**Book Update** My forthcoming book entitled "Fix 'em Up, Rent 'em Out: How to Start Your Own House Fix-up and Rental Business in Your Spare Time" is in the final stages of production and will be available at Amazon.com in September 2007.
In operating a house fix-up and rental business in my spare time, I have found the following books to be very useful. If I encounter a repair that I have never done before, the books on the link below are my guides.
In 400 B.C. Archimedes said, "Give me a lever long enough, and a fulcrum upon which to place it, and I shall move the world." Your tools and books are your lever and fulcrum. Once you have them there will be no stopping you.
House Repair Books - The Best of the Bunch
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Thursday, August 23, 2007
Saturday, August 18, 2007
Start Small, Profit Big in Real Estate -- A review of Jay DeCima's book
This book has the strong qualities of Jay's first book ("Investing in Fixer Uppers")–written in a easy-going, lay-back style that makes it enjoyable to read, and it presents an eminently useful model that really works.
Jay likes to avoid slick and flashy techniques because “slick is another word for slippery.” He points out the gurus who formerly expounded on a wide assortment of get-rich techniques are “either bankrupt or working in gas stations.” Jay advises to stick with run-down, fixer-upper types of properties. Buy low, and improve their value, and rent them out. I's a winning formula that I, and many others, have used to make money in real estate.
I particularly liked Jay's technique of taking a low key negotiation approach, like the former TV-detective Columbo when he interrogated suspects. Instead of putting the seller on the defensive, don't directly tell them what's wrong with their house, no one wants a complete stranger to come up and criticize their house. Instead, always show respect to the seller, and have the seller tell you what's wrong with the house by asking him a series of polite questions. Just when Columbo was going out the door and you thought he was leaving, he would always turn around and say, "oh by the way, just one more question for you." He asked it in the most polite way, and often the answer to that question was the one that cracked the case open. Listen carefully to what the seller has to say. You can learn a lot by listening. Don't be critical, never talk down to anyone. Even sellers who must sell, won't sell to you if you try to intimidate them. Jay points out that you still must diligently verify any information you get from the seller. One way to do that is to ask for their “Schedule E” tax form.
Another key to Jay's formula is turning motivated sellers into bankers. This is something that a lot of us, myself included, need to work on. If we follow Jay's advice and get the seller to finance at least part of the loan, the purchase process suddenly becomes much easier.
I also liked Jay's memo system of dealing with renter problems. In using this system, I find it simplifies my dealings with renters. If you call and tell them to do something, they forget. If they see it in writing, in an official-looking memo, they will usually, but not always, do what you ask them to do. It reduces direct contact with them and it gives you written documentation in case you later need it later to remove them from the house. I like Jay's comment “tenants don't intimidate me because they are simply no match for my landlording skills.” A bold statement that we should all strive for.
Overall, there is a lot to like about this book. If offers sound advice for the new, and the seasoned, investor. The Columbo negotiating technique alone was worth reading.
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Jay likes to avoid slick and flashy techniques because “slick is another word for slippery.” He points out the gurus who formerly expounded on a wide assortment of get-rich techniques are “either bankrupt or working in gas stations.” Jay advises to stick with run-down, fixer-upper types of properties. Buy low, and improve their value, and rent them out. I's a winning formula that I, and many others, have used to make money in real estate.
I particularly liked Jay's technique of taking a low key negotiation approach, like the former TV-detective Columbo when he interrogated suspects. Instead of putting the seller on the defensive, don't directly tell them what's wrong with their house, no one wants a complete stranger to come up and criticize their house. Instead, always show respect to the seller, and have the seller tell you what's wrong with the house by asking him a series of polite questions. Just when Columbo was going out the door and you thought he was leaving, he would always turn around and say, "oh by the way, just one more question for you." He asked it in the most polite way, and often the answer to that question was the one that cracked the case open. Listen carefully to what the seller has to say. You can learn a lot by listening. Don't be critical, never talk down to anyone. Even sellers who must sell, won't sell to you if you try to intimidate them. Jay points out that you still must diligently verify any information you get from the seller. One way to do that is to ask for their “Schedule E” tax form.
Another key to Jay's formula is turning motivated sellers into bankers. This is something that a lot of us, myself included, need to work on. If we follow Jay's advice and get the seller to finance at least part of the loan, the purchase process suddenly becomes much easier.
I also liked Jay's memo system of dealing with renter problems. In using this system, I find it simplifies my dealings with renters. If you call and tell them to do something, they forget. If they see it in writing, in an official-looking memo, they will usually, but not always, do what you ask them to do. It reduces direct contact with them and it gives you written documentation in case you later need it later to remove them from the house. I like Jay's comment “tenants don't intimidate me because they are simply no match for my landlording skills.” A bold statement that we should all strive for.
Overall, there is a lot to like about this book. If offers sound advice for the new, and the seasoned, investor. The Columbo negotiating technique alone was worth reading.
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Tuesday, August 7, 2007
My List of Top Books on Fix Up House and Real Estate Investing
Learning about real estate investing, just like life itself, is a never ending process. You should be gathering information about house repairs and investing everywhere you go. Never let an opportunity pass to learn. I encourage you to buy books and videos on house repair and real estate investing. Your books are invaluable guides when you are starting a project you haven't done before, or in the middle of making a repair, and need reliable input on how to do it. I like to scour the fix-up book and real estate book areas at used book stores for good buys. I buy a book as soon as I see it, if I know that it has valuable information. In the past, I have waited to purchase the book only to return later and find that the book I had wanted was gone. The price you pay will literally be a drop in the bucket compared to the money you will save in the long run.
Click to view my Top Books About Fix Up Houses and Real Estate Investing located at Amazon.com.
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Click to view my Top Books About Fix Up Houses and Real Estate Investing located at Amazon.com.
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Easing Your Way Into Landlording
My philosophy has always been that the best way to get started renting out properties was to first buy your own home, and then start buying rental properties. Cathy and Larry Passmore got started in the business through a completely different path. They managed apartment complexes, lived rent free, got outside jobs, and bought fix-up rental properties on the side. For the Passmore's, managing apartments was the best approach because 1) it let them get experience managing before they actually managed their own properties, and 2) it enabled them to determine whether or not they liked the work before they made any financial commitments.
Follow the link to read the full story of the Passmore's approach in a Mother Earth News story from 1977, September/October issue.
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Follow the link to read the full story of the Passmore's approach in a Mother Earth News story from 1977, September/October issue.
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Saturday, August 4, 2007
Turn Your Residence into a Rental Property Instead of Selling It
One of the Safest and Easiest Ways to Make Money in Real Estate
As mentioned earlier, one way to obtain investment money to purchase fix-up houses is by refinancing a house that you already own. Refinancing a house means to take out a new loan on your rental property, or home, that replaces the existing loan.
When purchasing a fix-up investment property, you may decide not to sell your principal residence, but instead turn it into a rental property. In this case, the next house that you purchase and live in once again qualifies you for the lower owner-occupied loan rate. This approach also makes it easier to make repairs to the rental house because, having lived there, you know the tricks on how to fix the things that typically need repair.
A system that I like to use is to refinance my residence six months to a year before I plan to buy a new residence. This gives me enough money for a down payment on the next house that I will purchase. When I locate a good fixer-upper I can quickly purchase it. During the 3-4 weeks it takes to close on the new house, I prepare the old house so it will be ready to rent. This usually involves some painting and landscaping. Then, before I close on the new house, the “for rent” sign goes up on the old house.
The 3 steps in this technique:
1. refinance your residence
2. use the refinance money as a down payment to buy a new house
3. move into the new house and rent out the old house
Instead of refinancing your residence, you can use savings or a loan from a relative as a down payment. An advantage of refinancing your residence while you are still living there is that you get a lower interest rate on your loan than if you were refinancing a rental property. Under this technique, you get the lower “primary residence” interest rate for both the old property and the new one, since each property is your primary residence at the time that you take out the loan.
When I did my first refinancing of a townhouse that I owned, I received a rate or 6.1%. The rate for my original loan was 7.5%. The original purchase price was $52,500 but the value had increased to $82,000 ten years later (Table 1). I had also paid off about $10,000 of the mortgage principal over the course of the ten years.
Table 1
Townhouse Refinancing
Original purchase price $52,500
Principal pay down $10,000
Value ten years later $82,000
Amount of equity in house $49,500 (82,000 - 52,500 + 10,000)
Less 20% of value (to avoid PMI) $16,400
Total amount of cash back $33,100 (49,500 - 16,400)
When refinancing, you should keep 20 percent of the value of the house in the house to avoid paying private mortgage insurance and to pay a lower interest rate. After refinancing the townhouse, my monthly mortgage payments went down from $535 per month to $518 per month. Normally, you pay 1 percent extra if you refinance as an investor instead of as an owner occupant. Although with good credit and by shopping around, its possible to have the 1 percent waived. You should time your moves so that you finance before you move out to take advantage of the extra 1 percent discount.
Timing Your Refinancing
Refinancing your mortgage loans is another aspect of real estate that will require you to develop some expertise and close attention to the details of the economy and interest rates. I have heard investors recommend refinancing every chance you get, regardless of interest rates, and to take out as much money as you can. That philosophy is a dangerous because you want to avoid raising your monthly payments beyond the point where you can afford to pay them.
While refinancing is common way for real estate investors to tap into the equity in their houses, you must be careful not to take out a large loan that increases your monthly payments beyond what you take in on rent. If you see that rents are going up in your area and you can increase rents enough to cover the monthly payments on a refinancing, then go ahead and refinance to take some of money out of a house. Ideally, that money is used to purchase more investment property. However, if your rents will not cover the refinancing payments, don’t put yourself in the awkward (and perilous) position of having to lose money every month.
Monitoring interest rates will also help you decide when to refinance. When interest rates are dropping, like they were in the early 2000’s, you were able to refinance a house, take money out, and lower your monthly payments. That was a real estate investor’s dream. As interest rates started rising again in 2005, it required that investors be more cautious in refinancing.
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As mentioned earlier, one way to obtain investment money to purchase fix-up houses is by refinancing a house that you already own. Refinancing a house means to take out a new loan on your rental property, or home, that replaces the existing loan.
When purchasing a fix-up investment property, you may decide not to sell your principal residence, but instead turn it into a rental property. In this case, the next house that you purchase and live in once again qualifies you for the lower owner-occupied loan rate. This approach also makes it easier to make repairs to the rental house because, having lived there, you know the tricks on how to fix the things that typically need repair.
A system that I like to use is to refinance my residence six months to a year before I plan to buy a new residence. This gives me enough money for a down payment on the next house that I will purchase. When I locate a good fixer-upper I can quickly purchase it. During the 3-4 weeks it takes to close on the new house, I prepare the old house so it will be ready to rent. This usually involves some painting and landscaping. Then, before I close on the new house, the “for rent” sign goes up on the old house.
The 3 steps in this technique:
1. refinance your residence
2. use the refinance money as a down payment to buy a new house
3. move into the new house and rent out the old house
Instead of refinancing your residence, you can use savings or a loan from a relative as a down payment. An advantage of refinancing your residence while you are still living there is that you get a lower interest rate on your loan than if you were refinancing a rental property. Under this technique, you get the lower “primary residence” interest rate for both the old property and the new one, since each property is your primary residence at the time that you take out the loan.
When I did my first refinancing of a townhouse that I owned, I received a rate or 6.1%. The rate for my original loan was 7.5%. The original purchase price was $52,500 but the value had increased to $82,000 ten years later (Table 1). I had also paid off about $10,000 of the mortgage principal over the course of the ten years.
Table 1
Townhouse Refinancing
Original purchase price $52,500
Principal pay down $10,000
Value ten years later $82,000
Amount of equity in house $49,500 (82,000 - 52,500 + 10,000)
Less 20% of value (to avoid PMI) $16,400
Total amount of cash back $33,100 (49,500 - 16,400)
When refinancing, you should keep 20 percent of the value of the house in the house to avoid paying private mortgage insurance and to pay a lower interest rate. After refinancing the townhouse, my monthly mortgage payments went down from $535 per month to $518 per month. Normally, you pay 1 percent extra if you refinance as an investor instead of as an owner occupant. Although with good credit and by shopping around, its possible to have the 1 percent waived. You should time your moves so that you finance before you move out to take advantage of the extra 1 percent discount.
Timing Your Refinancing
Refinancing your mortgage loans is another aspect of real estate that will require you to develop some expertise and close attention to the details of the economy and interest rates. I have heard investors recommend refinancing every chance you get, regardless of interest rates, and to take out as much money as you can. That philosophy is a dangerous because you want to avoid raising your monthly payments beyond the point where you can afford to pay them.
While refinancing is common way for real estate investors to tap into the equity in their houses, you must be careful not to take out a large loan that increases your monthly payments beyond what you take in on rent. If you see that rents are going up in your area and you can increase rents enough to cover the monthly payments on a refinancing, then go ahead and refinance to take some of money out of a house. Ideally, that money is used to purchase more investment property. However, if your rents will not cover the refinancing payments, don’t put yourself in the awkward (and perilous) position of having to lose money every month.
Monitoring interest rates will also help you decide when to refinance. When interest rates are dropping, like they were in the early 2000’s, you were able to refinance a house, take money out, and lower your monthly payments. That was a real estate investor’s dream. As interest rates started rising again in 2005, it required that investors be more cautious in refinancing.
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