardless of your plan, go out and have a great |
| developer, unless there are extenuating | | | | time with real estate investing. There is wealth to be |
| circumstances like a death in the family, loss of job, | | | | created if you work at it and do it right and much of |
| or some other hardship. And there is a substantial | | | | it depends on your exit strategy. |