Investing Trends

Have a Plan


Now that you have decided to build an investment house or buy one, what will you do with it? It's not enough just to have a house built. Remember, the goal is to create wealth. Before you build an investment house, have a plan in place. The plan can be as simple as building one house each year for ten years and then retiring and living off the income produced by those ten houses.

That is a simple plan but it works, as I learned from a mentor of mine named Barney Zick. In some of my investment meetings I show my protégés how they can exercise that plan and retire with an approximate income of $100,000/YEAR for the rest of their lives.

My son has also developed a powerful, dynamic plan that we offer on our web site. It shows how you can create more than $100,000 in less than three years using no cash out-of-pocket or credit. The plan can work even if you have the lowest credit scores possible – even if you filed for bankruptcy yesterday! The point is, have a plan.

Why Have a Marketing Plan?


1. You have a business that operates with purpose, not by accident.


2. It allows you set time deadlines, to hold yourself and others accountable so everything gets done.


3. It's a concrete result you put out for your mind to focus on and strive to achieve.


4. It allows you to clarify specifically what you want to accomplish in the next ____ days (you fill in blank).


5. You can identify the activity needed to achieve your plan.


6. It allows you to plan in advance to delegate tasks that would be best outsourced, and


7. It results in you being free to concentrate on your highest payoff activity.

Rental House


There are several things you can do with a house after you build it. You might want to keep it as a rental. This is a very good, simple plan with the added advantage of lowering your tax burden through depreciation and other expenses.

Borrow Against It


If you plan it right, you will have a positive cash flow that allows you income each month. Once your house appreciates, you can borrow against it. You can borrow $50,000 on your rental house and it is not a taxable event. I have done this on occasion. Another option is a home equity line of credit (called HELOC(s)) and I use mine like cash in a savings account. Again, I do this regularly.

Every house I own has a line of credit which I use very cautiously. If I need $200,000 for a project I write a check from my HELOC(s). Before I use my HELOC money, I know when I am going to replace it. It is a good, very workable strategy

Sell It


You can sell your investment house and pocket the profit. If this is your planned strategy, check first with your state regulations to see if this is a viable option for you. I know several people, including real estate agents and brokers, who got their start in real estate investing this way.

You can make a very nice profit and if you are a real estate broker, you can make some fine commissions by listing and selling your own houses. Again, check first with state regulations because not all states will allow you to do this without being licensed.

In Oregon, my home state, you can not sell a new home unless you are licensed as a builder or developer, unless there are extenuating circumstances like a death in the family, loss of job, or some other hardship. And there is a substantial fine (in the thousands of dollars) if the state catches you in this activity.

"But," you argue, "I'll just take the test and get my contractor's license." That's all well and good, but it could cost you $25,000 for liability insurance. Just beware. Talk to your insurance broker and your state building department.

Lease Option


Let's suppose for a moment that you live in a state where building and flipping is not permitted. Another viable means of creating wealth is through lease options, sometimes called rent-to-own. This is a great way to do business whether or not the state will allow you to sell you newly constructed investment home. I do this all the time. I currently have thirteen homes under construction which I will lease option when they're complete. I can sell them right now because I'm a licensed general contractor. But I'll hold them for at least one year unless something unforeseen comes up.

The reason? More wealth created. Consider the following:

1. If I sell today I'm in competition with everyone else who wants to sell a house. That means I might be forced to negotiate the price. By the way, usually the negotiation is for less money, not more.

2. If I have more competition I might want to list my house with a realtor on the multiple listing service. If I do that I will have to take about 6% less for my house after we get through negations. As a matter of fact, when I first started building real estate brokers often made more money on my houses than I did as a general contractor.

3. But, as a lease option I get today's appraised price without paying a real estate broker (I save about $18,000 on a $300,000 sale), and I add an additional 10-15% to compensate me for waiting to close in a year. That means on a house that appraises for $300,000 today will earn me an additional $30,000 to $45,000 – again without paying a real estate broker.

4. I can almost completely eliminate landlord headaches by structuring my lease properly. In the lease I created with the help of my attorney, the buyer/tenant is responsible for all repairs up to $500 per occurrence and we equally share in any repair above that amount.

5. I get my rent paid on time which means I can make my payment on the property and have positive cash flow. I do that by making it very expensive for my buyer/tenant to pay past three days of the official rent due date. I have had only one tenant buyer who failed to pay on time. When he exercised his option, the late payments cost him over $5,000.

6. I get a tax deduction if I want to take it. I can depreciate the house because it is a rental house. I can take all the other tax benefits of owning a rental house which can help reduce my already heavy tax burden.

7. Since I have held onto the property for a year, I can sell the house when the buyer/tenant exercises the option and roll into an IRS 1031 exchange which will allow me to defer my taxes and use all the funds for additional real estate investment opportunities.

As you can see, the benefits are huge if you lease option. But, having made the argument, if you need or want the cash profit (the wealth you created) sell (if your state allows you to), pay the taxes, and spend your money. It's okay to take profits. You need cash flow in order to pay your bills and live a life style you choose.

Regardless of your plan, go out and have a great time with real estate investing. There is wealth to be created if you work at it and do it right and much of it depends on your exit strategy.