Wealthy Investors Often Start With Nothing

HOW TO GET YOU PAST "NOTHING" QUICKLY!

One of my first recommendations for brand new investors or wanta-bees who have a decent day job, but have suddenly been bitten by the investment bug....

...start with a duplex, sometimes called a twin or two unit apartment building. I’m suggesting a duplex for starters because as the owner you can occupy one unit and rent the other side to your very first tenant. There are many important advantages to starting this way, but at the top of my list – you can do it quickly and you don’t need a great deal of real estate education before getting started. By the way – starting always ranks at the top of anything I suggest. None of my stuff works very well sittin’ around thinkin’ about it. Ya gotta do it!

Most start-out investors I know are always short of money for investing. 

Naturally, that’s why I recommend you live in one of the units. It will help you conserve what little money you have, plus the mortgage payment will be partly subsidized by your tenant. This helps a lot when your wallet is near empty and your bank account is mostly in your dreams. Don’t worry, this is the way many rich investors started out.

If you have a decent job like I did when I started investing, you’ll find that financing a duplex will be fairly easy assuming your credit cards haven’t reached the meltdown stage and your credit score shows you pay most of your bills. Getting a mortgage today is much easier than when I started. Interest rates are still at record lows for residential mortgages thanks to “Uncle Sugar’s” money printing magic! Even if you’re somewhat below par as a borrower and you’re required to pay a higher rate for the money – just make it work! I promise you, it will make very little difference in the long run – Okay?

Let me make this perfectly clear – buying a duplex is not gonna make you rich! Buying a duplex will give you the opportunity to get yourself in the game! It will help build you a strong foundation. It’s getting into the investment game that makes small-time investors rich! But, just like any other game, you gotta play to win! Your duplex purchase will become a very important part of your ongoing learning curve. Owning and living in a duplex gives you what I call a “two-fer” (two for one) in terms of experience! You get both, investor training and a landlording education without ever leaving home! Living in the same building with your tenant will speed up your progress – I promise. When I lived in my small Viola apartment building alongside my tenants – my estimated 18 month fix-up, rehab job was totally completed in just eleven months. Collecting rents made me a wealthy investor! Moving out soon as I could kept me from spending all my money on non-wealth accumulation "stuff".

Although financing a duplex is the same as financing a single family house – the same mortgage application forms apply to 1-4 units. Record keeping and tax treatment however, are not the same. For the owner-occupied unit, record keeping will be the same as owning a home. The rental unit is considered an investment property. 

Tax-wise, this type of rental income is called passive. All necessary expenses to operate and maintain the rental unit can be deducted from the rental income, including depreciation and the mortgage interest for the investment property. Quite often, expenses will reduce the net rental income so that no taxes are due.

Learning how to properly set up the books, or what’s called establish the basis for the investment unit – plus, learning to maximize the depreciation deductions is a valuable money saving lesson you can learn starting with your first duplex investment. The depreciation deduction is a no-cost, often called a phantom expense, deducted straight from the rental income just like a plumbing bill. It reduces taxes and increases cash flow.

Living in a starter duplex will not only help you establish a solid foundation – but it will also provide the very best training and education you’ll find anywhere.

It’s called; “on-the-job training” and you can’t buy a better education. If you happen to be a fixer type person like me, you’ll find that living in your building while you’re working on it goes twice as fast. When I was upgrading my Viola Apartments during the summer months, I would grab a quick bite for dinner and continue working till dark. You’ll soon discover as I did, this is far more productive than watching “The Real Housewives of Timbuktu" on TV.

When you read my “How To” real estate investing books, available at Amazon, bookstores and my website, fixerjay.com, you’ll quickly learn that small multiple unit properties, which I call colonies, have earned me a fortune. When I first started investing, my non-investor buddies at work suggested I purchase junky rundown single family houses I could fix up – then rent out! Later on, after meeting my long-time mentor, he convinced me that investing in single houses with big mortgage payments was like a “slow boat to China”! No cash flow, plus it takes far too long to reach the "Promised Land". My mentors Bill and his wife Lucille started with houses, but quickly switched to duplexes and eventually ended up with a 17 million dollar apartment complex. Starting with a duplex and moving up the ladder is a tested and proven wealth formula.

As I told you earlier, landlording education comes with my duplex recommendation. 

Most start-out investors have barely enough money for the down payment simply can’t afford to hire outside management. Believe it or not – that’s the best thing that can happen to you. It forces you to take on the challenge yourself. Tenant selection, handling complaints without pulling out your hair, and routine maintenance are things every good landlord needs to know. It’s valuable education. Regardless of what many seminar gurus may say or copycat real estate writers might suggest, selecting tenants who can pay you rent every month is part of what makes investors wealthy in this business. If you’ll do as I recommend, there’ll come a day when you’ll be rich enough to hire out this thankless task. 

But that day is very much dependent on your actions today.