Master Real Estate Course

Lesson #13 Live, Rent or Convert

Objective:

• How will you treat your troops. Begin to craft your personal management philosophy.

1. Buy six properties. 2. Love your tenants. You buy a property and you pay off the mortgage. Then you enjoy the income. Then your children enjoy the income. Then your grandchildren enjoy the income. Your great-grandchildren will enjoy the income. When does this end? Now, you know why real estate investing is so great because it never ends. In a hundred years, your offspring will be saying, "Thank you great-great-great-great grandpa or grandma!" Start your family dynasty. This is beyond the comprehension of average people. You can do this. You deserve this.

Background:

When you acquire a piece of property, you have to do something with it. You have to live in it. You have to rent it. You have to fix it up and resell it. You have to convert it.

You have to decide if the property is for you or someone else. You have to have a plan for the property. If the property is for you, you are the end user, no problem. If the property is for someone else, you have to decide what that tenant or buyer use will it.

Once you have your own management contacts and database established, you might consider a lucrative part-time business managing property for other investors. Being a property manager positions you to acquire these properties at a later date.

Your Objectives

Your objective is simple, clear and straight-forward. You will acquire six properties and retire as soon as you pay off the mortgages.

For example, you plan to buy your own home first, and then four income-producing properties, and finally, a second home or vacation home for yourself. This should all happen within twenty years or less.

Or, you can buy your own home, your vacation home, two condos for your mother-in-law and daughter and two commercial properties for your antique business. The total is six. The total owned free of debt will make you a multi-millionaire.

You have done what it takes. Think about what you've accomplished. Where did you get the cash for downpayments?

You may have a high-income job and can save the downpayments.

You may be able to refinance another property you own.

You may have enough equity to qualify for an equity line of credit.

You can wheel and deal - buying and selling.

You can work with partners.

You can borrow against other assets.

You can borrow from relatives.

You can arrange a blanket mortgage that covers more than one property.

You can borrow against credit cards. (not recommended)

My Friend Jim

I was in an Army Reserve unit with a friend named Jim. By this time, I had my real estate license and was already an evangelist for real estate investing. I extolled Jim on the merits of real estate investing. Apparently, my persistence paid off.

Jim asked me what he should buy, and I told him a two-family house. He asked me how much money he'd need and I told him three thousand dollars. Jim told me that he didn't have any money saved, but that he made $300 a week as a carpet installer. I talked to a lot of people about the benefits of buying real estate, but not a lot of people like Jim.

Ten weeks later, Jim walked into the real estate office one Saturday morning around ten o'clock, holding a paper bag containing three thousand dollars cash. He calmly asked, "Ok, where's my house?" For ten weeks, Jim had saved every cent that he earned. He parked his car and ate his mother's packed lunches. He hitchhiked, and for entertainment, read books.

There was a nice two-family house on a large corner lot with a two-car garage that I had been watching. It was listed for $30,000 and a very good deal at that price. The owner was an old man who had lived in the house for many years. I brought Jim to the house. Jim struck up a conversation with the old man. The old man seemed to like Jim, and Jim listened patiently as the old man told him the history of the house. The old man had a large workshop in the basement and while I waited upstairs, Jim and the old man talked for almost an hour downstairs. I was getting antsy and wanted to get back to the office. When I went downstairs to get Jim, he was shaking hands with the old man.

I said nothing.

Jim said, "OK, I'd like to buy your house". The old man said, "Well, make me an offer of let's say, $27,000 and I'll throw in all my tools". Jim said, "OK".

Jim still lives in that house. The house was paid for years ago. His second floor apartment is worth between $1,200 and $1,500 per month. If he rented the garage, it would be worth about $300 per month. Today, the house is worth $400,000. Jim is still in the carpet business. However, my guess is that he is much better off than most people in the carpet business.

Love Your Tenants

Sometimes things hit you like a thunderbolt and you never think the same way again. Here is one of those defining moments for me:

Mr. Hutchinson And Me

I owned a three-family house, which Don Nardo convinced me to sell in order to buy a single-family house and a six-family house. I thought that the six-family would involve a lot of management and it did because of one tenant, Hutchinson. As soon as I met him, he started complaining about his windows leaking, his kitchen floor needing replacing, the bikes left in the hallway and how poorly the landscaping was being done. He had a list of things wrong with the building.

I went to see Don and the first thing that I told him was that I intended to get rid of Hutchinson.

This was a defining moment in my life - satori!

Don said, "Bill, are you crazy? Hutchinson has lived in that building for over forty years. He has paid for that building in full probably five times. Bill, you are borrowing a lot of money to buy this building and Hutchinson is once again going to pay the building off for you. Love him. Love your tenants. You borrow the money to buy these properties and you have these wonderful people called tenants who pay that money back for you. Love them. Is Hutchinson asking you to do any work that doesn't need to be done?" Of course, he wasn't.

Love your tenants. You aren't going to get rich in the income property business without tenants. You need them. They are your customers. Your apartments are their homes. When you treat your tenants with respect, you will ease your management problems considerably.

How to Manage Your Investment Properties

There is one rule found in all sane religions and across all countries and cultures and that's The Golden Rule. Do unto others. Treat your tenants and your properties as you would treat your family and your home.  Do this and you don't have to learn the secrets of professional property management. You will already be doing what you should be doing and your management headaches will be minimal.

Have a list of contractors and back-ups ready to handle emergencies and routine maintenance. You have a problem. If you have the skills and the time, you handle the problem or you pick up the phone. There is little difference between managing your own home and managing investment real estate. If something needs to be fixed, either you fix it or you call someone who can.

You can find a capable and responsible handyman in your community willing to be on call and work for a fair hourly wage. Many off duty firefighters provide these types of services. Go to your Mastermind Alliance for suggestions. Certainly ask other investors in your area who they use for contracting and handyman services.

If you have well-maintained properties, a small multi-tenanted building will take thirty minutes or less per week to manage.

Maximizing Your Investment Time

Can you accurately answer the following questions for each of your properties? If you can, the chances are good that you will be an effective investment time manager.

   What is the market value of this property?
   Does this property carry the best available financing?
   Is income maximized?
   Are expenses minimized?
   Can cost-effective improvements be made?
   Can the property be expanded or converted?
   Can the property be rezoned to permit a higher use?
   Is the property fairly assessed for tax purposes?
   Is insurance coverage adequate to cover repairs or replacements?
   Does ownership of this property best complement your general investment objectives?

Thirty Investment Questions To Consider

1.Are my rents competitive?

2.Does area demand support raising my rents?

3.Are my units maintained/improved to area standards?

4.Can improvements be made to increase income?

5.Can amenities be added to increase income?

6.Could income be raised by catering to a specific type of tenant, i.e., elderly, singles, couples with children, renters with pets, etc.?

7.Could income be increased by offering special tenant/user services, i.e. coin-op washer/dryer, storage bins, workshop area, conference/party/function room, extra parking spaces, garages, etc.?

8.Is the property properly leveraged, given my investment goals and objectives?

9.Are presently available financing terms, rates, and options superior to my current debt service on this building?

10.Should/must any major components be upgraded or replaced in the next twelve months, i.e., plumbing, wiring, roof, etc.?

11.Can any of my ownership expenses be reduced?

12.Can any utility payments be cost-effectively transferred to tenants?

13.Can units be added to the building internally through utilization of unused space, i.e. attic/basement?

14.Can units be added to the building internally through redefinition of existing floor plan, i.e. making two studio apartments from a four-room apartment?

15.Do the land area, zoning laws, and/or mood of the town Planning Board support the building of additional units, garages, or other buildings on the property site?

16.Is the building suited to cost-effective condominium conversion?

17.Is market demand supportive of condominiums at the present time?

18.Are local government regulations and attitudes supportive of condominium conversion?

19.Is the private residential use of this property the highest and best use?

20.Could the property be converted to some or all retail/commercial usages?

21.Could the property be converted in whole or part to office space?

22.Could the property be converted in whole or part for light manufacturing usages?

23.Could the property be leased in whole or part to a government agency under a fixed-rate, management-free, double- or triple-net agreement?

24.Is this property suitable for syndication?

25.Could this property support professional management, thus alleviating my management time and responsibilities?

26.Would this property qualify for property tax abatement?

27.Are there potential local, state, or federal loan and/or housing support programs that I should be aware of?

28.Are there local absentee partners who would be interested in buying an interest in my property?

29.Could my equity position in this property be used or exchanged for investment in a larger project?

30.Could this property be sold for more than I feel it is worth?

How You Can Turn $50 Into Big Dollars!

In real estate investing, small efforts often yield big rewards. Almost as fast as the wave of a magician's wand, for instance, you, as an investor, may see $50 in rental income turn into $4,200 of equity! How do you do this trick?

As you evaluate various opportunities, you will become familiar with the Gross Multiplier for your area. The Gross Multiplier is a quick tool but a substitute for a full evaluation, including a highest and best use assessment. In general, the average property should sell for between 6 and 8 times income. So, if you hear about a property selling for 5 times income, you run to see it and if you hear that another is listed for ten times income, you'll walk.

Be mindful that the income on the listing sheet is the present owner's income and may vary significantly from the income you'll receive. You'll have to estimate what the rental income will be under your ownership, and then apply the Gross Multiplier.

Let's say you own a building in an area where the Gross Multiplier Rule of Thumb is "seven times gross". This means that properties sell for seven times the annual rent. You raise one rent by $50 per month, which translates to $600 per year. Using the Gross Multiplier, you can estimate a $4,200 increase in the value of the building. ($50 x 12 months = $600 per year x 7 = $4,200). When an active real estate investor raises a rent by $50, he or she doesn't see $50 a month. He or she sees a $4,200 increase in personal net worth. A small effort yields a big reward.

To follow this logic further, what if the building were a six-family house and each rent were raised by $50? The increase per month would be $300 (6 x $50). The increase per year would be $3,600. And, the increase in value to the building would be $25,200! With one building and with one $50 rent increase to each tenant in that building, the investor has made more money on paper than most people make working at a job full-time for an entire year. This is one of the exciting potentials of real estate investing.

Here are some ideas to set you thinking:

Idea #1 - Present rents are under market

You are renting a four-room apartment for $675 and the market price for this unit is $725. There's $50 to be made simply by checking the current value of your rentals against the market.

Here's an additional opportunity. While you check your own rent levels, check the rent levels on income properties being offered for sale. You might find substantial profits by buying a low-level rent building and adjusting the rents to market value.

Idea #2 - Standard yearly increase

If you own luxury or top-of-the-line units, a $50 per month increase may be a standard annual adjustment. For units renting for over $800 per month, a $50 increase would be a single digit percentage adjustment.

It is better to raise rents incrementally each year a small amount than to wait several years and ask for a substantial increase. Most tenants will tolerate and absorb a 5% yearly increase without much complaint. However, even if rents haven't been raised for several years, many tenants will balk at increases of 15% or 20% and often demand improvements as compensation.

Here's another opportunity. For units renting in the $500 - $600 per month range, a $50 increase is substantial. However, in the higher price ranges, such an increase may be expected and accepted. Check for properties listed for sale in the luxury category or with upper-end potential.

Idea #3 - Add interior unit dazzle

A little something extra may raise your unit from one category to another and warrant a $50 per month increase. In doing your continuing research, you can explore ways to make your units stand above the competition.

Perhaps, you add a microwave oven for $300, a disposal for $150, a dishwasher for $500, a bathroom heat lamp for $75, mirrored walls for $400, a Jacuzzi-type tub fixture for $600 or a kitchen greenhouse window for $350. Even if you made all of these dazzling additions, your expenses could be under $2,000, and your return could be a $50 per month increase. Perhaps, the increase could be considerably more than $50 per month. If the Gross Multiplier for your area were 6, then your $2,000 investment resulting in a $50 per month rent increase would yield a $3,600 increase in building value ($50 X 12 X 6 = $3,600.)

Discuss other opportunities to turn average apartments into dazzlers with your Super Agent, but also remember that any type of upgrading can yield similar rewards.

Know thyself. You are a warrior. You may be better prepared to use a Sykes-Fairbairn knife to quiet an enemy sentry than to pick consumer-pleasing wall colors.  If you have a spouse or relative who has good design sense, consult with her and if she really has something to offer, add her name to your Mastermind Alliance. Affordable design can put money in your pocket.

Idea #4 - Add common area dazzle

A few relatively inexpensive improvements to the interior common areas of the building can go a long way in giving tenants a feeling of pride in residence and pave the way for a rent increase.

Repainting or repapering of the hallways and adding a carpet runner to the stairs are quick makeover ideas. For a modest cost, you can replace mailboxes, unit doorknobs and unit numbering. Perhaps elegant doorknockers can be included for a few dollars. Using slate tiles in the main entry area will add a distinctive look while serving a practical purpose.

Corporate art displayed in office buildings is a hot design trend. You can add the same luxury touch to your apartment hallways. The sofa-sized "nothing over $50" paintings offered by traveling wholesalers may not be your idea of fine art; but, for the same money, you can purchase and hang attractively framed graphics by leading artists. If you have several buildings, you can rotate the art every few months. Suddenly, your ordinary building may be transformed from the "eight-family house" on Main Street to "The Gallery Apartments" on Main Street!

Idea #5 - Add exterior dazzle to your building

Seasonal flowers, even if you buy them at the supermarket, can make your building stand apart. Any well-conceived landscaping will have a 100% or better payback. Diligence paid to lawn care and shrubs and flower beds is a hallmark of effective management, and many tenants will pay extra for the privilege of living in a building that "looks good". A canvas or plastic awning over the entry door can also turn an average building into a tenant-pleaser. Additional exterior lighting is cost effective, serving dual purposes, aesthetics and security.

As a warrior, you are always alert and aware. As you research, you will see well landscaped, well maintained properties. When you see the landscaping crews, stop and talk and get a businesscard and arrange for an estimate.

Idea #6 - Add dazzling amenities

Your building may have a backyard, which is just a backyard, but it can be made into much more with plantings. You could also add permanent seating. Wooden park benches can be found for under $200, and poured cement benches are available for under $350. A picnic table may cost less than $100.

This is an important point which is worth repeating. A contractor will charge you just as much to work in a poor area as in a rich area. A new bathroom in a poor area might cost $4,000 and in a rich area $4,000. However, because of the improvement, you might be able to raise the rent $50 per month in the poor area and $100 per month in the rich area. The improvement cost is the same, but the yield is doubled in the rich area.

A portion of the backyard can also be allocated for gardening, with each tenant given a proportional growing area, at little or no cost to you. It is an amenity many tenants would find enjoyable and worth your "built-into-the-rent" charge.

How many more ideas can you think of? As we've seen, in real estate, a small idea turned into a small rent increase can have a positive effect on your bottom line and a dramatic effect on your building's value.

Let Tenants Help You Manage

Many experienced property owners and managers have found that relations with their tenants improve when they encourage tenants to participate in the management process. Rather than waiting for problems to stimulate landlord/tenant dialogue, these managers and owners take the initiative. They give tenants the opportunity to express their concerns, comments, ideas, and suggestions about the property. This makes tenants feel a part of the management process and yields rewards to all concerned.

If you aren't comfortable saying "NO" to prospective rental applicants, then you should hire a rental agency to act as an intermediary in renting your units. Let them say, "NO". Paying a rental fee to attract a good tenant will always be a better investment than having to remove a problem tenant.

Benefits of tenant participation

Does an office manager-tenant have an idea for a more efficient rent collection system? Can a carpenter-tenant suggest ways to tighten up the building to prevent heat loss? What about space utilization? Does an architect-tenant have any ideas for improvement?

The majority of residential tenants are working people. They have specialized skills, which they bring with them to their homes, your income units. Given the opportunity, many tenants will happily offer constructive suggestions for property improvements. After all, who knows a building better than the people living in it? Even unresponsive tenants and tenants whose comments are negative can be constructive in alerting you to potential personnel and maintenance problems.

Also, remember, our early Operational Limitation which emphasizes that you should NOT trade services for rent. The rent is the rent. If you want to hire your tenants, that's great. Now, pay them for the work.

The participation process

You can develop a tenant participation system. The range of possible formats varies from a postcard checklist (with simple satisfactory or needs improvement columns and a few blank lines for comments) to multi-page questionnaires that require a written response for each topic. The topics addressed may be general or specific. Most managers and owners include a postage-paid reply envelope to encourage responses. A follow-up letter summarizing survey results is also a good idea. It reinforces the tenants' sense of participation and thus encourages future suggestions. Of course, if you know that all or most of your tenants have email, their opinions can be collected this way.

Again, keep your rents at market level. You don't win friends by charging cheap rent. You do build resentment by making excuses rather than repairs and improvements.

Everywhere he went, Ed Koch, Former Mayor of New York City, shouted out "How am I doing?" It made him popular and pointed him to work that needed to be done. Many successful property managers and owners can trace their popularity with tenants to a similar strategy. Love your tenants because it is your tenants who are making you rich.

Property Managers' Responsibilities

There are two types of real estate investors.

Type One is a hands on manager who maintains, manages, and markets his or her properties down to the last detail. He answers tenant complaints, deal with late payers, fix and clean up, supervise plumbers, electricians, and painters one-to-one. Type Ones do it all.

Type Two is the investor who hires a property manager or management firm to do all of that work. This type of investor prefers spending time looking for new properties or just "retiring" from those responsibilities.

Know thyself. Do you enjoy wearing work clothes and puttering around your properties? Then, you should do that. Do you enjoy wearing suits and wheeling and dealing putting deals together? Then, you should do that.

Checklist of Property Management Responsibilities

By using a DBA (Doing Business As) business identity, tenants are paying their rents to a company rather than to you personally. From your perspective, it makes raising and collecting rents a little easier.

Service: A Not So Secret Key to Success

In a cool market, it can mean occupancies rather than vacancies. In a hot market, it can mean waiting lists and an opportunity to receive premium level rental income. What is it? The answer is service. A commitment to service enhances all types of properties, all types of leasing situations, in all market conditions.

So what's new? Providing good service and receiving a good return is fundamental to all business dealings, and everybody knows it. However, knowing and doing are different. Obviously, not all businesses are equally committed to excellence. Some businesses shine at providing service, while others seem content to go through the motions. Yet, because of different gradations in providing service, the opportunity always exists to improve service and hopefully improve profits.

Real estate investors are in the business of providing space and services to tenants. The services you provide fall into three distinct categories: mandated, negotiated and optioned.

Mandated Services

Some of the services you provide may be required by statute. For instance, you may own an apartment building covered by building or health codes which require you to provide: heat, hot water, smoke alarms, carbon monoxide detectors, fire exits, emergency lighting, security, or pest control. You and every other owner of similar properties in the same jurisdiction have to provide these basics. It's the law, and few exceptions are allowed or even considered.

Obviously, as part of your research, you will familiarize yourself with local health and fire requirements. You will also know local inspectors and their expectations. Your reputation for providing quality housing is important. Again, it's nice to be nice.

Negotiated Services

Next, as a building owner, you will often be required to negotiate with your tenants for certain services. When you sign leases or tenant-at-will agreements with your tenants, you will in most cases be obligating yourself to provide some additional services. For instance, if you own an office building, you may agree to assume responsibility for landscaping, snow removal, common area and/or office cleaning, or maintenance of mechanical equipment.

Most tenants will sign one-year leases. However, you can sign fourteen, sixteen or nineteen month leases. Be sure that your leases are renewed at the most advantageous time of the year to re-let the unit. If you live in colder climates, you don't want leases that end in winter months.

Through negotiation, you and each tenant reach an understanding as to what specific services and what level of service will be provided. The services you agree to provide to your tenants can be very limited, as in a triple net lease or, at the other extreme, almost limitless as to the direct services you will provide. Also, what services you can negotiate can vary from one of your properties to another. And, negotiated services can even vary among different tenants in the same building (a risky decision). You do what you agree to do.

The catch in providing negotiated services to a tenant is that while you may feel that you are doing an excellent job of providing services, the tenant may feel as if nothing special is being done, since he's really only getting what he expects and what he believes he is already paying for.

Optioned Services

True opportunities for exceptional service are found in the optioned category. First, you do what is mandated. Then, you do what is negotiated. And finally, you are free to exercise the option of providing service above and beyond the law and the contract. Here is where your reputation can be made and enhanced. Here is where tenants will rent in your building because they see your obvious commitment to their well-being. The result: tenants will renew leases, remain and pay premium rents.

Collect rents on the first of the month and insist that rents be received on or before that date. Establish a firm rent collection policy. If rent is not received, send a letter on the fifth and make a call on the tenth. Write a demand letter on the fifteenth, and hire a lawyer on the twentieth. Most people pay their rent first. You are the commanding general. Demand your respect. If you don't demand the rent, marginal tenants will pay their other bills before this tenant worries about paying you. Eventually they will owe you thousands of dollars and it will cost you thousands more to solve your problem which may be to buy them out.

You want to be able to sit down with your Super Agent and assess and compare your buildings, your services and your rents against the norm. You want your Super Agent to be able to tell you what services different types of tenants may request. You want to know what other owners are doing and how you can do better. Your Super Agent can put you in this knowledgeable position to make the right cost-effective optioned decisions. Soon, you will be your own Super Agent.

Low Cost Amenities

Many professional property managers have shown that the most effective optioned services frequently can be provided with minimal expense. Your start may be a fresh approach to tenant satisfaction. We want you to be happy. If you aren't happy, we want to know about it and we will endeavor to correct the situation if it is reasonably possible to do so.

Fast response to maintenance requests should top your list, for instance. Then, you can begin to work with your investment agent to discuss other cost effective service options, which will have an immediate goodwill return. For example, you might send holiday greeting cards to your apartment tenants and small floral arrangements to your office tenants. You can provide postage paid rent mailers for your apartment tenants. You can arrange for local shops, clubs and restaurants to offer discounts to your office tenants. You can acknowledge births, weddings, graduations, funerals or any significant days for any of your tenants. You can give apartment residents small private garden plots or basement workshop/storage space.

It is always nice to be nice.

Welcoming Pets Could Be An Income Booster

You're an apartment investor in an oversupplied market and you have vacant apartments. Or, you're an apartment investor in a tight market and looking for an effective way to raise rents without making a large capital commitment to new amenities.

Easy answer: rent to tenants with pets. In many parts of the country, regardless of how good the prospective tenant may be, if he or she has a pet, the answer is, "No". Certainly, if a "No Pets" policy is the norm in your investment area, being a contrarian owner who advertises "Pets Welcome", will often have you swamped with applicants, even in an oversupplied market. On the other hand, if you are investing in a tight apartment market, "Pets Welcome" will allow you to command a premium rent. People love their pets.

Will a "Pets Welcome" policy require more management and maintenance attention? Possibly. But, if you establish written rules for pet conduct that are clearly defined and understood by your pet-owning tenants, and the rules are signed by the tenant as part of his/her lease or tenant-at-will agreement, then the potential for misunderstanding can be minimized. In any case, you may require a substantial "Pet Security Deposit" to reduce your liability against property damage by the pet.

Who knows? With more apartments rented or with higher rents than the competition, dogs may just become your best friends.

How To Find The Best Tenants

Most experienced property managers will readily agree that the overwhelming majority of tenants can be classified as the best. Of all tenants, 80 percent will treat your rental unit with the same care as if it were their own home. Add to this 80 percent another 10 percent or better who will surprise you by actually making their own improvements to their units. This 90 percent or more of renters respect your property while sending you checks each month to cover your expense responsibilities, while you enjoy the many benefits of real estate investing. But what about the few who may not be ideal tenants? As a property owner working with a professional investment agent skilled in real estate management, you will find that common sense prevails.

If your units are kept at a reasonable maintenance level, are fairly priced for the space and amenities offered, and are well managed, they will be attractive to a wide number of tenants. With units and management of this type, you retain the option of tenant selection. Your units will be filled 100 percent with the 90 percent of the tenant pool, the best.

On the other side, owners of below-grade, over-priced or inattentively managed properties are lucky to find any takers. Consequently, these owners forfeit the option of tenant selection. Their units may be filled 100 percent with the 10 percent of the less-than-ideal.

In business, you ask your best employees to help you find other employees. In real estate management, you ask your best tenants to help you find other tenants. In both cases, if warranted, you can offer cash incentives.

For an objective viewpoint on how attractive your units are, and would be, to the 90 percent, the best tenants, your rental agent is your best resource. Your rental agent can also discuss with you the merits of advertising for, interviewing, and negotiating with prospective tenants yourself or hiring an agency for this important work. In addition, your rental agent can advise you regarding the checking of references and the selection and use of approved rental forms. Today, many online services, such as Craigslist.com, offer free apartment listing opportunities.

Should You Hire Your Tenants?

Yes, let us belabor this point.

You buy a new building and there are some repairs that need attention and a few improvements you'd like to make. This must be your lucky day, because while introducing yourself to your tenants, you find a resident who claims to be a jack-of-all-trades and is ready, willing and able to be at your service. He lives in the building. He has free time. He can do everything from fixing the roof to cleaning the basement. And, the best part...you don't even have to pay him. He'll just figure up his hours and deduct it from the rent. No problem.

No problem - except that modern professional management practices dictate that you should NOT accept services in lieu of rent. Bartering is fine in some businesses, but it may not work as well with investment real estate. Consider for a moment. Will the bank allow you to barter away your monthly mortgage payment? No, you'll still have to make that payment - even if you have bartered away your right to collect a full month's rent from your tenant.

What happens too often in a landlord/tenant bartering situation is that a few hours of free labor one month tends to grow successively larger with each passing month. After all, the tenant/repairman lives at the building and you don't. All of a sudden, the tenant/repairman gives himself a quick promotion to building manager. He tells the other tenants to see him if they have any problems, need any repair work done, or would like any improvements made. The tenant/repairman gains control that should be the owner's; then, good-bye rent.

How would a professional handle it?

How would an experienced property manager handle this situation? The experienced manager would thank the tenant for the offer, but explain that it is strict company policy that services not be exchanged for rent. Rent is rent. If necessary, it can be explained further that adjusting rents in this manner wreaks havoc with any accounting system. All repairs and improvements, when made, are handled only on a fee-per-service basis. If the tenant wishes to submit a bid on a specific job, the manager will accept that bid and will make a decision based upon experience and liability as well as price.

A tenant may, in fact, have a valuable cost-effective talent or skill to offer, but all compensatory arrangements should be handled on an employer/employee basis rather than on a landlord/tenant basis.

T. Boone Pickens' Rules for Success

Billionaire oil company owner

1. Master the art of leadership.

2. Concentrate on the goals, not the size of the organization.

3. Forget about age.

4. Keep things informal.

5. Keep the lines of communication open.

6. Play by the rules.

7. Hire the best.

8. Keep fit.

9. Enjoy your success.

Library:

The Sky's the Limit: Passion and Property in Manhattan , Steven Gaines

Real Estate Principles: A Value Approach, David C Ling

The Real Estate Game: The Intelligent Guide To Decisionmaking And Investment, William J. Poorvu

Property Management 101

Focus on your objective to retire your mortgages and then retire yourself. Look for ways to increase value and income. Are there opportunities to expand or upgrade? Does it make economic sense to convert to condos or to offices? You are always researching and thinking. Look at what others in your area are doing and offering. Copy the good ideas.

In most cases, social engineering is illegal. You may not like same sex couples or people who smoke or unwed parents or legal immigrants or people with children but this is your personal problem. This is not your business.

Operational Limitations:

All tenants are not created equal. The good news is that most tenants are good and will pay the rent and treat your investment property as their homes.

Bad tenants do not become good tenants. Bite the bullet. Get out the checkbook and get rid of them.

This has been said several times; do not trade services for rent. If you hire tenants, pay them for the work independent of the rent.

Jargon:

Balloon payment - The final lump sum payment that is made at the maturity date of a balloon mortgage.

Clear title - A title that is free of liens or legal questions as to ownership of the property.

Contract - An oral or written agreement to do or not to do a certain thing.

Credit Report - A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Interest - The fee charged for borrowing money.

Judgment - A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.

Loan-To-Value Percentage - The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $200,000 home with an $160,000 mortgage has a LTV percentage of 80 percent.

Right Of First Refusal - A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Subdivision - A housing development that is created by dividing a tract of land into individual lots for sale or lease.

Question and Answers

I'm interested in making a good living for my future family and myself but I'm also interested in doing good for society by building affordable housing. Am I expecting too much?

You sound like an Action Principles^® Champion. Yes, I applaud your forward thinking. We need energetic, thinking people of action willing to confront America's problems and affordable housing is certainly one of them. We need people of persuasion who can bring people of diverse interests together for the common good. Your military experience is perfect to the task.

There have always been and will always be government incentive programs for builders and investors in the affordable housing field. Start with your research. Knowledge is power. Neighborhood consensus will be important. Political support will be imperative. Yes, you certainly can provide a valuable community service, quality affordable housing, while making money.

What special concern should I be aware of when investing in a condominium?

If the property is a condominium, you will need to request and review the Master Deed and the Rules and Regulations. You will want to see copies of any association newsletters from the prior year. You will want to see the current budget and any proposed budgets or special assessments. You may want to request a meeting with the trustees. If the property is owned as a cooperative, the trustees may insist on meeting you to judge YOUR suitability to buy.

You will want to know the owner occupant/tenant ratio in the building. You will want to know exactly what the insurance does and does not cover. If you are buying the unit as an investor, you must be sure that the Rules and Regulations become an addendum to any rental agreement with your tenant.

My husband is deployed and I'm at home with an eight-year-old son. I have a draw full of rent receipts and I don't like it. What should I do?

Take advantage of the Master Success Courses. Start your own business and make a lot of money. You should buy six properties and love your tenants. If you think you can, you can. If you think you can't, you can't.

What does politics have to do with real estate investing?

You might buy a two-family house that you'd like to convert into a four-family. You might want to subdivide a lot and build two houses. You might want a parcel rezoned from industrial to commercial. You might want to build affordable housing.

For any construction or reconstruction project, you will need approvals from the building department, planning board, board of appeals, health department and other town boards and agencies.

If you are liked in the community, if you hire the right attorney and the right architects and the right contractors, the approval process can be expedited or stonewalled. A few dollars to right campaigns never hurts either. This is working in the real world.

In the first example, the conversion of a two-family to a four-family could be worth fifty or a hundred thousand dollars in added value. Be smart. Play nice. Since politics can play a large role in your investment career, if possible, keep your specific investment area confined to one governmental district with one slate of town boards and one set of politicians with whom to curry favor.

I have lived in the same area all my life and this is going to be my investment area. Wouldn't you agree that I'm already an expert?

This is a classic mistake to think that because you grow up in a certain area that you can skip the research. You cannot.  If you aren't willing to do the research, you can use these binders as door stops because that's all they'll be good for. The Master Real Estate Course is not a get-rich-quick program. There is work to be done. The research is a big part of that work. Expect to devote ten hours per week to becoming a multi-millionaire. If you haven't got the time to do the work, you will not reap the rewards.

You have a head start but you still have much to learn. Before you were just a resident; now you will have new eyes as a real estate investor. I want you to drive through your area over and over again. What do you like about certain properties? What do you dislike? Which properties would you be proud to own? Which could use some immediate remedial action? Can you identify areas where all the homes are single-family residences? Are other areas reserved for apartments, commercial or industrial properties?

What is your opinion of each neighborhood within your area? Use your camera to document your likes and dislikes. If you see house colors that you like, take a picture. If you see landscaping or a fence or a driveway that stands out, take a picture. Start your own Real Estate Success Scrapbook. When you find memorable properties, positive or negative, take notes and a picture. Which neighborhoods do you prefer? What streets look bad? What building styles do you like?

Keep looking and learning. Does the upkeep of the lawns and yards give you an indication of the type of neighborhood you are in? Does there seem to be a pride in ownership in the area? Are there abandoned cars or beautiful automobiles on the streets? Is the city or town doing its job to keep the area safe and attractive? Are there parks and other recreational amenities in the area? How do they look? What about the appearance of the schools and government buildings and houses of worship? What is your impression of the people in each neighborhood? Add your commentary to your notebook. What do you want to know about your specific investment area, your hometown? The answer is everything.

I am a thirty-one year old father of two. I already work very hard. I make about $20 an hour as a junior manager at Home Depot. I like my job but I'm never going to get rich doing it. You make real estate sound so good, maybe I should do that full time? Someday, I liked to be able to afford to attend the seminary.

In twenty years of part-time real estate investing, at age 51, you may have an estate of $4 million or more.

As a manager at Home Depot, you make $20 an hour. So, in 200,000 hours, 5,000 weeks or 100 years, you could also make $4 million at your job. Of course, this supposes that you will never spend any of that money on food, clothing, shelter, vacations, gas or gifts.

Intelligence alone is not going to make you a multi-millionaire.

Hard work alone is not going to make you a multi-millionaire.

You need both a plan and the confidence to take action. I would suggest that you keep your job and live on 40 hours a week. I would suggest that you work an additional 20%, either 2 extra hours a day or on a weekend day and that you use this extra 20% as your downpayment money. At your day job, you will get to know the best area contractors and this might lead you to specialize in properties where construction or reconstruction is warranted.

On the seventh day, you can rest and go to Open Houses. What will all this hard work and sacrifice get you? You should be rich and retired at 51. Along the way as your wealth increases, you can begin your seminary studies. As you know, many courses are now available online. In any case, in your fifties, you will able to continue your ministry full-time. Go for it, Reverend.

If you are not really a paperwork and research type of person, can you still be successful at real estate investing?

Don't look for short cuts. You need information to make intelligent decisions. You get that information by completing the missions.

To determine fair market value, you need to know income and expenses. You need to factor into the equation your intentions for the property that may include improvements and raising rents. You need to see and evaluate all rental agreements and any other contracts.

Every property that you look at, you are comparing to every other property that you have already seen and evaluated. Given current market conditions is this the best deal on the market for you at this time? If the answer is yes, then you proceed. If the answer is no, you see another property tomorrow.

Is there a lot of paperwork? No. Is there paperwork to be done every day? No. But with hundreds of thousands of dollars at stake, the paperwork is important. And, of course, you will have your Mastermind Alliance for back-up.

Have I missed the boat? I am fifty-eight years old and I'd like to start real estate investing?

Well, age wise, I am in your boat and I am a real estate investor. Take the Master Real Estate Course and in six months you will be an expert on values in your specific investment area. Make offers and profit. Take your profits and travel and spoil those you love. Real estate investing can be an excellent part-time retirement business. If you think you can or you think you can't, you are right either way. NDY – Not Dead Yet – get to work.

Using your knowledge of values in a small specific investment area, you can buy and sell properties. If you make 10% or 20% or 30% profit and that average property is $200,000 or $300,000, the math is easy. You make a lot of money to reinvest or to spend. Yes, you can be that rich old guy driving the new Corvette.

Action Plan:

• Make a decision to put your master skills to work. Proper application of your master skills can lead you to wealth.

Start studying ads for rental housing.

Identify any agencies or agents who specialize in rental housing and management. Interview them about their services and client list.

Challenge yourself. Even on properties that you don't buy, you can use them as case studies to further your knowledge. What repairs or improvements can or should be made? What would this property look like if it were part of your investment portfolio?

Support:

• For mortgage calculation tools: http://www.quickenloans.com/mortgage
• For international real estate investors: http://www.realtor.org/international
• For investors interested in real estate auctions: http://www.realtor.org/auction
• To learn more about appraising: http://www.realtor.org/appraisal

Inspirational Insights:

Obstacles cannot crush me. Every obstacle yields to stern resolve. He who is fixed to a star does not change his mind.

Leonardo da Vinci, b. 1452, artist

Duty then is the most sublime word in the English language.  You should do your duty in all things. You can never do more; you should never wish to do less.

General Robert E. Lee, b. 1807, Confederate army leader

A rock pile ceases to be a rock pile the moment a single man contemplates it, bearing within him the image of a cathedral.

Antoine De Saint-Exupery, b. 1900, French writer

Neither fire nor wind, birth nor death can erase our good deeds.

Buddha, b. 273 B.C., spiritual teacher

Failures are finger posts on the road to achievement.

Charles F. Kettering, b. 1876, inventor

I don't believe in circumstances. The people who get on in this world are the people who get up and look for the circumstances they want, and if they can't find them, make them.

George Bernard Shaw, b. 1856, Irish playwright

Everyone's got it in him, if he'll only make up his mind and stick at it. None of us is born with a stop-valve on his powers or with a set limit to his capacities, There's no limit possible to the expansion of each one of us.

Charles M. Schwab, b. 1862, American industrialist

I want to be all that I am capable of becoming.

Katherine Mansfield, b. 1888, American writer

Look at a day when you are supremely satisfied at the end. It's not a day when you lounge around doing nothing; it's when you've had everything to do, and you've done it.

Margaret Thatcher, b. 1925, British prime minister

If you would only recognize that life is hard, things would be so much easier for you.

Louis D. Brandeis, b. 1856, Supreme Court Justice

Some people regard discipline as a chore. For me, it is a kind of order that sets me free to fly.

Julie Andrews, b. 1935, American actress

If you believe in what you are doing, then let nothing hold you up in your work. Much of the best work of the world has been done against seeming impossibilities. The thing is to get the work done.

Dale Carnegie, b. 1888, Self-help author

Tell me and I'll forget; show me and I may remember; involve me and I'll understand.

Chinese Proverb

The great blessings of mankind are within us, and within our reach; but we shut our eyes and, like people in the dark, fall short of the very thing we search for without finding it.

Seneca, 54 B.C. Roman orator

Every one has it within his power to say, this I am today, that I shall be tomorrow.

Louis L'Amour, 1908, American writer

You must be single-minded.  Drive for the one thing on which you have decided.

General George Patton

Do what you can, with what you have, where you are.

President Theodore Roosevelt, b. 1858

Don't bother just to be better than your contemporaries or predecessors. Try to be better than yourself.

William Faulkner, b. 1897, American writer

Act as if what you do makes a difference. It does.

William James, b. 1842, American psychologist

Fortunate is the person who has developed the self-control to steer a straight course toward his objective in life, without being swayed from his purpose by either commendation or condemnation.

Napoleon Hill, b. 1883, self-help author