What s inside this book?

What s inside this book? Introduction 3 Why Buy-and-Hold 4 One: Investing in One Single-Family Home is Not Enough! 5 Review Questions 6 Two: Not Every Deal Is Right for You. 7 Review Questions 8 Three: You Need to Determine Your Investor Identity. 9 Review Questions 10 Four: You Can t Forget Your Homework! 11 Review Questions 12 Five: You Can Create Cash Flow with Distressed Properties. 13 Review Questions 14 Six: You Must Educate Yourself About Cost Factors. 15 Review Questions 16 Seven: You Aren t Just a Real Estate Investor; You re a Business. 17 Review Questions 18 Eight: You Don t Just Dig the Neighborhood; You Dig INTO it! 19 Review Questions 20 Nine: Hiring the Right Property Managers Creates Cash Flow. 21 Review Questions 22 Ten: Investing in Vacant Properties Comes with Inherent Risk. 23 Review Questions 25 Answer Key 26 2 Investing Made Easier: Buy & Hold

Introduction J. Massey Author of the book, Cash Flow Diary J. Massey is a husband, father, entrepreneur and full-time real estate investor/developer. A highly sought mentor who enjoys one-on-one coaching and leading workshops with hundreds of attendees, J. earned a reputation in the world of real estate investing as someone skillful in identifying and solving problems. He has experience completing hundreds of real estate transactions across eight states. He is also a landlord with more than 380 units in his portfolio. How did he build his business? By hosting CASHFLOW 101 games with interested investors and those who want to invest! In fact, J. is a Master Facilitator. If you re new to real estate investing or to the buy-and-hold strategy of investing, there are things you need to know that will help you tap into more and more streams of cash flow as you grow your portfolio of properties. I want you to imagine a row of ten houses. You run down the street and turn on the outside faucet of each house. Water flows out and down the driveway. Soon you re up to your ankles as you happily splash around in the water. That s what investing using a buy-and-hold strategy can be like, but it s not water we re talking about. It s cash that is flowing out of these homes and you re the owner! (No wonder you re so happy about splashing around in it.) This short e-book is designed to walk you through just a few things you need to know before investing in buy-and-hold properties for the purpose of creating cash flow through rentals. Whether you do deals on your own or work with a turnkey provider of rental-ready properties, you should educate yourself on the benefits of the buy-and-hold strategy, which include the creation of steady passive income, appreciation in the property over time, financial leverage (because you can use the assets in different ways and banks won t laugh you out the door if you walk in and tell them you want to buy a number of homes for a fair but below market value), a way to have someone else (your tenants) pay down your note, possible tax benefits (talk to your tax guy) and a more comfortable retirement. 3 Investing Made Easier: Buy & Hold

Introduction For me, buy-and-hold makes perfect sense. Though I entered real estate investing as a wholesaler and then did a little fix n flipping, I soon realized that if my goal is cash flow over the long term, I d have to adjust my mindset. Wholesaling gave me some of my own intellectual capital to work with to further my adventures in real estate, and got me comfortable with talking to investors who would let me use their private financial capital to buy cash-flowing rental properties. I started with single-family homes and worked my way up to small multi-family dwellings and then apartment buildings. The next step was to move into commercial rental property. Those are topics for later discussion. This e-book focuses on residential rental properties and what you need to know before investing in them and investing through a turnkey property provider like you ll find on www. BuyCashFlowAssets.com. Before we go further, let me answer one question I hear a lot Why Buy-and-Hold? If you want a path to actual, long-term wealth, there may be no better way than through investing in rental properties through a buy-and-hold strategy. The long and short of it is that these properties give you cash flow above the monthly mortgage payment and any associated fees/costs/taxes month after month when they are rented out. However, I want you to think big so you can create larger opportunities for creating cash flow. If you purchase a single-family home and you earn only $200 above the monthly costs, plus you have control of that asset, think how much better it would be for you to control instead several single-family homes and later a multi-family dwelling that has, let s say, four units. Instead of just $200 a month, perhaps the property will be cash flowing $800 to $1600 a month. That s a much nicer image, isn t it? Before you reach this point as a real estate investor, however, you need to understand the process. Educate yourself on what you need to know what questions to ask in your due diligence before you put your money on the barrelhead. Like I talk about in my private coaching, my Mastermind Groups and my book, Cash Flow Diary: 10 Steps to CREATING WEALTH in ANY Economy, you need to be a P.I.G. What s a P.I.G.? A Professional Information Gatherer. Get as much information as you can up front and before signing any paperwork in any investment. There are literally opportunities in real estate everywhere you look. But you need to know what you re looking at and how to approach sellers and buyers. You also have to understand costs of rehabbing a property to make it far more equitable of an investment! If you invest through a turnkey rental-ready real estate provider, you need to know the same information. This e-book gives you a glimpse into some of the information you need to know before you invest in with a buy-and-hold strategy. I hope it helps you make the best decisions. Sincerely, 4 Investing Made Easier: Buy & Hold J. Massey

Chapter 1 Investing in One Single-Family Home is Not Enough! As I said, I entered the real estate investing world as a wholesaler. That means I was a middleman that brought the buyers and sellers together and earned a fee in the process. As I got better at wholesaling, my fee grew. I developed a formula and began earning several thousand dollars from single transactions. After a couple of years as a wholesaler, I moved into a buy-and-hold strategy. Why? Instead of a fee, I was looking for long-term returns in the form of ongoing cash flow and passive income from my properties. I enjoy this investment strategy because I can use it for all sorts of property types. However, I began just like you should with single-family homes. You can move toward multi-family dwellings later when you are more versed in doing the deal. When you buy a property and hold onto it, there are advantages. You aren t buying the property to live in it. You are buying it to rent it out month after month after month. It is your goal to earn cash flow, which comes to you in the amount above the mortgage payment and associated fees. The rent needs to be higher than whatever that number is. Let s say that number is $200, which means $200 X 12 months = $2400 in cash flow to you every year. Not bad! You have an asset and cash flow. See why this strategy of buy-and-hold is so attractive? You want to close more deals faster. That s right. FASTER! In that way, you can earn more and more and more cash flow. For example, let s say one of your properties brings you $200 in cash flow, another gives you $500 and another gives you $600. That s $1300 X 12 months = $15,600 a year in cash flow. More deals means more cash flow until you no longer need the J-O-B because you will replace your hard-work income with passive income. The more deals you make faster the faster you ll be out of the rat race and living on your passive income. Owning rental properties puts you on this path and keeps you there. 5 Investing Made Easier: Buy & Hold

Review Questions 1. What Benefits come with a buy-and-hold strategy? 2. If you are a wholesaler, can you also use the buy-and-hold strategy? 3. Why does it make sense to do more deals faster? 6 Investing Made Easier: Buy & Hold

Chapter 2 Not Every Deal Is Right for You. No matter which state you re in, which county, which city, there are literally deals everywhere. When you are a seasoned real estate investor, you will see deals at every turn. But until then, it can be a bit more challenging to find them. You have to do your research. You also need to realize that just because a house is for sale doesn t make it the right house for you as an investor! You need to practice on paper first before actually writing offers. Really work the math, because the numbers won t lie. Calculate all costs into the deal, too. Don t just look at the price of the house. You will have more costs that the asking price! Once you understand this part, it s time to find deals. But where do you find truly good deals? You can work with wholesalers when locating great buy-and-hold deals and it can be a very good thing. That s a great way to start. However, the ideal situation for you as a more seasoned investor looking for properties to buy and hold is to work directly with the property owner. Sometimes it can be difficult to find the actual owner, but if you do a bit of digging in public records you will find him. Sometimes you will have to work first with a property manager or management company. I work with a number of such individuals and I ask them lots of questions. I hire these individuals to run my properties, too. You will find the answers you seek if you approach them professionally and with honesty. Today, there are many ways to learn about who the property owner really is. There are several websites dedicated to helping you find properties, but not all include the actual owner s information. If you cannot go direct to the seller (homeowner), a good source is your local Realtor. And then there are the public records databases of every county. Familiarize yourself with the different mechanisms and use them. If the property is in your county, get familiar with the people at the county offices. They want to help you. It s their job. If you develop a relationship with people in the know and let them get to know you and your goals, it could be that they tip you off to properties that need a few problems solved. As an investor, that s what you do. Solve problems, especially in the world of buy-and-hold! 7 Investing Made Easier: Buy & Hold

Why is it important to find the real owner of a property? You want to work directly with him/her and develop a relationship so you can solve his/her problems! By talking to the seller, you will discover the reason he/she is selling the property. His/her problem that you can solve. This will help you structure a great deal that will serve you both. That s how investors purchase properties with little or none of their own cash or credit. But this is a whole other topic. (Refer to my Raising Private Capital Mastermind Group!) Beyond researching the seller, you need to go one step further. You need to determine your Investor Identity. That helps you determine what type of property you will focus on, but we ll talk about that in the next section. Review Questions 1. Is every property for sale right to buy? Why? 2. Name three ways to find out who owns a property. 3. Why do you need to know who the property owner really is? 8 Investing Made Easier: Buy & Hold

Chapter 3 You Need to Determine Your Investor Identity. What type of single-family homes are you interested in purchasing? Rather, what type of investor are you? What is your identity? What type of tenants you want to serve? Maybe you want to serve tenants in a Nordstrom neighborhood. That means you will purchase high-priced properties. You will need a much larger down payment and you will take on a larger note than you would with other types of properties. Maybe you want to serve a Target tenant or a Wal-Mart tenant. As with shoppers who frequent these stores, your clientele your tenants will have different needs. They will want less costly homes. Does that mean you will earn less in cash flow? Quite the contrary. You can earn as much or more cash flow with the homes rented in Wal-Mart neighborhoods as you would in those higher-priced Nordstrom-neighborhood homes. You may look at rehabbing the lower-end homes to entice better, longer-term tenants. Again, you are the problem-solver. Look for problems to solve. Let s say that your Investor Identity is more along the lines of serving the Wal-Mart-neighborhood tenant. That s my sweet spot. Serving the Wal-Mart type means you will look for homes that serve their specific needs. Maybe they don t have a vehicle or they only have a single vehicle that is shared between all occupants in the home. It would be excellent if the home were close to a bus stop. Maybe the home doesn t have adequate laundry facilities. Wouldn t it be good then to rehab the property to add a better laundry room? Or entice tenants by adding a decent washer and dryer? What about utilities? Are there ways you can keep your tenants costs down by adding low-flow toilets and energy-efficient appliances? You certainly don t have to throw in appliances, but you need to think about the quality of life you are providing in your property to keep tenants in place. That starts with understanding your market. That means knowing your identity as an investor. This understanding gives you an edge when it comes to buy-and-hold properties, because you will only find deals that match your goals and you will be able to create top cash flow. 9 Investing Made Easier: Buy & Hold

Review Questions 1. Why do you need to determine your Investor Identity? 2. What needs might a Wal-Mart type tenant have that you can provide in your property? 3. What is a good way to keep monthly utility costs down for your tenant every month and why would that be a benefit as the investor landlord to you? 10 Investing Made Easier: Buy & Hold

Chapter 4 You Can t Forget Your Homework! When you ve found the property owner, it s time to ask some tough questions. It s part of doing your homework in researching not just the property but also the current owner. (Notice I didn t say seller, because until you introduce yourself to this individual he may not have thought about selling his home, or he may not have understood there was a way out of his problem by selling his home. He didn t know you existed!) One question you will need to ask might make you a little uncomfortable, but you need to know. You need to ask him if he s ever lost a property to foreclosure. This may sound like an odd question, but the answer will tell you more about the seller and how he operates. It could be a point of leverage. Maybe the seller has never been foreclosed on, but he is currently facing foreclosure or is in pre-foreclosure stages. In that case, you can be a hero of sorts, solving his problem and helping him get out of a property he cannot afford to maintain. You may even negotiate terms whereby the seller remains in the home as your tenant! Or you can just give him a low but reasonable amount to get out of the home. You can negotiate terms that are mutually beneficial. That holds true in every offer and contract you write. While you can choose to specialize in working with people in pre-foreclosure and foreclosure, you don t have to. There are plenty of properties out there and even if they don t have a for-sale sign in the yard, they could be bought. You won t know until you get out there and start talking to people on the street and at investor networking meetings, which is not the topic of this e-book. (That would be in my Networking for Net Wealth e-book!) At the time of this writing, a lot of homeowners are under water in their mortgages. The government programs that are supposed to be helping people keep their homes are often complicated, and the homeowner can easily get lost in the process and eventually lose the home anyway. Whether you choose to specialize in this area of investing or not, get to know the rules of foreclosure. Think of it as part of your homework. As an investor, it is up to you to self-educate and also turn to those who ve been investing a long time as you gather your information and build your skills. Choose a mentor. Join a solid coaching program. Keep taking action steps. 11 Investing Made Easier: Buy & Hold

You can even help other real estate investors who years back used more traditional means of financing their properties. Just like homeowners who took out questionable loans, these investors may also be drowning under their decisions. These investors took out loans just like the homeowners with adjustable interest rates, or they refinanced existing debt to pay for properties, which only meant less cash flow for them. That s why I don t use banks to raise the money I need to invest in my properties! This e-book is not a discussion about the bad real estate loans that homeowners and investors took out a decade ago. It s about how to buy today without getting in over your head. That s what www.buycash- FlowAssets.com helps you to achieve. We ve done the homework and make it a lot less risky to participate in real estate deals than if you were to go it alone. NOTE: Comps are irrelevant! The house is worth what I am willing to pay for it. Comps may matter when you as a homebuyer go to a real estate agent. In that case, the agent will show you comps (comparative properties that have sold) based on what the neighbors homes are worth. This is not the same thing. When I look for buildings or property, I m looking at how I can improve them and raise the value either to rent it out or to sell it. Values are assigned. There is a use value. And that s really the highest value that is assigned. You will pay most for the use value. There is also speculation, for example, where you would pay the least. Investment falls somewhere in the middle. You have to look at the use value and the speculative value to figure out what you might offer, which can most certainly start at a very low dollar amount. Review Questions 1. In doing your homework on a property, do you also research the owner? Why? 2. Can you use a buy-and-hold strategy to help homeowners facing foreclosure? How? 3. Do comps matter to you as an investor? Why or why not? 12 Investing Made Easier: Buy & Hold

Chapter 5 You Can Create Cash Flow with Distressed Properties. I am known to invest in distress or rather distressed properties. This is definitely a buy-and-hold strategy. I buy the properties and rehab them. It is my intent to hold onto them for a long, long time to come. These properties bring me a lot of passive income. Plus I like knowing that my team and I provide clean, safe, affordable housing to people who need it at a time when it matters most. And doesn t everyone need it? I became a number-one problem-solver by participating in real estate deals like this. There is no shortage of properties that need TLC and cost-efficient rehabbing. But there are pitfalls to avoid in the rehab process. There are lots of questions to ask! We know about renovation and property management after the purchase. We look at properties that need all levels of improvements, and we go beyond the basics if rehab is needed. For example, we assess what might make a property a whole lot more profitable as a rental over time. While we primarily participate in multi-family dwellings, the same rules apply to rehabbing a single-family home. There are improvements that can be made. It could be as simple as giving it more curb appeal or making minor repairs. It could be a whole lot more. We strongly advise that you stay away from single-family homes that require too much repair and maintenance. The cash flow will be eaten and it would make for a bad investment because your ROI (return on investment) can be negatively affected. You have to understand the true costs of a rehab, right down to the type of door knob you choose. Our turnkey properties that you find through www.buycashflowassets.com have all the renovation costs rolled in. We know how to keep costs to a minimum. We work with proven and trusted providers of materials and services. We know exactly how to calculate every item into the costs to provide the highest cash flow in each property we offer. What does that mean to you? More opportunity for appreciation in your property, excellent leverage, greater ROI than what you might get going it alone and maybe even tax benefits! 13 Investing Made Easier: Buy & Hold

Review Questions 1. Is investing in distressed properties a good thing? Why or why not? 2. Do you need to understand true rehab costs? Why? 3. What makes a property a potentially bad investment? 14 Investing Made Easier: Buy & Hold

Chapter 6 You Must Educate Yourself About Cost Factors. It s easy for newbie investors to get so caught up in finding and buying a piece of real estate that they forget about the little (or not-so-little) things that can add up over time. For example, taxes and homeowner association dues that affect the amount of cash flow over time. Taxes are overlooked more often than you might think. The same holds true for every part of a deal and every expense, because every one of your expenses is someone else s income. That s right. Property taxes are income to the county. Property management fees are income to the property managers. Maintenance fees are income to the maintenance workers. For every broken window you need to repair, that is money to the person who fixes it. We call this a maintenance cost. When I put in cable to give tenants a better quality of life, guess what? That s income to the people who own the cable company. Or profits. Either way, it s money out of my pocket and into theirs. Did you know that property taxes can be negotiated down? You have the right to try to reduce them. I am not saying you will get the taxes reduced, but it can happen. You have the right to try, but most of the time people don t. Property assessors have no motivation to keep taxes high. They don t get a percentage of your tax dollars. They may work with you if you approach them correctly. In regard to overall costs, one of the benefits of the buy-and-hold strategy is that you can valuate off and hold the property till the numbers match. Here are factors to watch out for: The TRUE condition of the property The TRUE costs of rehabbing The ACTUAL costs of taxes and HOA dues, etc. The REALISTIC amount of rent you can charge (long-term vacancies eat into your cash flow and therefore add to your costs) In a turnkey investment property, these factors are accounted for and you are paying a below-market price that brings you potentially higher cash flow than what you can find on your own. It s a hassle-free way of entering the investment arena. 15 Investing Made Easier: Buy & Hold

Review Questions 1. Do investors sometimes overlook taxes in their deals? 2. How could overlooking taxes and HOA dues affect your deal? 3. As an investor your property becomes a source of income to others. Name three entities/individuals who will earn income from your property. 16 Investing Made Easier: Buy & Hold

Chapter 7 You Aren t Just a Real Estate Investor; You re a Business. Don t kid yourself. You are not playing a game called Real Estate Investing. You are in the BUSINESS of being a real estate investor. Approach rental properties professionally with the mindset of a professional real estate investor. Just like in any successful business, you look at the exit strategy first and work your way back to the purchase. That means looking at the distant sale of the property, what you want to get from the property and what it would take to get there from here. What improvements would need to be made. How much rent will you be able to charge if you make improvements. Look at the down payment, the square footage, the costs of fixing the property up and the location, location, location of a property. These factors give you the best overall picture of the possible cash flow and return on your investment if you were to sell down the road. Say there are two properties. You see that in each you can earn $200 per month in cash flow, but one requires a lot higher down payment than the other. The next logical step is to do your due diligence. Learn WHY these properties give you the same when they are so different in price. Is one larger than the other? What are the neighborhoods like? Are there improvements to be made? Are there back taxes due or costs are aren t exactly out in the open that come into play? And what do you think the property will be worth in a decade or two? Remember that you are buying to hold onto the property for a spell. Maybe the reason that the higher-priced property gives you the same as the lower-priced property is because of the monthly payment. That would explain a lot, but it doesn t provide the only answer if you re trying to determine which property is the better investment. As you will see, we give you all the information you need to make that determination. And we are available to answer your questions about the deal. If you want to choose properties on your own, be sure to do your due diligence regarding debt service (that s the loan payment in homeowner language), square footage and how that space is used, down payment expected, property taxes, HOA dues, insurance and if these costs will be rolled into a loan (if you don t have private funding available to you and have to go through more traditional means). You will also have to find a property manager if you aren t able to perform all of the due diligence yourself or don t live in the same area as the property you want to purchase. 17 Investing Made Easier: Buy & Hold

Review Questions 1. As a real estate investor, are you running a business? 2. Why is it important to look at potential property purchases like you would a business? 3. In real estate investing, you have to look at the exit strategy. What does this mean? 18 Investing Made Easier: Buy & Hold

Chapter 8 You Don t Just Dig the Neighborhood; You Dig INTO it! I talked about this a little earlier, but I need to go further now. Before you invest one dime in a property of any type, look at the neighborhood! If you aren t able to do so in person, you have an opportunity to call people who live in the area. Pick a real estate agent and ask questions about what s going on in a particular area or neighborhood. Do research online regarding what types of retail stores and restaurants are in the area. Is the property you re interested in located in a high-end Nordstrom area with four- and five-star dining? Or is the property located in Wal-Mart territory with lots of smaller, less-expensive dining chains and privately owned restaurants? These are two divergent and vastly different investor experiences. Personally, the Wal-Mart neighborhoods and the middle-ground Target neighborhoods interest me most. I know there will be more problems to solve and more opportunity to create cash flow in my investment properties. Use Google Maps to your advantage. Walk the neighborhood to see the condition of a property address. Even if the images are a little outdated, things likely haven t changed so much that you can t get a feel for the neighborhood. When you take a virtual walk down the street, what do you see on the corner? Is it a clean-looking church, a school, a liquor store, a dumpy business of some sort? What do you see? What about the condition of the properties? Are the windows boarded up or are there cars on blocks in people s driveways? Do you see signs of vandalism or potential crime areas? Next, what can you find out about the area through other research? You can go to the county s website and start your search there. You can find statistics of all sorts, from demographics of homeowners and the number of homeowners vs. renters, the number of schools and parks, the crime rate, the population and pretty much anything else you need to know to make a decision. There are government sites devoted solely to providing statistics. Why not use them? My team and I tend to invest in middle-income or nicer lower-income areas. Boarded-up windows may be a good thing for us. We even work with one city to solve problems in areas where rental properties work really well. But, believe me, we do our homework to learn as much about the neighborhoods as we can before making any purchase decisions. We truly dig into the neighborhoods! 19 Investing Made Easier: Buy & Hold

Review Questions 1. What might you expect to find in a Nordstrom neighborhood? 2. What might you find in a Wal-Mart neighborhood? 3. What are two ways you can learn more about a neighborhood even if you aren t close by? 20 Investing Made Easier: Buy & Hold

Chapter 9 Hiring the Right Property Managers Creates Cash Flow. If you don t intend to manage your rental properties for whatever reason, you need to use good property managers who know their stuff and can keep your properties rented. However, there s a lot more to hiring the right property managers than meets the eye. There are a series of questions I ask potential property managers. I go much more in-depth on this topic in my book, but here are a few highlights. You may wonder why I ask all these questions. The simple answer is because I learned the hard way. I also don t just have one property management team, because there should never be a single point of failure. I learned that the hard way, too! What I mean is that you never want to have just one property manager, even if he can manage several properties in a single area. That sets you up for potential problems. By relying on only one manager, you can be taken advantage of. It s best to have more than one. And ask a lot of questions of those you are considering hiring. I developed a list of questions that I ve found really helpful to ask property managers. I include these in my RFPs (request for proposals) that I send to property managers. Let s say, for the sake of discussion, that you do all your numbers and that those numbers are based on your looking to buy and hold a property over the long haul. Your numbers are based on local market occupancy or vacancy rates. In this case, you want to ask your property management candidates: 1. As the property manager for this property, you d be in control of a lot of things. How would you propose that we get this particular property to maintain an 85%, 95%, 105% or whatever the percentage occupancy rate that you want to maintain for your entire portfolio? 2. What strategy would you employ to maintain this level of occupancy? 3. How long would it take for you to achieve that? Or, What would you need from me to make sure that you could do that? 4. When you ve done that in the past, what was necessary, what pitfalls or what helped you to fall short that you don t want to have happen again to make sure that we could be successful? 5. What type of work do you prefer to do and what do you do best? 6. Describe your company s process for collecting rents. 7. What is your process for retaining long-term tenants? 8. What is your company s maintenance policy and are you related to any of the vendors you are recommending? 21 Investing Made Easier: Buy & Hold

Some of these questions might intrigue you, but I assure you that you want to ask them. They give you a peek into the mindset of the property manager. Their answers show you how they deal with properties, problems and tenants. Their answers show you how they will work with you, too, based on how they work and have worked with other people who have employed them. You would also ask about the property manager s processes, for example, screening for quality tenants, eviction and collection procedures, and advertising procedures. In choosing from our turnkey rental-ready properties from our turnkey system, the properties come with a property manager in place if you choose that option. Review Questions 1. You have several properties in one area and you need a property manager. Would you hire just one property manager to handle all of those properties? Why or why not? 2. Why do you need ask a lot of questions of those property managers you are considering using? 3. What do the questions help you determine beyond how they handle collecting rents? 22 Investing Made Easier: Buy & Hold

Chapter 10 Investing in Vacant Properties Comes with Inherent Risk. It s a no-brainer that to keep cash flowing, a rental property must have renters who are paying rent every month. What can you do to keep renters in place? What does a vacancy really mean on the money side of the fence? These are excellent questions. I can tell you what my team does to keep renters in place. First, we rehab the property with the tenants needs and our cash flow in mind. Earlier I mentioned that we add amenities that benefit our tenants. Why would we do that? We don t want vacancies. We know that by helping to solve problems in a tenant s daily life we are keeping properties rented and minimizing vacancies. Remember, we invest in a few apartment buildings. If we buy properties along a bus route, chances are we will attract tenants who don t have cars. Guess what that means? They don t want to lug their laundry to the local laundry facility. If we can then give them a nice laundry facility on premises, won t that help their lives? Yes. It solves a problem. If we add a daycare center on premises and they have kids, would that solve a problem? Yes. What about businesses that they might need on premises? Yes. That s helpful to all our tenants, but guess what? It helps bring even more cash flow to us. We get consistent rent, but we also bring in additional revenue through all these new streams. You will follow our model and do the same with your single-family homes. If you don t improve your rental properties and keep them well maintained, if you don t care about your tenants, if you aren t a good landlord and let things fall through the cracks (literally), you will lose renters and you will have vacancies. This will impact your cash flow and can take a serious toll on your financial situation. Do the math. Even at just $200 in cash flow every month, that s $2400 annually. But it s not just the cash flow the tenant is helping you to earn. That the tenant is covering the cost of your monthly house payment. Let s take the most traditional funding scenario wherein you take out a loan to buy the property and then rent it out, you have to cover the mortgage payment and any other monthly costs. If you did your deal right and are charging the right amount of rent, these costs are actually covered by your tenant. I think you get the picture. I don t have to provide you with a chart or graph. It s simple math. It makes most sense to get rental-ready or already occupied properties and then keep them up, improve them and add to them if you can to keep attracting tenants. 23 Investing Made Easier: Buy & Hold

It is ideal if properties you purchase come with good tenants already in place, but that doesn t happen a lot. You want properties that are absolutely rental-ready or as close to it possible so you can get tenants quickly. The point to buying and holding properties is to create cash flow month after month from rents paid to you by your tenants. At the same time, you are building your portfolio of assets that give you more financial freedom and flexibility in your life. The vacant properties you purchase can come with hidden risks. Consider these factors: A) You don t have a crystal ball, so you don t know how long the property will be vacant. You ll have to make improvements to up the curb appeal and to respond to any interior repairs. Then you will have to market your property s availability as a rental the right way. The longer a property sits vacant the less cash flow for you as the landlord and owner. Choose wisely. B) You have to charge the right amount of rent for the area in which the property is located. Before you sign on the dotted line and take control of your new property, do your research. Ask around. What are people paying in rents in the area? There are ways to find this information. It starts with politely talking to people in the neighborhood. You might be surprised by how much information people are willing to share. C) Understand that tenants may be willing to pay a higher rent than your market bears under certain circumstances. For example, some people who have had a hard time recently and have less than great credit. Maybe they ve been evicted before or had other issues. If you interview them and find them to be acceptable as tenants, they will be open to paying higher rents. However, you must interview without asking questions that can get you in legal hot water, and you must be sure that such a tenant isn t going to cause more trouble than his rent is worth. The longer a property sits vacant the more issues you may face. For example, the property may be subject to vandalism. It s a good idea to get vacancy insurance on the property. Check with your insurance agent on the costs and benefits of such a policy. We aren t insurance agents and we aren t going to have that conversation here. 24 Investing Made Easier: Buy & Hold

Review Questions 1. Do vacancies cost you money as a real estate investor? 2. What are ways you can help ensure that you can attract and retain tenants? 3. Why does it make sense to buy properties that are rental-ready? 25 Investing Made Easier: Buy & Hold

Answer Key ONE: Investing in One Single-Family Home is Not Enough! 1. What benefits come with a buy-and-hold strategy? Long-term returns in the form of ongoing cash flow and passive income from your properties. You have assets that produce income. The debt service every month (mortgage payment and associated fees) is covered by the rent paid by tenants. 2. If you are a wholesaler can you also use the buy-and-hold strategy? ABSOLUTELY! As you earn fees for bringing sellers and buyers together, you can begin to invest in properties using a buy-and-hold strategy to create ongoing cash flow for yourself. You can find investors who will help you buy properties with little or none of your own cash or credit, too! 3. Why does it make sense to do more deals faster? The simple answer is the math. If you have only one property, you have only that single amount of cash flow coming in every month. If you have more properties, you create more cash flow. TWO: Not Every Deal Is Right for You. 1) Is every property for sale right to buy? Why? NO. Just because a property looks like a good deal doesn t mean it is. You must do your homework on every property you consider investing in. 2) Name three ways to find out who owns a property. Reputable property-aggregation sales sites, a Realtor in the area and public records. 3) Why do you need to know who the property owner really is? To stay out of legal hot water and to make sure that you are conducting business with the person who has legal rights to the property. That way, you can be sure to solve the seller s problems and you then can negotiate that he/she carries some or all of the financing. If you aren t working with the actual owner, this will not be possible. 26 Investing Made Easier: Buy & Hold

Answer Key THREE: You Need to Determine Your Investor Identity. 1. Why do you need to determine your Investor Identity? Before you start investing in real estate, you need to have a clear vision of who you are as an investor, what types of properties you like and why, and what types of neighborhoods you will invest in. You will then be able to determine the type of sellers and tenants you will be dealing with. 2. What needs might a Wal-Mart type tenant have that you can provide in your property? A Wal-Mart type tenant might need a home close to the bus route, because either he/she has no vehicle or the family has only one to share. Good laundry facilities in the home would be a bonus. More curb appeal always is a plus. You have to get to know your tenant types (based on your Investor Identity) so you will know what they need. 3. What is a good way to keep monthly utility costs down for your tenant every month and why would that be a benefit as the investor landlord to you? A LOW-FLOW TOILET! Also, energy-efficient appliances. FOUR: You Can t Forget Your Homework! 1. In doing your homework on a property, do you also research the owner? Why? You need to know that the person claiming he/she is the seller is the seller and actual legal owner of the house. Sometimes a seller isn t the owner and doesn t have the right to be talking to you about the sale of the property. This can cause all sorts of issues. If the person saying he/she is the owner is selling the house, the person can show you proof and you can find plenty of documentation in the county records. 2. Can you use a buy-and-hold strategy to help homeowners facing foreclosure? How? You can freeze up the foreclosure by taking control of the property. You can purchase at a short sale price and get the distressed individual out of the property. You can even rent the property to the former owner if you are so inclined. 3. Do comps matter to you as an investor? Why or why not? NO. Comps don t matter when determining what you will pay for the property. It is worth what you determine it is worth doing your calculations and due diligence. However, comps come into play when determining rents for the property. You need to determine how much a tenant will pay, based on the rents being paid in similar houses in that neighborhood. 27 Investing Made Easier: Buy & Hold

Answer Key FIVE: You Can Create Cash Flow with Distressed Properties. 1. Is investing in distressed properties a good thing? Why or why not? YES. Investing in distressed properties gives you a chance to make repairs and give tenants clean, safe, affordable housing. You do repairs to enough properties in one area and you bring up the value of the entire area. 2. Do you need to understand true rehab costs? Why? If you don t calculate the actual costs of rehabbing a property, you can turn a good deal into a bad one quickly. You cannot get the costs from shopping at Home Depot or Lowes either. Working with a turnkey provider of rental-ready properties means you can avoid the hassle, but you should still know the true costs. Do your research. 3. What makes a property a potentially bad investment? The cash flow will be eaten and it would make for a bad investment because your ROI can be negatively affected. You have to understand the true costs of a rehab, right down to the type of door knob you choose. SIX: You Must Educate Yourself About Cost Factors. 1. Do investors sometimes overlook taxes in their deals? ABSOLUTELY! It is one of the factors new investors tend to overlook when calculating their deals. 2. How could overlooking taxes and HOA dues affect your deal? You might not get the cash flow you want and it can put you into a negative cash flow situation. In short, what might look like a good deal could become a bad one quickly if you don t do your math and calculate ALL costs. 3. As an investor your property becomes a source of income to others. Name three entities/individuals who will earn income from your property. The property manager, the contractor who does repairs and the maintenance workers. 28 Investing Made Easier: Buy & Hold

Answer Key SEVEN: You Aren t Just a Real Estate Investor; You re a Business. 1. As a real estate investor, are you running a business? YES. You cannot just play at real estate investing. You are in the business of being a real estate investor. Running it as such will serve to make you more successful in this business. The more organized you are the better. 2. Why is it important to look at potential property purchases like you would a business? When looking at properties from a business standpoint, you take the emotionality of your decisions out of the picture. You ask clear questions about the properties in which you consider investing and base your decisions on the numbers and what needs to be done to them to make them provide the most cash flow. 3. In real estate investing, you have to look at the exit strategy. What does this mean? In a business plan, one of the first things you look at is your exit strategy. How you will get out of the business eventually. Will you sell it and to whom? In a real estate investment, you need to decide how long you will hold onto it, will you fix it and flip it, will you only wholesale it bringing sellers and buyers together or do you intend to buy and hold the property until retirement. How will you exit the deal eventually and what do you want out of it? EIGHT: You Don t Just Dig the Neighborhood; You Dig INTO it! 1. What might you expect to find in a Nordstrom neighborhood? An Apple Store, other upscale stores, nice grocery stores, big houses, schools and parks. 2. What might you find in a Wal-Mart neighborhood? Middle- and lower-income housing, fewer grocery stores, more liquor stores and smaller dining chains. 3. What are two ways you can learn more about a neighborhood even if you aren t close by? Google Maps to virtually walk the neighborhood and the county s records, which are accessible online. The library can be a wonderful resource, too. 29 Investing Made Easier: Buy & Hold

Answer Key NINE: Hiring the Right Property Managers Creates Greater Cash Flow. 1. You have several properties in one area and you need a property manager. Would you hire just one property manager to handle all of those properties? Why or why not? NO. You don t want a single point of failure. The same goes for all members of your team. That way, if one individual turns out to be ineffective at his/her job, you aren t forced to continue using him/ her. You have another property manager (or other professional) you can call on. 2. Why do you need ask a lot of questions of those property managers you are considering using? You want to know what type of person they are and what their experience level is. You want to know they are right for you type of properties. You must know them as people and that they can handle anything that might come up. 3. What do the questions help you determine beyond how they handle collecting rents? How the property manager communicates and manages people, property and issues. How well versed he/she is in handling problems. How experienced the individual is across different types of property. How well connected the property manager is to referral sources. By asking lots of questions you get a full picture of your property managers, which is good in any long-term relationship. And you want this to be a trustworthy long-term relationship. TEN: Investing in Vacant Properties Comes with Inherent Risk. 1. Do vacancies cost you money as a real estate investor? YES. The more tenants you can retain the more cash flow you create. 2. What are ways you can help ensure that you can attract and retain tenants? Improve the property and keep it well maintained. Add amenities that are attractive to tenants. Think outside the box. 3. Why does it make sense to buy properties that are rental-ready? If a property is vacant but rental-ready, it is more attractive to renters right away. If you invest in properties that have improvements already taken care of it means that you can immediately rent the property. That means cash starts flowing more immediately. 30 Investing Made Easier: Buy & Hold