The principles of developing a long-term, on-going cash flow can be applied to most kinds of real estate investments. Mobile home lots, apartments, garage/storage units, and houses all make excellent income producing assets. Houses, in particular, low-end properties, make an excellent vehicle for creating long-term profit-streams for a multitude of reasons.
First, houses are abundant. Every city, community, and neighborhood has houses. Houses are usually the easiest to buy because they’re the most common. Houses are probably the easiest to purchase at a discount, since there are a multitude of sellers in some form of crisis ownership situation: Vacancy, disrepairs, judgments/liens, back taxes, etc. Houses are probably the easiest to manage, with the possible exception of storage/garage unit rentals, as these are occupied with stuff and not people, thereby making evictions straightforward. Well-maintained houses will often retain tenants for a 3-5 year cycle, sometimes longer. Most of the other vehicles have shorter-term occupancy.
Sell on Payment Contract for 10-15% Price Premium
Houses are by far the easiest to sell due to the naturally large demand for places for people to reside. In most cases the property may sell without holding paper, but many experienced investors will offer their houses one some sort of payment agreement and be able to charge a 10-15% price premium to the buyer without using a Realtor. The so-called low-end house can be quite desirable from an investor’s standpoint.
First, lower-end housing doesn’t mean bombed-out slums. It means basic, starter homes which might be located in good, but not necessarily great locations. These marginal areas typically are more of a buyer’s market, thereby, tilting the negotiation in favor of a hard-cash buyer or a buyer seeking owner financing. In fact, owner financing is much easier in these slightly marginal areas.
Deep Discounts- High ROI
Lower level houses can often be purchased at various distress auction (tax, foreclosure, estate) sales. In many areas of the country, these houses are purchased for prices as low as $3000 to $25,000, without a lot of difficulty (once you know the many inside strategies and secrets).
Finally, these types of homes can generally be rented for rents of $350-500 per month, which based on the reduced purchase price makes an outstanding return on investment. Returns of 25-40% per year are common.
The ultimate goal is to get these basic houses paid off (free and clear). Which is truly an accomplishment that will reward you for many, many years into the future. It’s not uncommon for good managers to receive income for 20 years or better from their houses. Following this period of ownership many owners will find a secure buyer and sell the property on a payment agreement and receive an additional 10 to 15 years of “mortgage” payments!
If Houses Aren’t Feasible…
If you live in one of those few areas where house prices are just inflated far too high to make the numbers work, don’t worry, these same concepts and techniques work with small apartment buildings, mobile homes/lot rentals, rooming houses, and almost any lower-scale income property. There’s no need to be stuck in houses. In fact, I’m always open to acquiring great deals on nearly anything people will rent. By the way, most people don’t believe it, but rooming houses can be a gold mine – and the management isn’t as tough as you might think! This is all about buying and managing income streams. Remember, perpetual income.