You’ve decided to refinance your house. Or maybe you’ve decided to sell it altogether. You want it to appraise for top dollar, but how can you make sure that happens? Maybe you’ve heard a horror story about a low home appraisal or you really need to refinance for a certain dollar amount to get back all of your downpayment on your BRRRR deal. How do you make the most of your home appraisal? 6 Home Appraisal Tips to Get a Higher Valuation Ask if they’re local. When the appraiser calls to make the appointment, ask if they’re local. Real estate is local, and an appraiser from out of town may not be as familiar with the local real estate market. You want your house to be appraised relative to its location, not in relation to the local market of the appraiser from 60 miles away. Requesting specific appraisers is no longer allowed, thanks to all those shenanigans around 2005-2007. “Lender’s select Appraisers today by sending out an email blast to all appraisers on a lenders list. The appraiser who gets the appraisal is the one who hits the “accept” button the fastest AND who agrees to the fee the lender wants to pay. The current paradigm is: who is the fastest and the cheapest?” says John Carlson, a California Certified General Real Estate Appraiser with JCCREA. “If you get an out-of-the-area appraiser, you can try to ask for another appraiser from closer to your area, but from what I have been told on the expert panel to which I belong, that almost never works. The lender would have to send out another email blast in hopes that a local appraiser hits the accept button first. If a borrower does get an out-of-the-area appraiser it makes it even more important to follow your suggestions about knowing your market, most likely, better than the appraiser who is coming out.” (Thank you John, for the correction!) Tidy up. You never get a second chance to make a first impression. The appraiser is only going to be in your home for a very short time — maybe an hour if you’re really lucky. Remove clutter and make the inside shine bright. Prepare it like you would for a showing — put everything away and make sure the whole house smells nice. This is technically not supposed to help the home appraisal; however, your appraiser is going to notice if the house is a disaster. You don’t want them to walk into the property and have their first impression be “what a dump!” If the property is rented and you’re trying to refinance, make sure the tenants know to have everything as clean as possible. If you’re selling or refinancing a property that is not tenant-occupied, the only thing to do differently than a showing is to stay put. You want to be at the home when the home appraisal is happening. You DO NOT want to follow the appraiser around like a puppy, but definitely ask if they need anything, and let them know what part of the house you’ll be in should they have any questions. Look outside, too! The exterior of your home should be clean and neat. If you are being appraised during grass-growing season, make sure the lawn is mowed and clean up dead leaves or plants. If you are being appraised during snow season, make sure the driveway and walk are shoveled. Related: Why Appraisals Don’t Necessarily Value Homes From an Investor’s Point of View Pick up toys, trash, and debris. Do you have a dog? Remove all that evidence, too. The last thing you want is for the appraiser to think your house is gross before they even walk in the door. Have a list of improvements. Home appraisals are based on recently sold homes — and what better comp is there than the exact house? If you’ve made any improvements in the property, have a list of what you’ve done, how much you spent, and when the improvement was made. Significant improvements on a property that was purchased recently can help the appraiser understand the scope of work and encourage them to appraise higher than the recent purchase price. Make a cheat sheet. Measure the rooms ahead of the home appraisal and have a sheet to give to the appraiser. They will most likely still take their own measurements, but having a page from you can help them make sure they don’t miss a room. Give an overview of the entire home, of course highlighting the positives. No feature is too small to mention, and some upgrades may not be readily apparent. Who can tell if the plumbing or electrical has been upgraded by looking at the walls? Explain the comps. Have your real estate agent pull comparable properties that have recently sold and those that are currently on the market. You should be staying on top of your local market anyway — seeing comparable properties to get a feel of what is selling and for how much — both before and after rehab. Your appraiser isn’t going to be able to go into the sold houses to see what they look like — they won’t know if the home had really cheap carpeting or stunk of cats. Be prepared to give explanations of each property that has recently sold, especially those that have sold for a lower price than you are hoping for. My neighbor was trying to cash-out refi her home not too long ago. Recently sold houses on our street had issues that weren’t disclosed on the MLS. One home sold for $45,000 less than what it should have because it had undisclosed sewer issues. Undisclosed on the MLS, anyway. The buyers were told of the issues before closing, but it wasn’t advertised on the MLS, which is where the appraiser gets their recently sold information. Another home on my street sold for $100,000 less than its true value because the prior owner had passed away in the bathtub and went undiscovered for 12 days in August. That wasn’t shared on the MLS, either. We typed up a sheet that played up the problem issues for each property that recently sold and shared it with the appraiser. Her home appraised for what she needed it to, and the appraiser thanked her for the additional information. 3 Tips to Fight a Low Home Appraisal Appraisers are human and make mistakes just like everyone else. If your property appraises for significantly lower than you are expecting, you may be able to challenge the results. Double check figures. First check to make sure the property stats are accurate. Did the appraiser include all the bedrooms and bathrooms? Is the square footage correct? Did they forget the basement or misjudge the size of the lot? If you find an error, provide evidence to the appraiser and ask that they reevaluate the property based on the additional information you have provided. If your home appraisal is slightly lower than you are hoping for, your chances aren’t as good to fight the appraisal. Again, make sure the information is correct, and you can certainly ask the appraiser to reevaluate the property. Having comparable properties to share with them can help your cause as well. Know your neighborhood. Even if your appraiser is local, they may not be intimately familiar with your neighborhood. School districts can change valuation significantly. If you’re located in the better school district, make sure the appraiser knows that — and included that into the valuation. Examine comparable properties. MLS listings on recently solds don’t always tell the whole story. If you didn’t share the backstory with the appraiser before and you have a low comp dragging down your home appraisal, make sure they understand the reason the home sold for such a low price. Related: Is an Appraisal an Accurate Representation of Market Value? Also make sure the comparable properties are actually comparable. Same neighborhood, sold recently, etc. It’s easy to mistype and get an entirely different location. Being off by even just a mile could drastically change valuation. The Mortgage Hinges on the Home Appraisal A traditional mortgage will not go through without a home appraisal — and if the home doesn’t appraise, that’s the end of the line. Unless you can prove an error in the appraisal process, you aren’t likely to sway the appraiser’s mind. Prevent this issue from happening at all by preparing documents ahead of time that portray your property in the best light. TELL the appraiser what you want them to compare your home to by sharing a list of improvements, providing the most favorable comps and explaining the lower sales prices, and creating a home cheat sheet detailing every little thing. [Editor’s Note: We’re republishing this article to help out readers newer to BiggerPockets.] How have you prepared for your home appraisal? Please share your top tips below. Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Changing policies on a new property that you buy subject to (which we’ll call “sub to” henceforth) existing financing will likely save you some money, but you’ll need to stay on the bank to make sure it gets done in a timely manner. When I say it’s likely to save you money, it’s because you can use the same insurer we do; they are the largest non-owner-occupied insurer in the country. When you buy a home sub to, it has a loan in place of course, as well as an existing insurance policy. However, once your name is tied to the property, you’ll want to change that. Changing up the insurance on this type of purchase can create a lot of anxiety and fear about whether it will trigger the bank’s due-on-sale clause. But it’s been done thousands of times. There are a few ways to do it, but we use (and recommend to our associates) a rather simple process. Please understand, though, that we are not attorneys, and this is simply our opinion and how we operate. How to Change Insurance Policies on a Property To begin the process, our general manager (my daughter) gets a new policy quoted by one of our investor resources. With a quote and binder, we then have the seller authorize a release form that allows us to release information and call the bank. At this point, it’s a standard form in our sub to purchasing package. 1. Call the Bank The conversation with the bank goes something like this: “My name is Taylor with XYZ Property, and we manage the home located on 742 Evergreen Terrace. We’re going to send you a new policy because we just replaced the policy on the property you’re escrowing for. The insurance company is called REI Guard, and they are going to bill you directly. I will send this policy over now, please replace it…” If the bank follows through, you should just have this new real estate insurance policy, which should cut down your costs. Your total PITI then should come down, as well. Related: Investors: Be Smart About Your Property Insurance 2. Call the Bank Again Here’s the thing. Banks are notoriously inefficient, so include a tickler reminder to call the bank back three days later to make sure they actually followed through with swapping out the old policy. Did the new company bill you? Did the old policy get canceled? It’s helpful if you also have the past seller call the day after your call (or even the same day) to make sure it got done, as well. Getting the seller involved to help you swap policies can cut costs, too. Just because you or REI Guard faxes or scans them the new policy doesn’t mean they processed it. If you don’t follow up and make sure they transferred it, you could end up paying on the new and old policies. Paying on two policies is throwing away money, as you’re not likely to be able to collect on both should something happen. 3. Cancel the Old Policy While I’m on this point, let me mention that I know some investors who just keep both in place so as not to trigger any red flag with the bank and change of ownership. It’s been our experience that when we call, email, or mail a letter as the “management company,” it doesn’t cause any problems or throw up any red flags. Related: Important Points to Consider when Obtaining Homeowner’s Insurance 4. Contact REI Guard That’s the bank side. On the insurance side, you contact REI Guard and show them the new house and policy, and fill out their form. You still list the bank as the first lien holder (it has to be), the seller’s name second as an additional insurer (that didn’t change), and then you list your XYZ Property Company. They will recognize you as the management company. And that’s it! That’s both ends of covering and insuring a sub to property. Do you have any additional questions for me about this process?  If so, ask me in the comment section below!   Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Real estate investors have multiple options for getting into the game. The most popular investment strategies are fix and flip and long-term rentals, with fix and flip getting the most publicity. But another option that doesn’t get nearly the amount of press is spec houses. As with any real estate investment, there are pros and cons when it comes to spec houses. I’ll walk through a few of each to help you determine if spec house investing is right for you. What Are Spec Houses? A spec home is basically what it sounds like: building a single family or multifamily property without having a buyer lined up (speculation). Spec homes can be a risky venture, but with that risk comes an upside potential that can be very attractive. Investors typically make their money on spec homes in one of two ways. They can finance a percentage of the construction costs (lend money to a builder) and earn interest or share in the profits once the home is sold. In the latter case, you or the builder may also borrow money from a bank or private lender to pay for some of the construction costs.  Sharing in the profits is often called “equity investing” and is potentially riskier but also more rewarding than lending money to a builder. Pros & Cons of Investing in Spec Homes Now that we have the basics down, let’s look at a few of the pros and cons of investing in spec homes. Pros of Investing in Spec Homes The upside on spec house investments is generally higher than fix and flip. It is becoming more and more difficult to find good fix and flip properties, making spec houses a good alternative. The competition is less for spec housing development versus fix and flip. Spec houses can be considered a medium-term project. Investors will realize their gains faster than with long-term rentals but longer versus the typical fix and flip project due to longer construction time. With spec houses, you avoid the costly surprises that flippers often encounter (termite damage, mold, etc.). More and more spec builders have become accustomed to seeking out private investments. Related: BiggerPockets Podcast 046—Six Figure Profit Spec Building and Marketing for Incredible Deals with Jon Klaus Cons of Investing in Spec Homes Spec houses are inherently riskier than fix and flip or long-term rentals. The market could tank between the time the deal is financed and the time the property is ready to sell. Market needs/trends could change between the time the deal is financed and the time the property is ready to sell. The project could run into unforeseen problems, causing delays and cost overruns. Depending on how much “skin in the game” the builder has, they have less to lose than the investor. If the home doesn’t sell, the builder typically has little or even nothing to lose, but the investor can be stuck with the house and holding costs. Builders make money on the construction draws. Related: The Advantages of Spec Building: 3 on 3 Interview Series Mitigating the Risks of Spec House Investing While spec housing development involves risk, there are several steps you can take to lessen the downside in the event things don’t go as planned. Start at the beginning. In most spec building projects, much of the profit will come from the lot acquisition. Make certain the land acquisition is a good deal before you go any further. Partner wisely. Becoming a savvy spec home investor means choosing your partners carefully. Only work with builders who have a long track record of success and you can trust. Do your research. Even if you are working with an experienced and trusted builder, do your own research. Make sure the deal makes sense after you’ve researched critical factors such as the area’s absorption rate, employment stats, median price, time on market, and competition. Assess others’ skin in the game. Make sure you are comfortable with how much skin in the game the builder has. The Bottom Line Given the intense competition for and increasing price of good fix and flip projects, now might be a great time to consider investing in spec homes. They can offer the investor an attractive upside, but it’s of course one that comes with risk. Do your homework and choose your project wisely. Would you consider investing in spec homes? Or have you in the past? Why or why not?  Leave a comment below!   Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

I’m going to talk to you today about something that I’ve been wondering: Why would you invest in real estate to save money on taxes? This might be the most ridiculous thing I have ever heard in my life, and it is something that is very, very frustrating to me. I just don’t get the principles behind it, and the fundamentals of it don’t make any sense. Why It’s Almost Always a Bad Idea to Invest in Real Estate to Save Money on Taxes So, let me start off with my Aussie investors. A ton of you out there are using this thing called “negative gearing.” This means you’re investing in these super-duper expensive properties that cost you more than the income that you are getting every month. You are losing that money, but then you are losing all those losses to offset the income you are making from a 9-5. Guys, that is not why we invest in real estate. We invest in real estate to make money and to pay our taxes fairly. I always say I wish that I was paying $10 million in taxes, and do you know why? Because that would mean I’d probably be making $100 million. In the U.S. (and I know in Australia, too) the taxation system favors businesses. The more money you make as a business owner, the fewer taxes you pay. Unfortunately, that’s just the way it is. Now, for everyone here on the East coast and West coast of the United States, your markets have boomed. They’ve gone up in value. So a lot of you guys can’t take advantage of losing money every single month by offsetting it against your income. Still, it is mind boggling to me that you are investing in these properties, losing money on your monthly mortgage repayments, which means your income is not covering your expenses. But you are doing that because of some prediction and hope that the property is going to appreciate in value more than you are losing on your mortgage repayments. Related: Cash Flow vs. Appreciation: What Experienced Investors Know About the Debate That You Don’t Use Real Estate Investing to Supplement Your Income Once again, this is mind boggling to me. I don’t get it. It doesn’t make any sense. Real estate should be about putting money in your pocket every single month. Forget about capital appreciation. I mentioned it in one of my previous blog posts that capital appreciation is a prediction. It is speculating because we don’t know what the future holds. You guys have to invest based on the numbers in the deal as they stand today. This means your income has to outweigh your expenses. There has to be positive cashflow left over, and there has to be a ton of money pouring into your pocket every single month. Remember, we invest in real estate to supplement the income we are getting from a job we do not want to be working in. So why are you investing in capital appreciation? That will not supplement your income. That is intangible. It is equity; today it’s there, and tomorrow it could be gone. We don’t know where the market is going. We can’t predict the future. So, again, do not do it. Invest based on cash flow; invest based on making an absolute fortune. When you make more money, pay your taxes fair and square. I said that the tax system favors business owners and folks doing well, so I’m sure you’ll have other tax advantages you can use through a good accountant. Investors: What do you think of this assessment? Leave your thoughts below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Investing with a full-time job can be one of the biggest challenges that investors face. Not everyone can just quit whatever they’re doing and jump headfirst into the swift water of investing. Some people really love their jobs; they just like to invest part time. They might be managers, supervisors, or even commanders. People are relying on them to perform at peak levels while at work. Meanwhile, others are working to replace their salary completely with passive income. Whatever the case may be, we need to remember that we make time for the things we truly want in life. We surround ourselves with the people, materials, and ideas that drive us toward our true passions. I hear too many new investors tell me that they don’t have enough time to invest in real estate. Some say their jobs are too demanding to allow for extracurricular activities. This is merely a screen of excuses that we naturally use to justify our lack of action. To get past these self-inflicted barriers, I want to outline a few tips for investing in real estate while holding a full-time job. 1. Budget Your Time Budgeting your time is one of the most effective ways to ensure that you give yourself enough time to work on your investments. If we take a look at the people who have the worst spending habits, we notice that they usually do not have any type of budget in place. How can you expect to maximize your efficiency when you don’t know where you are spending your money—or in this case, time? Maybe you can sneak an extra hour in your day to work on your investments, whether that’s over lunch, immediately after or before work, etc. You need to take a hard look at where you are spending your time to figure out where you are spending it inappropriately. Are you watching too much television when you should be analyzing deals or working on offers? Did you catch every episode of Game of Thrones but still couldn’t find time to contact that real estate agent about touring investment properties? Don’t lie to yourself. If you put entertainment before your investments, then your passion is probably not in investing. Related: How to Manage Your Rentals While Working a Full-Time Job 2. Become a Master of Compartmentalization Compartmentalization is a huge concept that you need to grasp if you are going to improve your investing career—especially if you intend to do so alongside a very demanding job. Compartmentalization is the ability to separate different aspects of your life into “compartments” in your mind. You should be able to plug into your business and perform at a high level, then turn around and plug into your investments and be able to pour out the same level of passion and energy. You should figure out how to do so without these categories bleeding into each other, too. It’s important that you don’t let your negative experiences with work bleed into your investing, family life, and hobbies—and vice versa. 3. Journal Thoughts and Ideas Journaling thoughts and ideas is a great way to help with your time segregation. If you have a thought about investments while at work and you don’t have time to act on that thought, just write it down so you don’t forget it. Journaling these ideas can help you stay focused and organized while simultaneously keeping you from working on your investments when you need to be focused on your day job. Journaling also helps keep your focus on a specific goal. Write it down, and put an action plan in place. It’s a quantifiable way to measure your progress toward that goal. Related: How I Find, Vet & Purchase Investment Properties While Working a Full-Time Job 4. Build a Team Building a trustworthy team is another great way to help manage your assets while you work. For a small fee, you can hire an assistant part time to keep your books and records or manage your contacts while you work your day job. There is nothing wrong with doing this. If you want to take investing seriously, you will probably need help. You just need to decide where your time is best spent. These are just a few of the many tactics you can implement in order to maximize your time and efficiency while you invest with a full-time job. Nobody is asking you to quit your job. Frankly, you may not even want to. THAT’S OK! But you owe it to yourself to be the best performer in every aspect of your life. Do you have any other tips for investors who work full time? Leave a comment below. I’d love to hear your feedback!   Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

We’ve all heard the saying, “The grass is always greener on the other side of the fence.” What some of us don’t realize is that, often when you hop the fence and take a closer look, you discover that the grass is exactly the same—the difference was an illusion. The same can be said of buying properties in markets outside your local area. I hear the idea of going far afield to invest all the time nowadays. “The market in X location is just too competitive.” But if you think doing deals a thousand miles from home is where the gold lies, you might want to take a closer look. In an uptrending real estate market, common wisdom suggests that in order to cashflow, you’d better start looking for deals in distant lands—anywhere housing prices are relatively low. In my humble opinion (one developed over 30 years of investing in the greater Washington, D.C. area, which is very high priced), I believe I can disprove the common wisdom. It might appear that snapping up a deal in a small, obscure town would make sense. Properties far cheaper than those in a current high-end market take less of an investment. And because the price is lower, you can make money with a lower rent. On the surface, this seems true. But allow me to illustrate three reasons this train of thought isn’t necessarily your best course of action. Related: Buyer Beware: 3 Essential Items to Vet BEFORE Investing Out-of-State 3 Reasons to Stay Local When Investing in Real Estate #1: Risk One of the keys to becoming a successful investor is having an intuitive understanding of the market in which you’re investing, right? Can you really expect to fully understand a market 1,000 miles away from you—in a part of the country you’ve maybe never been? When you invest out of state, you have to develop an investing team in this far away land to help make up for your remoteness. And just to put the cards on the table… who will they truly be looking out for? You or themselves? #2: Competition Competition isn’t a bad thing; it’s healthy. It keeps everyone “on their toes,” keeps prices down, and keeps values high. Yet, when you try and invest in a “foreign market,” you’re competing with local investors who have one major advantage over you: intimate local knowledge and relationships. They know the rent rates, sales prices, local economic trends. They know local agents, brokers, appraisers, lenders, and more. All this means you’re going to have to work two or three times as hard just to stay in the running. #3: Cheaper isn’t always better Let me explain this with an example. Suppose that in your market, an average bread and butter home costs $300K. But you learn that in Lizard Lick, Ark., the same home costs $75K. “Great,” you think. “I can get the same place for 25 percent less.” Hold on, though. Consider something important: why is the home so much cheaper? Real estate prices and rents tend to follow very closely on the heels of local economic realities and trends. One reason some areas are so expensive is that the local economy is strong. There are lots of high-paying jobs, top-end schools, and other factors that drive up desirability. Conversely, low-cost markets may be suffering from a lack of these factors. In Lizard Lick, let’s suppose, there aren’t many high-paying jobs. So, while you could get that house for $75K, the local market only supports a rent of $650 per month. Meanwhile in your area, you could rent the same house for $2,600 per month. Proportionally, the rent/price ratio is similar (0.87). Related: What Moving Out of State is Teaching Me About Remotely Managing Rentals Which leads me to my next point… In my experience, appreciation delivers the biggest profit. If you are honest with yourself, you’d probably agree that not all markets appreciate the same. So, which market do you think is subject to better appreciation, Lizard Lick or yours? Let’s say all things are equal and both markets appreciate at the exact same rate (highly unlikely). If you hold each house for 10 years and both houses appreciate by 25 percent in that time, the Arkansas home will be worth something like $94K, while the more expensive home in your area will be worth $375K. In my opinion, the effort, energy, and money you’ll have to spend, in addition to the added risk, will at best make investing far away no more profitable. Plus, it’ll cost you time and money that could be spent in your own backyard. Remember that you know your market intimately. You can develop long-term relationships with an investing team locally. These people will help you invest, and you can have a real face-to-face, handshake relationship. The Bottom Line There are lots of ways to make money right where you are. I’ll go into detail about them in other pieces, so keep checking back for more in-depth discussions! Let me leave you with one final thought: Even if you really do want to go beyond your neighborhood, you don’t have to travel far. Often you can look an hour or less away from where you are and find an entirely different market, different economic situation, different property types, different people, and more. In doing so, you’re still not so far away that you can’t develop an intimate knowledge of the area and the quality relationships you need to succeed. So, start where you are! Remember that there are always acres of diamonds right under your feet! Are you currently looking into different markets? How far away? Why? What do you think about my arguments against doing so? Let’s talk in the comment section below!   Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

It’s not a 100 percent sure thing, but it’s very likely: as a new investor, you will lose money on your first few real estate deals. Let’s talk about why that is. Look, guys. The reason is pretty simple. It’s because you suck, OK? The No. 1 Reason Real Estate Investors Lose Money Jokes aside, with any new venture that you start, you’re probably not going to be too good at it. I’ve said it before and I’ll say it again, all good things take time. Lack of Experience I don’t want you guys to become a jack of all trades and a master of none. Truly focus in on what it is you want to do. Select a specific niche within the real estate industry, and focus on that. Then you will give yourself the best possible chance to stop sucking as quickly as possible and actually start being good at whatever it is that you’re doing. The video above is more catered toward someone who is looking to buy, fix, and flip. But I believe you’ll be able to take some valuable information from it and implement it, regardless of the specific niche that you’re looking at doing in real estate. Related: 4 Tips for Surefire Business Success Miscalculating the Numbers More specifically, I believe that the number one reason why many investors lose money on their first few real estate deals (including myself when I started) is because you get the numbers wrong. What I mean by that is you get the numbers wrong when acquiring the property. You’re not necessarily buying it cheap enough to give yourself a margin of safety to make a profit on that particular transaction. You might have wrongly calculated the closing costs. Just because the property was listed for $100,000 doesn’t mean the buyer will actually acquire it for $100,000. What if the best offer is only $90,000? What about the various closing costs and associated fees, Realtor commissions, back taxes owed that were maybe overlooked? Or maybe there are buyer concessions? Underestimating Rehab Costs Let’s talk about rehab, too, and miscalculating the actual rehab costs. Or what about a contractor potentially screwing you over? That is something that happens very often. It still happens to me to this day after more than 500 deals. I’ve said it before, guys: real estate is truly a numbers game. You have to focus on the numbers from a commitment standpoint. It starts with how many hours you spend in the office working on your real estate endeavors. Related: 3 Fundamental Tips for Real Estate Investing Newbies Not Working Hard Enough How many times do you pick up the phone to talk to prospective sellers? How many offers do you submit? How many conferences do you attend to meet like-minded people? How many emails do you send? How many properties do you tour? How many deals do you flip? Real estate is truly a numbers game, and I believe that many beginner investors lose money on their first few transactions because they get the numbers wrong. This usually occurs more so on the transaction side of things than on the actual commitment side of things. I’m not the smartest guy out there; I quit school at a very young age. But I know that nothing beats hard work. I’m living proof of that! So as long as you are willing to work hard and commit to the numbers, you will recover from those first couple deals and figure it all out. It took me five deals before I figured my stuff out and made some money on a flip. As long as you work hard, you will recover and do some amazing things long-term. How to Be Successful in Real Estate Investing I’ll leave you with one last piece of information—one that you’ve probably heard before. You make money when you buy, not when you sell. And always underestimate your income and overestimate your expenses. You can’t go wrong including extra miscellaneous expenses when you are looking to rehab a property or determine the sale price of a property. Whatever it is, I don’t care—make up something. Literally, make up some stuff just to include it as an expense so you don’t think you’re going to get that extra income. Always paint a horror story or the worst possible scenario. Once you do that, if the numbers make sense after you’ve calculated that worst case scenario, then the investment might be worth pursuing further. Have you lost money in real estate? Have you done well in real estate? I’d love to hear your story either way.  Share in a comment below!   Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Have some money set aside and wondering how to best use it to start investing in real estate? Maybe you’ve been scrimping and saving, or maybe you inherited some cash. Or perhaps you’re a rare lottery winner who didn’t go broke within a few years. You know that if it just languishes in a savings account, it will lose money to inflation every year. So it’s time to dress that money in overalls and put it to work for you! How much is a “lump sum,” you ask? For the sake of argument, let’s say $150,000, but don’t get hung up on that number. You don’t need exactly $150,000 for this strategy to work. Maybe you have $15,000 put aside or perhaps a cool quarter million; that’s not really the point. Think of this strategy as a broad-stroke approach on how to start investing in income-producing real estate with some cash in the bank, some discipline in your budgeting, and serious ambitions for passive income. Phase #1: Start by house hacking. House hacking is an excellent way to get your feet wet with investing and multifamily properties. You can use residential, owner-occupied financing for up to a 4-unit building, which means low interest rates and low down payments using conventional, FHA, or VA financing. Speaking of down payments: Don’t blow your cash reserve on this purchase. Put only the minimum amount down—you’ll need a lot more cash for your next two deals. Take advantage of the low down payment requirement, and keep your cash for now. Your new home’s rental income should cover your mortgage (no housing payment!) and ideally provide some positive cash flow to boot. The average person would just spend all that extra money they’re saving by not having a housing payment—a new ride, dinners out, new clothes, etc. Related: 4 Steps to Finally Tackle Your Debt—and Start Growing Real Wealth You’re not going to do that. Take every penny that you’re saving by not having a housing payment and funnel it right in with your other savings. Heck, live on half your income, and really accelerate your savings! Over the next 12 months, while you’re saving money like a champ, you’re going to gain experience managing rental properties. You’re going to practice filling vacancies, screening tenants, reading up on rental investing. You’re going to learn how to calculate cap rates, how to budget for CapEx, how to accurately predict rental property expenses. In addition, you’re going to talk to lenders about investment property loans. You’re about to need one. Phase #2: Buy another 3-4 unit multifamily. By now, you should have developed some confidence that you can manage a small multifamily property. After all, you’ve been doing it for a year and taking every opportunity to learn even more. It’s high time to double up and buy another one! At this point, you have a choice. You can borrow an investment loan for this next property. Typically, investment loans require 20% down. Alternatively, you can borrow another owner-occupied loan and move into the new property. Keep in mind, you usually can’t have two FHA loans simultaneously, so if you went FHA the first time around, you’ll need to either go conventional this time or refinance your prior FHA loan. Once again, don’t allow any lifestyle inflation! You should be earning substantial income from your two multifamily properties now, but don’t spend a cent of it. It should go back into your investment fund because next time around, you’re going to need a lot more cash. Your friends and family may be increasingly interested at this point about what you’re doing. Whenever they ask you about what you’re up to, tell them about your success with multifamily properties. If they express enthusiasm, tell them to let you know if they’re interested in investing funds when you buy your next multifamily property. Give yourself another 12 months to acclimate to managing two multifamily buildings and set aside more cash. Keep devouring as much information as you can, particularly about investing in apartment buildings. Start reaching out to commercial lenders. Your next loan will be a commercial loan, and the rules are different. Phase #3: Buy an apartment building. Start looking for 5-10 unit buildings. Commercial financing varies, but you’ll need a significant down payment. Hope you’ve been disciplined about saving all that rental income you’ve been earning! Go back to all of your friends and family who expressed an interest in investing with you. Offer them a 7% return on their money, paid in interest payments every month. Bear in mind that if you raise funding from friends and family, it’s an enormous responsibility. No matter what happens, you must pay that money back or you endanger the most important relationships in your life. Not everyone is comfortable with this responsibility, so follow your gut. There is much less competition for multifamily properties with five or more units because they require commercial financing. You’re now competing with only serious real estate investors, not every Tom, Dick and Harry. While that might sound scary, it actually means you’ll have far less competition and should earn better yield and cash flow per door. Related: 6 Ways to Get Started in Real Estate While You Save Money to Invest Managing your own rentals has served you well through this point. It’s taught you valuable lessons about what kinds of properties to buy, what kinds of renters and neighborhoods you want to work with, and countless other experience that will inform your future investments. Although you’ve been able to manage your properties on the side of your full-time job until now, it may be time to consider hiring a property manager. After all, you now probably manage more than 10 units! Welcome to the big leagues. To Infinity and Beyond You’ve probably chewed through your initial savings (and then some), but you should now have significant income from your three multifamily buildings—what will you do with it? One option is quitting your day job, maybe to invest in real estate full-time. Or not; you could go lie on a beach, volunteer, or take a low-pay, high-reward job with a cause. But you don’t have to quit your day job. You could keep working while expanding your real estate portfolio. At this point, you’ve taken your initial savings and turned it into 10-20 rental units and some great passive income. The sky’s the limit! Whatever you choose to do, think in terms of your long-term goals. What does your perfect life look like? Describe it in detail, on paper. Then work your way backwards from there. How much income do you need? What will it take for you to get there? The less money you can be satisfied living on, the sooner you’ll achieve financial independence. But there are no wrong answers, as long as you’re actively moving toward your perfect life. Happy investing! Have some other ideas about what you would do if someone handed you a check for $150,000? What kinds of goals are you aiming for with real estate investments? Like we said, no wrong answers! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

People are constantly telling me that they can’t find deals in today’s real estate market. It’s too competitive. So I want to eliminate all those excuses and give you 27 ways to find good deals. Let’s get to it. How to Find Real Estate Deals in Today’s Competitive Market 1. Look for deals on the MLS (with the help of a real estate agent). The MLS is the box that all the real estate agents put their deals into. Yeah, it’s competitive right now, but if you set it up correctly, you can still find good deals on the MLS. For example, get some automatic email alerts set up with your real estate agent that fit your criteria. That way, you’ll get to be the first one to know about those deals. 2. Drive for dollars. Get in your car, drive around, and look for vacant properties. When you find something, write down the address. See if you can get a list of 10, 20, 30, 40 properties while you’re out driving for a couple hours. Then, go home, research the address, find out who owns the property, and send them a letter. 3. Let everyone know. Church? Rotary club? Mosque? Temple? Wherever it is that you hang out with other people, let everyone there know that you buy real estate. Let them know what your criteria is. People want to help you out. So in your social clubs and groups, let ’em know. 4. Participate in real estate clubs. You know there’s people meeting all around the country in almost every city every single week? Go find a real estate club in your area. BiggerPockets.com/meet is a great way to locate these people. Find a club, start talking with people. Network, get to know people, and let them know what you’re trying to buy. Real estate clubs can be a great way to find deals. 5. Do direct mail marketing. Send letters to people. Ya never know who’s going to answer. 6. Identify pre-foreclosure properties. People who haven’t paid their mortgage in the last 30, 60, or 90 days, they’re in real danger of losing their house to foreclosure. If you contact them ahead of time, maybe you can save them from a foreclosure and get yourself a good deal. 7. Show up to the courthouse steps. Look, after somebody stops paying their mortgage, they get foreclosed upon, and then, it goes to the courthouse steps. You can show up there, bid on it, and potentially buy the property right there on the courthouse steps. Related: 3 Deal-Making Tactics That’ll Help You Find (& Close) Real Estate Transactions 8. Check out eviction records. Have you ever evicted somebody? It’s not fun. As a landlord, when you have to evict somebody, it reminds you of how much you hate real estate investing. What a better time to contact a local landlord and ask to buy their property. So, head to your county courthouse, find out who keeps the eviction records, and every week, get a list of everybody who’s doing an eviction. 9. Post a Craigslist ad. Craigslist is the world’s largest online classified page, so why not post an ad saying, “Hey, I buy property! I buy houses! I buy smelly, nasty, disgusting properties!” Ya never know who’s lookin’. 10. Search Craigslist. Instead of posting an ad like we just talked about, go look for certain keywords of people selling their properties on Craigslist. There’s actually a page called “Real Estate for Sale” on Craigslist. Go there. Check it regularly. You can also set up some automation tools with sites like “If This, Then That” (IFTT.com), so you get notified with certain keywords like “fixer upper” or “nasty.” 11. Buy a tax lien. You can actually buy a tax lien, which means somebody didn’t pay their taxes and you can get the right to buy that property and get a great deal. For some investors, that’s their primary method of finding great deals—it’s by buying tax liens. 12. Search the BiggerPockets Marketplace. The BiggerPockets Marketplace is a place you can go to look for deals anytime, day or night. There’s thousands on there. Go check it out today! 13. Put a sign in your yard. If you have a yard, you can put a sign in it that says that you buy property. I’m not saying to go litter your neighborhood with “I buy houses” signs everywhere (aka the bandit signs). But a good yard sign can get you a good deal. 14. Rent yourself a billboard. Go big, go bold. Rent yourself a billboard on the side of the highway and get thousands of people to see your message that you buy houses every single day. 15. Get a magnetic sign for your car. You can get a magnetic sticker to go on the side of your car that tells everybody that you buy houses. 16. Create a radio commercial. Call up the radio station and see what they can give you for a quick commercial about you buying property. Related: How to Find the Best Commercial Apartment Deals 17. Look for “For Sale by Owner” signs. When you’re out driving around, look for FSBO signs in yards or at shopping centers or at grocery stores on bulletin boards. This is a good way to find motivated sellers. 18. Browse expired listings. When a real estate agent tries to sell a house and the house doesn’t sell during the time period they’re trying to sell it, it becomes an expired listing. Those can be great people to contact to buy their property, because now it’s no longer listed, no one else is looking at it, and you can snag a great deal. 19. Tell your family and friends. Do your family and friends know that you’re looking to buy real estate? If not, get into the practice of always telling whoever’s around, “Hey, I’m looking to buy real estate deals. Do you know of anybody looking to sell?” 20. Place an ad in the newspaper. If you think about it, yeah, not everyone still uses a newspaper. But a lot of people still do! So, newspaper rates have come down, but people still read them—especially people who might be interested in selling their house. Give it a try! 21. Post an ad in a landlord magazine. Most areas have a local landlord club or magazine or trades newspaper. You can actually post ads in there looking for deals. Those are actual landlords, real estate investors, who own those properties. So why not contact them and see if they want to sell? 22. Write a blog. When you create a blog online or do content marketing and offer good information to your local community, people are naturally going to end up there. For example, here in Hawaii, I could create a blog about all of the great things there are to do in Hawaii. Then of course, when people visit that page, they’re going to learn all about what my company does, as well. So blogging or content marketing is a really good way to get people familiar with your company and the fact that you buy real estate. 23. Make sure your website is search engine optimized. Search engine optimization is making sure that your web page is clear and that Google understands exactly what it is you do on your website—you buy property. Then when people are searching Google for “how to sell my house fast” or “I want to sell my house now,” your website is going to come up first. Then, they can contact you and see you their property. 24. Pay for ads on Google. We talked about Google a second ago. A lot of people go to Google to search for answers, right? Well, did you know you automatically show up at No. 1 in search results on Google? You can! But you have to pay for it. Sure, it might cost you a dollar or two or three, maybe less, maybe more. But you can appear at the top of search results, so people go to your website when they want to sell their home fast. 25. Buy a deal from a wholesaler. Wholesalers do all of the above things to find deals. Then, they’ll sell it to you for a finder’s fee or a small markup. So you might pay them two or three or four thousand dollars, but at the end of the day, you get yourself a deal. Find some wholesalers! Try a local meetup, check BiggerPockets, connect and network with people until you find an amazing wholesaler who can deliver you incredible deals. 26. Find a commercial broker. If you’re looking for commercial real estate, find yourself a good commercial broker who knows your market. These are usually different people than the residential brokers, and they can be a critical member of your team. 27. Search online marketplaces. There are actually a number of these online: LoopNet, CREXi, or even niche-specific ones like MobileHomeParkStore.com. There are a lot of different marketplaces online, so get out there and search the internet, find some marketplaces where you can look for deals in your area. Do you have a unique method of finding deals I haven’t mentioned here?  Share your thoughts below in a comment!   Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Today we’re talking about the top three people who might rip you off the most when you invest in real estate. The Top 3 People Most Likely to Rip You Off in Real Estate Investing 1. Contractors In my opinion, the biggest ripoff is contractors. I mean, these guys can be absolutely ridiculous sometimes, and I’m sure that most you investors out there will agree with me. They will sometimes lie, cheat, and steal. I’ve literally lost over $300,000 over the last five years to contractors. It is ridiculous. And a lot of you out there probably won’t be willing to admit that you’ve lost money to contractors. Well, whatever. I’m here today telling you that I do 10 deals per month, and to this day I lose money to shady contractors. Related: 4 Massive Financial Scams Sold to Americans on an Everyday Basis Now, how I’ve minimized my losses is I’ve hired project managers and I’ve incentivized those project managers to make sure that they come in on budget. I ensure they get the flip or the rehab done as quickly soon as possible. Then they make a certain percentage from every sale that we make. And as you can imagine, this pretty much keeps costs low, keeps timeframes short, and makes sure they are incentivized to make money on every property we flip. So, that is how I go about minimizing my losses and dealing with contractors directly on a one-on-one basis where I’ve got those project managers dealing with the contractors. 2. Accountants and Attorneys The second one is accountants and attorneys. Honestly, I can’t tell you how much ridiculous money I have spent on legal fees and accounting fees to folks who pretty much check their watch every single time I send them an email. The only thing I can tell you is thisL Try and build a very strong relationship with a trustworthy accountant and attorney. Still, when you are just starting your business, meaning you don’t have that much money available or you don’t have that much net wealth, it’s my opinion that you really don’t have anything to lose. So why would you spend tens of thousands of dollars on legal and accounting fees? You should spend that money on doing deals, on buying and rehabbing a house, on investing in marketing, on investing in branding yourself, whatever it may be. There is no need at that point to spend money on legal and accounting expenses. 3. Appraisers and Building Inspectors And the last, but not least is appraisers and building inspectors. Why? Because appraisers these days are more worried about job security than they are about giving fair value on a property. The undervalue every property by $10-$15,000 because they don’t want Fannie Mae knocking on their door if that homeowner goes into foreclosure. What happens if that homeowner goes into foreclosure ,then whoever appraised the property their profile gets looked into? So many of these guys are more worried about that happening, and they undervalue the price of every property instead of giving fair value. Related: 4 Types of All-Too-Common Real Estate Scams Making Headlines As for building inspectors, these guys are paid to find faults. Even if you build a house from scratch, they’re still going to find some faults and there is nothing you can do about it. So guys, I’ve got no tips for you there except to sell on your terms. If you can’t beat it, you have to eliminate it. This is something that I’ve done with my company. If you don’t trust me, don’t invest with me. If you don’t trust the price that I’m presenting the property to you for, don’t buy it. Someone else will or I’ll keep it. If you don’t trust the quality of workmanship that I’ve done on a property, don’t buy the property. There is nothing I can do about that. Because I know what’s going to happen—the appraisals won’t come in and the building inspectors will find faults, even though those faults have nothing to do with the sustainability and how self-sufficient this property is going to be for the long term. What do you think of this list? Feel free to agree or disagree in the comments section below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Real estate investing is a competitive business. There are lots of talented people looking for the same awesome deals. A few fundamentals will always result in incredible deals: Dig harder than your competition Research confusing entities and legal descriptions Clean up messy titles Track down hard-to-find sellers Have a better/more unique exit strategy than your competition Be early to the hot areas But one thing remains true with all of the above items—you make your money on the buy. Time can heal most mistakes in real estate, but if you don’t have enough cash reserves to wait out your mistake, you may lose the property. Create a buying strategy that has considerable equity capture at the time of purchase; put this point at the top of your list. But what do you do in this scenario? You have a seller. The property has deferred maintenance and is in a good area. But the balance of the loan is just too high. Maybe the seller is just ready to get out of a bad situation? They would walk away without any profit just to stop making payments. Or maybe they’ve already stopped making payments, and a foreclosure is looming large! Can you make money on these deals? The answer to these questions and the solution to your problem is called performing a “short sale.” What Is a Short Sale? As the name implies, a short sale occurs when a property is sold short of what is owed—sometimes dramatically shorter. I’ve had deals that I had over 68 percent of the loan balance written off! This meant taking a deal where there was no equity and creating a very healthy spread. It resulted in me having multiple exit strategies and making an over 144 percent return on my investment in 30 days. (If you’re tracking with me, that’s a 1,728 percent annual return.) Yes, this deal was an exception, not the rule, but you get the idea. Understanding the lender negotiations/short sale process is very important to being a successful investor in today’s market. Related: Short Sale Investor—Not All Real Estate Short Sales Are Created Equal Short Sale Real Estate: Step by Step Knowledge about the short sale process sets you apart from the vast majority of real estate agents and investors, because the process isn’t simple or quick. It takes persistence, an organized process, diligent follow-up, and attention to detail. But the returns, in my opinion, are worth it. Here are the basic steps in the process: Find a property with zero or even negative equity and an owner that just wants out! Because a lender is taking less than what is owed for the property, the owner isn’t allowed to make anything on the sale. There are ways to potentially get them something called “relocation assistance,” but that’s another topic for another day. Submit a short sale packet to the lender as soon as you can (and as much time before a foreclosure as possible). If you are right up against the foreclosure sale date, most lenders aren’t going to be willing to start the short sale process. Get an appraisal on the property to establish its true value and not the loan payoff amount. This is a very important step, because it’s what the lender will use to begin recalculating the value of the property. Obviously as an investor, you want this number as low as possible. Get an approved short sale price. Does this new number allow you to purchase safely with equity capture? Close on a property that was passed over by 98 percent of your competition Now this is a very short, very simple overview of the short sale process. Full disclosure: it usually take three to four months and a dozen or more calls to the lender. You also need to ensure you’re providing a complete and detailed paper trail to help the lender understand your seller’s situation and why you’re asking them to take thousands less for the property than what is owed. Related: Does the Short Sale Have a Future? The Truth About Short Sales Is this process for everyone? No, probably not. But there’s still hope! You can partner with a short sale negotiations company, which will work with you on qualifying the seller and doing all the follow-up with the lender. You’ll obviously be splitting the profits with them, but it still allows you to have a profitable solution to almost every situation and every seller who comes across your path. I personally love short sales, because it’s one of the most rewarding facets of real estate investing. A short sale is so much better than a foreclosure for the seller. Usually this will go on their credit report as a “deficiency payment.” This results in a much smaller drop in their credit score, and they can actually qualify for a new mortgage just two to three years later. In contrast, a foreclosure can take you out of the game for five to 10 years! So next time you’re contacted by a desperate seller who wants out of a deal and doesn’t have any equity, remember the short sale option. It just might result in a highly profitable deal and a seller who is forever grateful for your efforts. What other questions do you have about the short sale process?  Ask me in the comment section below!   Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

The internet is full of “hacking tips.” I’m sure you’ve seen them, with clever tricks like storing your pancake mix in old ketchup bottles or dipping your Oreos with a fork through the frosting. Sure, those are fun little tricks – but how much do they really improve your life? Today I want to share a “life hack” that, when properly implemented, can have a dramatic effect on your wallet and the financial destiny of your family. This is much more than simple tricks or ideas to shave five minutes off your work day. This is epic, life changing stuff. I’m talking about hacking your housing and living for free. I’m talking about building wealth automatically and getting paid to do it. I’m talking about buying an owner-occupied multifamily property and getting paid to live for free. Wait, what? You heard me – it’s often called an “owner-occupied multifamily property” but you probably have heard other names for it, like “duplex,” “triplex,” or “4-plex.” Yes, I’m talking about the properties that have more than one unit but don’t quite fit the “apartment complex” category. There is a good chance you’ve even rented a unit in one of these places in the past or you know someone who has. They exist in every market, every neighborhood, and every price point – and by purchasing a small multifamily property, living in one unit, and renting the other units out – you can live for free and get paid to do so. Let’s get started. Are You Ready to Buy a Home? When I bought my first house, I took a hammer and put a giant hole in a wall – just because I could. You see, buying my home was exciting because it was mine.  I could do what I wanted, when I wanted to – and no landlord was going to tell me “no.” For me, owning a home is one of the greatest feelings there is. However, buying a home is not for everyone. If you are flat broke, up to your eyelids in debt, switching jobs every 2.5 weeks, and can’t seem to avoid calling those late-night informercials for crap you can’t afford… maybe it’s best to get your life and budget in order first. Buying a home is not a light-hearted, flippant decision. However, I also don’t believe buying a house needs to be a task only for old, boring people. If you have decent credit, a stable job, and a small amount of savings – you can enter the world of the homeowner.  Even more so – if you are smart about it, you can enter the world of the real estate investor at the same time and start hacking your living expenses. Why Purchase a Small Multifamily? By purchasing a great small multifamily deal, the rent that your tenants pay each month can cover all of the expenses for the property – and more.  For example, if you buy a 4-plex, live in one unit, and rent each of the other units out for $500 a month, you could be making $1500 per month in income. If your loan, taxes, insurance,  utilities, and other expenses come to just $1200 – you could get paid $300 a month just to live in the home.  Even better- when it comes time to move out into your future home, you can rent that 4th unit out for even more income. However, I’m getting ahead of myself a bit.  Let me explain first how to buy a small multifamily property. Where to Find Small Multifamily Properties Trust me – these properties are everywhere. The easiest way to find them is by speaking with a real estate agent. Ask your family and friends for recommendations and start up a conversation. The best part about working with agents is that it’s totally free for you! The seller of the property typically pays for the agent, which means you can ask a thousand questions and get a thousand answers without needing to pull out your debit card. Use this! Keep in mind, however, that you are only looking for properties that have 2, 3, or 4 units. Once you hit 5 units or more, the entire world of real estate changes into something you don’t want to mess with (commercial real estate.) So for now, focus on the duplexes, triplexes, and 4-plexes. If you want to just start looking, you can also use sites like Realtor.com, Zillow.com, or Trulia.com to start looking at properties. With each of these sites, you have the ability to limit your searches to only multifamily properties.  Start looking at the cheapest properties in your area and try to find neighborhoods that you would want to live in. Don’t be scared of homes that are a little “ugly” or have been foreclosed on. Although they may require a few weekends of painting with your buddies – you can often get substantial discounts because everyone else is scared away.  In fact, my favorite feature in any property I am considering is the smell. The worse, the better.  Why? Because smell is the easiest and cheapest thing to fix (usually just by installing new carpet and re-painting) but drives 99% of home buyers from even considering the deal. What Makes it a Killer Deal If there is only one lesson you learn from this post – it’s this: Find a killer deal.  You see, if you are trying to “hack” your housing, not just any deal will work. In fact, I’d wager that 90% of the small multifamily properties out there are not going to give you the results you are looking for… which is cash flow. Cash flow is the extra income left in your bank account each month after all the bills have been paid. If you can get your rental units to pay all the expenses and there is money left over – that money is yours. The trick, therefore, is finding properties that provide this cash flow. The best trick I know for quickly estimating if a property is going to provide cash flow or not is known as the 50% rule of thumb.  Essentially, this rule of thumb goes like this: Take the total income of a property and divide it in half. Those are your expenses. Now take out your loan payment. The remaining money is your estimated cash flow. Let’s do a real life example of this: You find a 4-plex for sale for $200,000, where each unit would rent out for $800 per month. If you rented three of the units out, the total income would be $2400 per month. Divide that in half and you are left with $1200 per month to pay the mortgage. A loan on $150,000 (Cause you don’t pay full price, and then you put down something for a down payment), at 4% for 30 years is about $700 per month, which means you could get paid $500 per month to live for free. This would be a killer deal. Keep in mind, however, this rule is just a rule of thumb – so make sure you use this as a quick and dirty way to filter lots of properties, and when you find some great potential properties,  look at all the expenses for the property and figure out what all the costs truly are. To learn more about the analyzing properties using the 50% rule, check out this post and YouTube clip. How to Fund Your Property Purchase Maybe you have lots of cash and can simply write a check for a home. In that case – awesome! However, chances are – you are probably not able to pay the hundreds of thousands of dollars needed and are going to need to get a loan (mortgage) from a bank. With any loan, you are going to need to supply a certain amount of money to get the loan, known as the down payment.  While the “no down payments” mortgages have mostly gone by the wayside, there are still options for purchasing properties with low down payments, ranging from 3.5% down payments for FHA loans (offered at most banks) to 20% down for conventional mortgages.   There are even loan programs (like the 203K loan) that allow you to include needed repair costs into the loan, so you can come to the table with even less cash. The best way to determine what the best loan is for your deal – speak with a qualified mortgage professional at your local bank or credit union.  Just like with real estate agents, these mortgage pros are free to use and talk with (they get paid from fees from the loan – you should never need to pay upfront) so don’t be afraid to pick up the phone and start fielding your options. Managing the Property Without Going Insane After closing on the purchase of your small multifamily property, you are now a landlord! At this point, it is imperative to learn how to be a landlord – and start running your business like a business – not a hobby. Read a few books on being a good landlord, make friends with local investors that you respect, read blogs that talk about landlording, and don’t stop learning. Being a landlord is not as difficult as the horror stories you may have heard of – if you follow some very simple guidelines: Screen your tenants like you would a job applicant. Keep your emotions out of it and look at the facts. For an exhaustive guide on the best way to find awesome tenants, check out The Ultimate Guide to Tenant Screening. Have a written policy to refer to. Stick to your policy when dealing with tenants. Outsource things you don’t want to do. If you don’t want to fix toilets – don’t fix toilets. Find handymen, property managers, or others who can handle the aspects of the job you don’t want to do. If you found a great deal when you bought your property (which you should have!) the cash flow can pay for these things. Never rent to family or friends. Trust me – it never ends well. Treat your business like a business, not a hobby. Set up processes and systems to handle the problems that will arise. Being a landlord is not always the most fun activity, but by following these simple guidelines the process can be much easier and your problems minimized.  There are over twenty million landlords in America, so you are not alone in your journey. If you run into any problems, just ask those who have come before for help and you’ll find most seasoned landlords are more than willing to help. What Next? I truly believe that purchasing a small multifamily property can change your life, free up your finances, and start you down a path toward building wealth through one of the most powerful channels there is: real estate. This article is the start of a conversation, and I hope you continue this conversation after reading. Feel free to leave any questions or comments in the comment section below and let’s chat! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you