Monthly Archives: April 2009

The Danger of Pursuing Passive Income

pull-hair-outWhen Dave and I first began real estate investing we did it with two main goals in mind. The first was to get our money working for us instead of always working for our money. The second goal was to build up passive income streams. Unfortunately, we’ve discovered that the label you put on things can create problems, so we no longer call it “passive” income.

The problem with pursuing “passive income” is that you’re telling your mind that you don’t have to do any work to make that income. Keith Cunningham, author of Keys to the Vault says, “The label becomes the experience“. Using the word passive for anything means that you are going to do the least to get the most.” Trying to build wealth through passive income is like trying to get six pack abs with passive fitness. It isn’t going to work.

When you buy a property, hire a property manager, and the only thing you actively do is deposit rent money into your bank account, you’re setting yourself up for trouble. We know! We have an entire archive of articles on our website of the problems we created for ourselves in pursuit of passive income. I recently wrote a couple of articles for the on-line ezine Early to Rise about this in “The Problem with Fire,” and “An Easy to Prevent Scam,” where we had a property manager rob rent money from us, we were featured in a local paper as owners of  “local crackhouse,” and we were fined in court for fire code violations. All of these things happened to us early in our real estate investing career because we had been in pursuit of passive income. We worked hard to find the properties, bought them, and then passively let things fall apart!

Now, we constantly reviews all of the bills, call the property managers on a regular basis, and we both carefully track and monitor all of the money that gets spent on each property.

Listen, I’m not saying that you have to treat real estate investing as your full time job. You can absolutely do it with a very small allotment of time and attention. All of these tasks take less than 5 hours a month to do. But the big difference is that we no longer consider real estate to be a passive income stream. We actively measure, monitor and adjust to maximize our profits and minimize our struggles – and we sleep better and make more money from our real estate investments now!

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Personal Development and Travels to Austin, Texas

Written on April 17th

Denver airport snowstorm

Denver airport snowstorm

As I write this I am sitting in the Denver international airport, watching the snowstorm, yes, snowstorm blowing outside. The funny part is that here we are in mid-April and it’s been snowing about 10 inches here over the past 24 hours! I am on my way down to meet up with Julie who is in Austin at a Keith Cunningham conference. You see, Julie is not only a teacher and an educator as many of our Rev N You with Real Estate readers can attest, but almost more importantly, she is a student. And even with all the experience we have researching markets, negotiating with Sellers, buying and renting out investment properties, there are still so many things we still need to learn.

I commend Julie for taking part in this two-part, extreme intensive 8 day training conference. She was in Austin 3 months ago for the first 4-day series and now has returned for the 2nd part. This particular conference is about building and growing your business. One of the most interesting parts, from what Julie tells me, is that Keith is not there to give you all the answers – he is there to enable you to pull the answers from within. This is one of the most effective methods of teaching whereby the student is forced – for lack of a better verb – to develop their answer rather than always looking for the teach to spit it out.

When a student asks about a specific problem they are having, he will say “Well, what do you think you should do?“. When the person responds with “I don’t know”, he says “I know YOU don’t know, but if you did know, what would you say?” Or, if that doesn’t work, he will say “If this was your best friends problem, what would you advise your friend to do?

It’s really almost an introspective way of learning whereby you look within yourself to find the answer and find who you (and your business) really are. So, why am I telling you all of this – “GET TO THE PUNCHLINE DAVE!!!” – I am telling you this because I wanted to emphasize just how very very important it is to keep learning, keep reading books, keep asking questions, and keep taking courses, seminars, webinars, teleseminars, finding mentors to help you learn along the way. And, last but not least, keep looking within yourself to find the answers. Because really, who knows you best?

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5 Steps to Getting Rich with Real Estate

… and why you shouldn’t listen to what ‘everyone else’ says about the real estate market.

Thanks to low interest rates and increasing rental rates, my husband and I are enjoying more cash flow from our rental properties than ever before. Sure, our properties aren’t worth quite as much as they were last year. But they are still making us money. And because we purchased in desirable areas, we know they will increase in value over time.

And we aren’t the only ones making money with real estate today. Jeff Adams works full-time as a firefighter… but his part-time job as a real-estate investor has made him the nation’s leading expert in finding motivated sellers, hungry buyers, and private lenders. He’s made over 350 deals since 1995, just working part-time!

Marko Rubel left his corporate career a few years ago, and today, after several hundred successful transactions, his real estate holdings are estimated to be in excess of $4 to $5 million. And Dave Lindahl – who started out as a dead-broke landscaper with no real estate experience – now owns 5,136 units.

Despite massive profit opportunities in the real estate market, people are more afraid of buying property today than they were two years ago. Most think the best strategy is to wait. I regularly receive reader e-mails saying they want to overcome their fear of buying property right now – but they likely won’t. And until I read Influence: The Psychology of Persuasion by Dr. Robert B. Cialdini, I didn’t really understand why.

… read the rest of my article called “5 Steps to Overcoming Fear and Getting Rich with Real Estate” over at Early to Rise where it was originally published.

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Real Estate Investors – Be On the Look Out For Appealing Opportunities

fotovoyager-city-viewYou might be hearing people say there’s a lot of opportunities in today’s market. But, what does that mean? And what does an appealing opportunity look like exactly? Here’s a quick list to help you spot some potential opportunities for investment areas:

Government Plans—New rules and regulations can create or kill opportunities (see Julie’s article on Rent Control). A ban on development in one area will impact other areas where development can take place. It’s difficult to say exactly what you have to watch out for, but read the local news and get a handle on what the local government is doing and any legislation changes that are in the works that will impact you as a property owner. I previously discussed another example of government legislation that could impact you – landlord licenses!

Interest Rates—The higher the interest rates, the lower the prices typically because debt becomes so much more expensive. This is not the case currently as central banks are desperately trying to kickstart faltering economies—we have the unusual situation of low interest rates and lower prices. But having an understanding of what interest rates are doing and how they impact investments in your area is important.

New Development—We were burned by buying a condo in an area that was about to explode with similar sized condos. A little research would have told us that the area was about to be flooded with similar units to what we were buying. An area that has been flooded but has good indicators otherwise could be a good opportunity – if you buy AFTER the flood has hit the market.

If there is something preventing new development in an area that is actually a positive thing in most cases. It often means existing properties will go up in value. But, it can also mean that area will just die off and lose out to the newer more interesting areas being developed. Learning about the area will give you a good indication of what is happening. If businesses and governments are investing in that area despite a lack of new development it’s a very good sign.

Availability of Land—Very related to new development, but important to look at as you try to spot opportunities. If there’s plenty of land and empty lots around and there are no limits on development then it’s likely that supply will continue to grow to meet demand. And, keep in mind, a small parcel of land can turn into a multi-unit complex that will house dozens of families so just because there is only one or two good pieces of land in an area doesn’t mean there won’t be any large developments. But, it’s still a factor to consider.

None of these elements guarantee that you’ve found an area that will flourish in the future – but in combination with other strong market fundamentals – finding appealing opportunities like a shortage of land or good government support of rentals will definitely have a positive impact on your investments!

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Tenant Troubles: Dealing with Late Paying Tenants

One of the toughest things to deal with as a rental property owner is collecting rent from a tenant who pays late – or, worse, doesn’t pay at all! When we were just starting out as real estate investors, my husband and I lost nearly $5,000 in unpaid rent and filing fees in an effort to evict one non-paying tenant. It was a nightmare.

Every state and province has different Landlord-Tenant Statutes, so it’s important to familiarize yourself with your local laws. Meanwhile, here’s some general advice:

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1. Act immediately. Issue a non-payment of rent notice as soon as the rent is late. Keep records of every notice.

2. Act consistently. Always charge the same late payment fees and file non-payment notices for every tenant who pays late or not at all. Consistent actions create a strong precedent should you ever have to defend your actions in court or try to evict a tenant. It also shows tenants that you are fair, but firm.

3. Move them out. If all else fails, try to negotiate a voluntary move out. Court-ordered evictions are expensive and time-consuming – but, if the tenant refuses to leave, you have no choice but to go through the process.

That said, the best cure for getting tenants to pay their rent on time is prevention!

Put some effort into finding and keeping good tenants, and you’ll find that most of your tenant troubles go away. Now, we follow a strict process for finding and screening tenants:

1. Show the property in good condition. If it doesn’t show well with the existing tenants living in it, wait until they move out. Good tenants have choices, and if the property doesn’t look attractive, why would they want to rent it?

2. Price the unit slightly below the market rate. $15 – 20 per month below competing units will attract more applications.

3. Run each applicant’s credit report and call their previous landlord – the landlord before their current one. If they have caused problems, their current landlord could be anxious to get rid of them and may not be truthful.

4. Verify the applicant’s employment. We usually ask for a recent pay stub and call the company to verify that they hold the position they claim.

(Adapted from articles written by Julie Broad for Early to Rise)

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