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Last night we had a great 80/20 Training Call on “Passive Income in Real Estate.” 

If you missed it, you may listen to it from your computer right now.

Topics covered on the call include:

- What is ‘passive’ income?
- How does the IRS view passive income?
- How do you create a passive income stream in real estate?
- 3 approaches to property management
- Hidden benefits of passive income
- *BONUS* I shared some cash flow tips that will create over $60,000 in equity in one year, even if you own just a 4-plex!

What is an 80/20 Training Call, you ask?

If you’re like me, you’re tired of all the teleseminars that are nothing but hype.  You think you’re dialing in to learn something and instead you get a 60 minute sales pitch.  My calls are different.  I’ve instructed all of my guest speakers that at least 80% of the call must be pure content and education that can be used right now to make a difference in your business and your life, and no more than 20% (12 minutes) can be spent presenting an opportunity for further education of action of some sort.  Don’t get me wrong - I definitely hope you take action after these calls.  Action is what gets results, and sometimes action is in the form of lerning.  I just don’t want to waste your time on a sales pitch when I’d rather you learn something instead.

If you’d like to be invited to these calls by email, visit this site and sign up.

I was recently made aware of a blogging phenomenon called “carnivals.”  Being a new blogger myself, I had never heard of it.  It seems to be somewhat new as I believe there are only 390 carnivals in existence, and more being added regularly.  It’s a really cool idea!  Today was the debut of the “Carnival of Real Estate.”  Each week the carnival will feature the best 10-20 blog posts related to real estate that were submitted for consideration that week.  One of my posts was featured this week

This is a great way to find a lot of real estate blogs all in one place - check it out!

After 292 page views on Rentclicks and 3 showings, our property manager got our last preconstruction house rented.  And for top dollar!  (see prior posts on our rental ad and our good management).  There was one other home of the same floor plan in our neighborhood for rent also.  Ours was listed for $1200, that one was listed for $1195.  There are other floor plans renting for as low as $900.  Our twin has been for rent for a longer period of time and it still sits empty!  Our property manager has been in both and tells us that for $5 more per month, there is no comparison due to the painting we did inside and the upgrades we chose.

This goes to substantiate my continued belief that it pays to put in the upgrades.  So many of the investor homes I’ve seen have linoleum floors, cheap oak cabinetry, plain laminate countertops, and just a general lack of thought put into the options.  Many investors don’t upgrade hardly at all, and arbitrarily choose colors over the phone without even seeing what it will look like.  For the extra time that we spent choosing colors at the design center, we spent about $300 on our own to paint the inside and upgrade the lighting and ceiling fans, we maybe spent $10k to $15k more than most would and a full weekend painting.  When you amortize that out and figure the monthly cost of that into the pay option ARM loans that we get, it’s almost nothing.  While that other house sits vacant yet another month, the $1195 that he’s missing out on could well total our annual costs to cover all of our upgrades and then some.

Something else about this house that’s working out beautifully is our re-fi strategy.  We started the re-fi process before we made our first payment.  Our mortgage broker is helping us time it so that we get to skip a month before making our first payment with the new loan, so essentially we will have the house 3 months before making a payment.  And, we’re getting about $2,000 back at closing, so that will be enough to cover what we spent on buying the refrigerator and the rock for the backyard.  The renter will be paying rent before our first payment is due, so our payments will be covered right from the get-go and we’ll basically only be out of pocket the initial 5% we put down, plus $700 we spent on the blinds.  The only other thing I anticipate might come up is the garage door opener.  There isn’t one and the renter will probably want one.  We haven’t decided if we’ll agree to pay for it or not.  I’ll probably just wait to see if the renter asks for a garage door opener or if he asks if it’s ok if he installs one.  Maybe we’ll get lucky.

This is a reminder about our next 80/20 Training Call and also a note that a HANDOUT for the call has been created.  You can look at the handout ahead of time to decide if you want to attend:
http://www.landlordsystem.com/cmd.php?ad=250051

When:
Monday, July 17, at 6:15 pm Pacific/9:15 pm Eastern

What: 
The topic for this call will be ***Passive Income in Real Estate*** and topics include:

- What is “passive” income?
- How does the IRS view passive income?
- How do you create a passive income stream in real estate?
- 3 approaches to property management
- Hidden benefits of passive income
- *BONUS* I’ll share some cash flow tips that will create over $60,000 in equity in one year, even if you own just a 4-plex!

How: 
To join this call, please mark the date of July 17th on your calendar and go to:

http://www.landlordsystem.com/cmd.php?ad=250051

to print out a copy of the dial-in number and to get a copy of the notes sheet. 

Talk to you then!

As an investor, sometimes you or your property manager will receive requests for service that are unreasonable - unreasonable in the eyes of the law and according to your own lease paperwork, provided you’ve set it up as such. 

Let me give you a little bit of background on this one tenant we have who has been a repeat offender in this category.  Let’s call her Susie. We inherited Susie when we bought this building several years ago.  She’s single, about 50 years old, and her rent is paid in full by the Section 8 program.  We’ve since turned this building into a smoke-free environment and she is the only tenant that smokes.  She smokes outside and fills up a big bucket with her cigarette butts.  Sometimes the bucket spills off the side of the stairs and then our property manager has to pick up all the butts.  Sometimes in the winter when it’s cold she forgets the rules and smokes inside.  We immediately receive complaint calls from other tenants because the smoke goes right into their apartments.

The last time I was in Susie’s apartment, it was wretched.  The bathtub was full of clothes, stacked up as high as it can get without tipping over.  No bathing is possible nor probable within the history of this tenancy.  There were dead bugs everywhere.  The walls were covered with yellow from all the years she spent smoking inside the apartment.  The kitchen - well let’s say it’s never been cleaned.  Wrappers, cans, plastic food containers, you name it, it’s all there.  It’s a toss up whether the stove or refrigerator will be worth trying to clean and save or if we will get new ones when she leaves.  Her smoke alarm goes off occassionally when the food on the bottom of the oven gets charred.  One time the fire department came and she, by way of her social worker, was given a warning to clean up.  It hasn’t happened.  Our property manager has been after her social worker to get someone over there to clean the place up.  He’s told there aren’t any funds available for expenses such as this, but that they’ll get after Susie to take care of it herself. (more…)

I’m very pleased to announce our next 80/20 Training Call!

When:
Monday, July 17, at 6:15 pm Pacific/9:15 pm Eastern

What: 
The topic for this call will be ***Passive Income in Real Estate*** presented by me!  Topics we’ll cover include:

- What is “passive” income?
- How does the IRS view passive income?
- How do you create a passive income stream in real estate?
- 3 approaches to property management
- Hidden benefits of passive income
- *BONUS* I’ll share some cash flow tips that will create over $60,000 in equity in one year, even if you own just a 4-plex!

How: 
To join this call, please mark the date of July 17th on your calendar and go to:

http://www.landlordsystem.com/cmd.php?ad=249256

to print out a copy of the dial-in number. 

So what does “80/20″ mean???

If you’re like me, you’re tired of all the teleseminars that are nothing but hype.  You think you’re dialing in to learn something and instead you get a 60 minute sales pitch.  My calls are different.  I’ve instructed all of my guest speakers that at least 80% of the call must be pure content and education that can be used right now to make a difference, and no more than 20% (12 minutes) can be spent presenting an opportunity for further education or action of some sort.  Don’t get me wrong - I definitely hope you take action after these calls.  Action is what gets results, and sometimes action is in the form of learning.  I just don’t want to waste your time on a sales pitch when I’d rather you learn something instead.

Talk to you LIVE on Monday!

When buying a property from a developer or builder, particularly in a large development of some sort or a production home situation, they’ll typically have their own in-house lender.  They do this for a couple of reasons: of course they make money on the loans and it’s nice to add a few more thousand dollars profit to each and every transaction that crosses their desk.  They also do it to control the lending process and the close date.  It is true that when other lenders are used, all of the elements of the process that need to be carefully coordinated are not always successfully done so.  Close dates are missed.  Monthly and quarterly revenue targets are missed… ho hum. 

They will give you several reasons and scare tactics as to why their in-house lender is the way to go.  They’ll assess late fees to you, the customer, if you use another lender and someone screws up and your loan doesn’t fund on the magical date they’ve put in the calendar.  Any number of people or pieces of paper could suffer one imperfection, and you have to pay for it.  Been there, done that.  The builder wants you to use their lender so badly that they’ll offer great incentives to do so.  Closing costs?  Covered.  Discount?  How about $60,000 off the price of the home?  They really make it so you’d be crazy not to use their lender.

But is there a catch? 

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It’s going to be hot, hot, hot here in Phoenix today - 112!  No sign of rain here despite the monsoon season beginning, but there’s been plenty of rain in Wisconsin!  So much so that we had some water damage in one of our units in a 6-plex. 

One of our tenants called our property manager reporting water dripping out of the drywall where the light fixture is in the ceiling in the kitchen.  Water and electrical in the same place… sounds good so far.  The water began to well up so much under the drywall that it was really starting to bulge, and was possibly going to burst.  So while the tenant was waiting to hear back from my manager, he went ahead and poked a little hole in the drywall and the water came gushing out and the pressure was released.  I remember so vividly painting that ceiling after putting up brand new drywall just a few short years ago.  The kitchen cabinets are all new, new countertops, new tile on the floor, even a tile backsplash.  The whole place had been gutted and it was a sparkling new 3-bedroom apartment.  The thought of bulging drywall, a hole being poked, and the inevitable water stains that probably remain make me cringe.  I try not to think about it.

Anyway, during this downpour the tenant also decided to go up on the roof to try and find the source of the problem. 

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So it looks like my neighbors got their house rented (see prior posts about the property management nightmare they have been dealing with).  One day a week or so ago I noticed someone pull up in front of their house and take the For Rent sign out of the yard and then drive away.  That night we had a monsoon wind storm and one of my neighbor’s trees had a big branch break off and the next day they had come by to clean it up.  I stopped over and asked if they got their house rented out, given the fact that the sign was now gone.  They told me that as of that day they had still never heard from the property management company, ever.  It had been listed with them for over a month.  They were livid with the fact that none of their calls were being returned and they were about to make another mortgage payment with no update on status whatsoever.

The day after that, my neighbors were back again, this time to put new filters in the heating/AC vents.  They said “hey, come look at this!”  The phone box that was screwed into the side of their house had been ripped off, and all of the wires to it had been cut.  The box was gone completely.  The lockbox from the property management company was now missing as well.  And, their house key was laying right on their electric box on the side of the house - right there for the taking.  I asked if they had heard anything from the management company yet.  They said yes, finally, they were called and supposedly the place was rented, and that’s why the sign and the lockbox were gone, but the new tenant had not paid their deposit or signed a lease.  Guess the management company thinks it’s in the bag before the deal is consummated.

Well I guess closure has been put on the situation because today the U-haul pulled up and the renters are here.  So far I’ve seen two men, three women, four dogs, lots of tattoos, and a whole lot of kids.  We’re invited to a house warming party at our neighbor’s new place later this month and we’ll have to find out if the new tenants are paying, if they have any idea how many people and animals are living there, and what other tidbits they can tell me about the experience now that phase 1 is over and phase 2 is beginning.

One good thing - my dog Brittany has gotten a glimpse at a couple of the dogs so now she sits in the window all day hoping to see them again.  It’s entertainment for her while it’s too hot to be rummaging around outside.

I’m deploying my re-fi strategy on a house right now in Tucson and at the same time I’ve just posted an ad on www.rentclicks.com to get it rented out.  This is a house that we bought when the builder was taking $43k off the selling price as they were finishing out this community.  The house had been well into the building process when we bought it, but we were still able to choose some of the interior finishes.  We closed a couple of weeks ago, went in a painted the entry foyer, the kitchen, and the great room.  The appraiser was there yesterday and his early indication is that it will appraise for $50-60k more than what we paid, leaving a nice chunk of equity there to use with our re-fi.  We put 5% down when we bought, we’ll make one payment, then we’ll skip a payment before our new loan takes affect.  We’re also getting a check back at closing for a couple thousand.  We’ll see where the final appraisal comes in.  Possibly our entire loan could fit into the pay option ARM.  If what we owe on it now is 80% or less than the appraised value, we’ll be able to get an 80% LTV ARM and nothing else.  If the appraisal falls short, we’ll need to add a small interest-only second.  It’s possible we’ll get the place rented before we need to make our very first payment.

In any case, the reason I’m posting today is to share the early results we’re getting from our Rentclicks ad. 

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