Why Low End Houses Make the Ideal Cash Flow Vehicle
|The principles of creating a long-term, on-going cash flow can be applied to most kinds of real estate investments. Mobile home lots, apartments, garage/storage units, and houses all make excellent income producing assets. Houses, in particular, low-end houses, make an excellent vehicle for creating long-term profit-streams for a multitude of reasons. |
First, houses are abundant. Every city, town, and neighborhood has houses. Houses are probably the easiest to buy because they are the most common. Houses are also probably the easiest to buy at a discount, since there are so many sellers who own them in some sort of crisis ownership position: Vacancy, disrepairs, judgments/liens, back taxes, etc. Houses are probably the easiest to manage, with the possible exception of storage/garage unit rentals, since these are occupied with stuff and not people, thereby making evictions easy. Well-maintained houses will often keep tenants for a 3-5 year cycle, sometimes longer. Most of the other vehicles have shorter-term occupancy.
Sell on Payment Contract for 10-15% Price Premium
Houses are by far the easiest to sell because of the naturally large demand for places for people to live. In most cases the property will sell without holding paper, but many smart investors will sell their houses on some sort of payment contract and be able to charge a 10-15% price premium to the buyer without using a Realtor. The so-called low-end house can be very desirable from an investor's standpoint.
First, lower-end housing doesn't mean bombed-out slums. It means basic, starter homes that are located in good, but not necessarily great locations. These marginal areas typically are more of a buyer's market, thereby, tilting the negotiation in favor of a hard-cash buyer or a buyer seeking owner financing. Actually, owner financing is easier, much easier in these slightly marginal areas.
Deep Discounts- High ROI
Next, these lower level houses can frequently be purchased at various distress auction (tax, foreclosure, estate) sales. In many areas of the country, these houses are bought for prices anywhere from as low as $3000 to $25,000, without a lot of difficulty (after you know the many inside strategies and secrets).
Finally, these homes can typically be rented for rents of $350-500 per month, which based on the low purchase price makes an outstanding return on investment. Returns of 25-40% per year are common.
The ultimate goal is to get these basic houses paid off. Which is truly an accomplishment that will reward you for many, many years into the future. It's not uncommon for good managers to receive income for 20 years or better from their houses. After this period of ownership many owners will find a stable buyer and sell the house on a payment contract and receive another 10 to 15 years of "mortgage" payments!
If Houses Aren't Feasible...
If you live in one of those few areas where house prices are just inflated far too high to make the numbers work, don't worry, these same concepts and techniques work with small apartment buildings, mobile homes/lot rentals, rooming houses, and almost any other lower-scale income property. You don't have to be stuck on houses. In fact, I'm always open to buying great deals on anything people will rent. By the way, most folks don't believe it, but rooming houses can be a gold mine - and the management isn't as tough as you might think! This is all about buying and managing income streams. Remember, perpetual income.
|Bryan Wittenmyer has been investing in real estate for the past 15 years. He's not the new kid on the block. In the past five years he has written extensively in the real estate field. His articles have appeared in Creative Real Estate Magazine and the Real Estate Entrepreneur. Bryan served on the board of directors of the Real Estate Investment Association of Berk's County for 3 years. |
Although Bryan hasn't attended formal university studies, he keeps himself educated reading a plethora of books, newsletter, journals, and listening to hundreds of audio tape lectures. He jokingly considers himself to be an information junkie. You can also benefit from his years of practical business experience, having managed several income stream businesses, ranging from automobile debt instruments to appliance paper. He also has bought numerous real estate debt instruments - he knows the income stream business.
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