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No Money Down Millionaire

Other people’s money, no money down, assignment, creative financing and the list of late night scams goes on and on. You know the infomercial and best selling book, “Buy my proven system and you can make a million dollars in real estate using other people’s money utilizing my creative financing techniques.” Is it true? Can you make a BUNCH OF MONEY with NO RISK? Yes. Likely? NO. Sure- you can call a million people and submit a million more offers and find some desperate homeowner with just the right loan and just the right loan balance who will do business with you.  Once you factor in all of the time spent listening to books on tape, making calls and offers, negotiating, having closings fall through and doctor’s office visits, you likely will have made only pennies per hour.

OR

You can take a more balanced, proven, planned approach to real estate investing and have a better outcome over the next 10-20 years.  This article will outline that approach with strategies for making a successful real estate investment (PROPERTY MANAGEMENT IS THE MOST IMPORTANT COMPONENT OF SUCCESSFUL REAL ESTATE INVESTING) and one pitfall that kills an investment.

Strategy 1- Buy a fairly priced home that needs a little work

You will make some money from your “sweat equity” or the value you create by upgrading the property with your own hands.  It does take some searching but deals do exist.  You may not have the time to locate such a deal and that is when you hire a real estate company familiar with investors to locate and make offers on properties that fit your criteria.  Don’t have to time to work on the property yourself?  That’s ok.  You can hire a full service real estate company to help you get that done.  It will cost but may be a better idea if you are busy and have enough equity (and cash on hand) to afford it.

Strategy 2- Buy a home in an area where demand is growing

It can be tempting to buy the first thing you can afford but it may not be a good investment long term.  Home values and rent prices are a function of supply and demand.  When the supply is high but the demand is low, prices tend to be lower.  High demand and low supply tends to increase a home’s value and rent price (barring government rent controls).  A successful investor considers government policies (are property taxes going up), city plans (is the city expanding the mass transit system or expanding bus routes), local business plans (is Porshe building a new headquarters, Home Depot planning to build a new store, Walmart planning to close two stores) and crime rates.  All of these factors contribute to, or diminish, demand.

Strategy 3- Make your home stand out

Renters want a nice home just like homeowners.  In fact, renters can be more demanding than homeowners.  So, give them what they want- great landscaping, upgraded ceiling fans, new paint or solid surface countertops.  Sure, it will cost you more money but the question is not “how much does it cost?” but “how much will it return?”.  An upgraded home tends to rent faster and for more than the homes around it.

Strategy 4- Hire competent, experienced property managers

Collecting rent, placing tenants, handling maintenance requests, complying with local, state and federal laws, remodeling vacant homes and the list of activities a property management company performs goes on and on.  Rookie investors think they cannot afford a quality property management company.  Veteran investors know they cannot afford not to hire an experienced, full service property manager.  Property managers do cost, as does a car or the dentist, but they are necessary for a successful, long term investment strategy.  Again, the question is not “how much will it cost me?”  The question is “how much will it return me?” and “how much VALUE do they provide?”

And now for one of the biggest pitfalls of real estate investing . . .

Not having enough money in the bank for necessary repairs, rent readies and vacancy carrying costs.  These things will happen and when they do you must have money to cover them.  In most cases, monthly rent payments cover these costs. But, there are times when extended vacancies or tenant damages drain an inadequate reserve fund too quickly.

We know the late night infomercials would have you believe you can make a million dollars with no risk and no money.  It just is not true.  An experienced investor will tell you it takes money to make money.

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