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Real Estate for the Common Man

Those of you familiar with my real estate theories know that it is really unlikely that you will find any formulas here. The Gary Eldred, Ph. D school of examining real estate deals doesn’t really apply to me, for better or worse. Where as Eldred tends to introduce a deep analytical /mathematical way to arrive at an answer to the question “Should I buy this deal?”, I tend to subscribe to a much more grass roots style of real estate investing, which is as follows:

1) Can I buy this house really, really cheap?

2) Is it in an area where I would send my wife to pick up the rent?

3) Will this house bring a check to my mailbox every month?

Now, #3 is more of the Lonnie Scruggs School of Thought(read: Mobile home Paper Guru who’s philosophy is ‘don’t walk by your mailbox daily without picking up a check’), but even Lonnie uses a financial calculator to help make his decisions, although his reasons are less analytical than more of a ‘show me the money’ type of record keeping that allows him to demonstrate substantial 3 and 4 digit returns on his money, and in doing so sell lots of books.

Robert Feol, on the other hand, is quintessentially more ‘I am never going back to where I came from’ mentality, and if this house will insulate me from that road, then it is definitely in the portfolio. The only problem with this is that, for most investors as of late, Fannie may has conveniently said ‘no’ to more than 4 properties, and the question on investors’ minds are how can they continue to accumulate assets in a way that they can legally build wealth as opposed to try to ‘game the system’ as some people so conveniently say when discussing people who are trying to get one over on the ‘system’.  The crux of the question, therefore, becomes “can I turn to real estate, still, and use it effectively as a wealth building vehicle?”

Naturally, the answer, of course, is yes, but before you go running off to those Saturday workshops promising to tell you how you can ‘make a fortune’ off the 700 billion dollar bailout(read: if the automakers can’t survive from the bailout, chances are you as very small time real estate investors probably cannot use that as a reliable source of future wealth planning) let’s get back to Real Estate for the Common Man – 5 Principles of Why Real Estate Investing Works.

1) Positive Cash Flow: Properly purchased residential homes should offer true net positive cash flow, money left over after your total debt service is paid, that you keep as income.

2) Instant Equity Positions: Since you are looking for ‘deals’, then you should not be paying full retail for properties, and should be trying to buy them as cheaply as possible.  Doing so creates you equity, the difference between what you owe on a home and what it is worth.  Hint: get as much as you can with each purchase.

3) Equity Pay Down: The paying off of your debt owed on the home by the tenants you place in the house.  Essentially, the tenants shoud be paying all bills and expenses associated with the home.

4) Appreciation: The increasing of the value of yoru real estate, over time, and demonstrated to be consistient by geographic and historical patterns.

5) Tax benefits: The government, generously allowing you to shelter your income from certain elements of taxation, due to the benefits traditionally associated with being a landowner.

These, essentially, are the 5 revenue streams associated with owning real estate.  Memorize them.  In doing so, you will be more advanced and sufficiently prepared to become a successful real state investor.  Remember, most new investors looking at cash flow homes measure the house’s value ONLY by how much cash flow it provides monthly.  Tsk tsk!!!

Now, back to the question of ‘will purchasing real estate be a great way to build wealth”, contrary to what book publishers are doing right now(running scared from real estate books), you can, of course, build wealth.  And now is actually the greatest time ever to do so.  But, the question for most people is, ‘how?” – especially after you hit 4 properties.

Well, for you advanced investors out there we at do have some solutions for financing properties beyond the four threshold,  fyi, but today I want to talk about a different type of solution to acquisition:

Owner Financing.

When I started in real estate, owner financing was like finding a unicorn in your backyard – it didn’t happen. In fact, I remember calling thousands(yes: thousands) of FSBO signs and asking about owner financing, and was essentially turned down every time.  Undeterred, I did wrest some owner financing out of one guy who was like 100 years old, but his properties were in poor condition and he basically sold them to me at full price.  But, I still own those properties and they aren’t on my credit report, so yay me.

Anyway, what is interesting is that, while a few short years ago owner financing was a mystical non-existient theory that many people talked about, thanks to the government’s colossal mismanagement of taxpayer’s money and the resulting punishment that has ensued(read: real estate investors, who revitalize neighborhoods and broaden the tax base, are being forbidden to continue to do what they do while Wall Street pays big bonuses thanks to the ‘bailout’) today owner financing is become a reasonable way to acquire AND sell property.  Fascinating.  For example, if I told you that I could sell you a 65k home for 40k, already rented for $650/month, and you only have to put 10k down, would you do it?  You might – it sounds like a good deal.

But what if I told you I would owner finance the property?

Remember, with owner financing:

1) There is little to no qualifying .

2) It doesn’t go on your credit bureau

3) Price, terms, and amortization(payment amount) are all negotiable

4) There is no origination or fees

5) All of your down payment goes to principal.

Well, now you would take a more serious look at the possibilities that such a deal offers.

You don’t need a financial calculator to become a solid investor.  Some common sense can get this done.  Shop around, look at lots of opportunities, and when you find the right one, go for it.  Remember, using owner financing is like getting houses without the cumbersome hassle of underwriting by financial institutions.

And, it’s a great way to add pieces to the puzzle.

PS: We have owner financing available on a  few select properties in Memphis.  If you are interested, email me at