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Path 16: Slumlord Millionaire: Part 1

Resources On The Topic:
Rich Dad Poor Dad by Robert Kiyosaki
Landlording: A Handymanual for Scrupulous Landlords and Leigh Robinson
Every Landlord's Tax Deduction Guide by Stephen Fishman

Donald Trump. Need I say more? If there is anything in this world that can be considered a guarantee, it is that owning rental properties WILL lead to wealth. That is, of course, if it's done properly. This article will run you through the basics of buying and managing properties for income.

Let's start with WHY? Why is it such a guaranteed path to wealth? 4 Reasons:

1. Renters pay your mortgage (And if done right, they pay even more!)
2. Phenomenal tax deductions
3. Historically, real estate values increase with time.
4. Unlike stocks, you can use leverage(borrowed money), to purchase and own real estate.

Robert Kiyosaki does a fantastic job describing the reasons for entering the world of real estate
in his best selling book Rich Dad Poor Dad. If you are just getting started down your path to prosperity it is a must read.

Now let's talk about the process. It starts with the pre-planning. Before you even consider buying a property, you need to do 3 things:

1. SAVE for a down payment. All of these "No Money Down" programs are recipes for disaster. I would highly recommend a minimum 25% down payment before you even consider purchasing a place. (Lenders will require 25% down if this is your second property).

2. SAVE in case you are without renters for a while. Notice a theme here? One of my key themes is risk mitigation. You must prepare for having your property vacant for at least 6 months.

3. Get a great realtor. This is a HUGE investment and you do not want to go it alone. Find a great realtor and depend on their experience to find you great properties.

For your first building, my personal preference is a low cost, multi-unit tenement. Your realtor should be able to find you several of these. The beauty of having multiple units is that having 1 or 2 vacant isn't the end of the world. If you go for a more expensive single unit rental, there will be less work involved, but if you struggle to fill the rental for a few months, you can quickly end up in financial trouble. In addition, if you purchase a multi-unit as your first property, you can live in one of the units, which will allow you to keep a closer eye on the ruffians renting and destroying your other units!

In today's market, patience is key. There are a ton of properties on the market, and many that have fallen greatly in price. This IS the time to buy if you are looking for long term properties. Be selective, and trust your instinct. In addition, consider your fix-it up capabilities. If you can't hit a nail to save your life, you may have to pay a little more for a unit that is in great shape.

Once you have found that perfect property, call around a LOT of banks to find financing. A small difference in your interest rate can save you thousands over the life of the loan. Consider both local credit unions and also larger institutions. Depending on the economic climate, one option may be better than the other. Insist on no points or origination fees and ask for the FULL closing cost.

After shopping around for the best lender, it is time for a full and thorough cost analysis to make sure that you can afford the property. Consider your mortgage, insurance, taxes, water, sewage, trash, and maintenance as expenses, and ask your realtor about average rents in the area to get an idea of the income you can expect. In today's market, rents are high and property values are falling so you should not buy a property unless you can have a POSITIVE cash flow every month.

If the numbers work out, go for it! In the next post, we will discuss the keys to successful property management, the tax advantages of renting, and finally, your long term path to prosperity from renting.

Check out the THRILLING conclusion to this post at Slumlord Millionaire: Part 2.
Good Luck! Michael A. Schrader

This post first appeared on Upward Lifestyle, please read the originial post: here

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Path 16: Slumlord Millionaire: Part 1


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