I thought I had heard it all. And then a couple weeks ago a guy with whom
I attended high school approached me about purchasing houses. But he had a
different twist.
He had heard that I buy houses and he was working for a company that provided
housing for developmentally disabled. At first I didn’t really jump at the
idea. After all, I already had my share of tenants who trashed my apartments; I
didn’t need one that already had emotional or social problems. So at first, I
only half-listened (I hope I’m not being insensitive here).
I wanted to make it clear to him that I really didn’t want to be fixing my
apartment every time a tenant left. He explained to me that under their program
the state is responsible for all repairs. Say what?! My ears perked up. I had
dealt with section 8 before and was not happy with the results. (Many investors
have good results though). My main beef against section 8 is that if the tenant
trashes the house you the investor are out of luck. Just try and collect from a
tenant on public assistance ?it won’t happen. Oh sure, you can have them
kicked off the program, but that doesn’t put money in your pocket.
His program was not Section 8. "So", I said, "Just what does
it mean?" He explained to me that they are in need of so much housing that
there is a steady stream of tenants. If one should be moved or pass away, there
are other tenants ready to move in. No advertising, interviewing, holding costs,
or showing apartments. That sounded good.
These tenants are lifetime clients (patients). There is no chance that they
will be declared well, turned off the program, and given over to you to manage.
Some of these clients need a more secluded location because they can be
disruptive to neighbors. (One he was trying to find housing for threw a shoe at
a windshield of a car and broke it).
I then spoke to a director of the program and she made it sound like such a
good civic duty ?it’s hard to say no. Think about it ?the difficulty of
trying to find their clients proper housing when landlords are afraid that they
will disrupt their present tenants. By providing housing you are doing a
community service at the same time you are planning for your future.
In my particular state, the program works like this. The state contracts out
to vendors to manage their clients rather than institutionalizing them. These
vendors are then responsible for finding housing and caring for their clients.
That is where we come in.
For the most part, I have consciously avoided the outskirts of the small
cities around where I live. The thought being, that it is more difficult to find
tenants and manage. With this new twist I will be able to target some of the out
of the way places. You see, in my city it is growing like gangbusters. As soon
as a small house comes up for sale it’s gone! That makes it difficult to be
competitive as an investor.
Instead, if I can target the outskirts with smaller houses I will have a very
large area of housing to sift and sort. I will be primarily looking for 1 and 2
bedroom houses; whereas, before I was looking for 3 bedroom family housing.
This is an excellent 10 ?15 year plan. Buying houses on the outskirts and
holding until the city builds up to it! I can get these houses cheap while
waiting for the city growth and the tenants to pay down the mortgage. Can you
smell the sweet smell of a bodacious retirement plan? I can. Sure there won’t
be a whole lot of cash flow while you wait, but if you plan for long term this
is ideal.
Let me tweak your thinking on how you can get started with no money down.
First, these houses are relatively inexpensive compared to other housing downtown, etc.
Secondly, the sellers are more motivated since the property isn’t
prime property ?right?
Okay ?we can buy these with no money down. What you do first is put a
house you like under contract with a purchase and sales agreement. Let’s say
the house is worth $60,000 and you have it under contract for $50,000. You then
use a partner and sell it to her for $65,000 with a 10% owner carry back. (Yes,
I know - banks are getting much much tighter on buying a house from someone who
hasn’t had it for 12 months. You just have to shop.)
When the dust settles it will look like this: She gets a loan for 90% of the
sales price that is $58,500 ($65,000 X .90%). $50,000 goes for the seller,
$2,000 goes to my company (play money for me), $3,000 goes into an account for
repairs and upkeep and the balance for closing costs (in my state closing costs
are extremely high).
And then, for half ownership you cancel the 10% carry back.
And that is how you can do a simple deal with no money down and
develop a great retirement plan.
Brandy Eismon
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