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2. Buy “mainstream” houses and condos.  Buy properties that are at or below the average sales price.  Buy properties that appeal   to most buyers.  Avoid high priced or unusual properties.  Buy houses with at least three bedrooms and condos with at least two.  If   possible, buy properties with a garage.

3. Don’t buy with partners, unless you have to.  If you have to have partners, make sure they have the same goals and values,   are of similar age, and have job, geographic, and marriage stability.

4. Believe in the long run.  Real estate markets are cyclical but the long-term trend has been up.  Hang in there for the long run.    The great investor’s lament is “I should never have sold that property.”  The other investor’s lament is, “I could have bought that   property for $__________!”

5. Take care of your property and it will take care of you…It’s your “golden goose.”  If you don’t like property management or are   too busy, either hire a professional property management firm or buy condos and town houses.  They take a lot less management.    The homeowner’s association takes care of most of the property management.

6. Get started early.  Put time on your side.  Albert Einstein was once asked what he thought was the most powerful thing in the    world.  His reply, “compound interest.”  Don’t wait to buy real estate.  Buy real estate and wait!

7. If you don’t have the money, make a plan and a commitment to get it.  (Consider borrowing your investment money out of the   equity in your personal residence.)

8. Know your “enough.”  How much “Wake-Up Money” do you need?  Know when you are ready to stop accumulating property and   start paying off what you have – and enjoying life!

9. Work with knowledgeable people.  Pick Realtors, accountants, attorneys, and property managers who know what they are
 doing.

10. Have a goal and a plan.  Develop your goals and a plan to achieve “Wake-Up Money.”

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Residential real estate offers five major benefits.  Most other investments offer only one or two.

1. Cash Flow – The rent provides income, i.e. “Wake-Up   Money.”  This is your ultimate goal.  When your property   is “free and clear”, you have the maximum cash flow and   “Wake-Up Money.”

2. Leverage – You can own $100,000 worth of real estate   with only 0% – 20% cash.  You can also borrow cash out   of one property to buy another. Your short-term goal is to   use leverage to acquire a portfolio of real estate.  Your   long-term goal is to pay the loans off and own your
 properties free and clear.

3. Debt Reduction – Real estate is one of the few invest  ments where someone else will make your payments.  In   essence the tenant makes the payments and reduces your   debt.

4. Tax Savings – You are allowed to depreciate the house   and write off your expenses in order to reduce your taxes.

5. Appreciation – Over time the value of houses and condos   have risen.  The average sales price of a home has more   than doubled over the past 15 years.

Free and Clear

These are three magic words for the person who’s committed to creating “Wake-Up Money.”  Many investors consider “free and clear houses” as the ultimate investment for three reasons: 1) The house generates large amounts of cash flow.  2) The house is appreciating in value.  3)  There is very little risk because there is no debt.

Wake-Up Money Example

Here’s an example of how to purchase a “Wake-Up Money” property.  This property was priced at $150,000 and sold at full price.  Here’s how the investment works on this property.

$150,000 Price
$37,500 25% Down Payment
$112,500 Loan @ 7.5%; 30-year; fixed rate
$781.73 Monthly principal and interest payments
$100.00 Monthly taxes and insurance payments
$25.00 Monthly reserve for maintenance and repairs
$925.00 Monthly rental income
$906.73   Total monthly expenses
$18.27 Monthly cash flow

Here are the 5 Major Benefits of owning this “Wake-Up Money” house.

1. Cash Flow – $219.24/year; $219.24/$37,500
 = .6% Return on Investment

2. Leverage – You own $150,000 of real estate for a $37,500   cash investment.

3. Debt Reduction – $1037 in principal reduction the first   year.  In essence the tenant is buying you the house and   giving it to you at the end of the loan. $1037/$37,500
  = 2.7% Return on Investment

4. Tax Savings – About $3300/year in depreciation.  This   means that your  income from this property will not be   subject to tax.

5. Appreciation – If this house goes up 5% in value this   year, it will increase by $7,500.
  $7,500/$37,500
 = 20% Return on Investment.

 (If the house doesn’t go up at all, there is no return from appreciation.)

Total Return on Initial Investment of $37,500:

0.6% from cash flow
2.7% from principal reduction
20.0% from appreciation
23.3% Total Return on Investment

When this property is free and clear, you will have nearly $10,000 a year in “Wake-Up Money.”  Of course by then the rents (and the “Wake-Up Money”) will probably be a lot higher, as will the property’s value.  Home values and rents have more than doubled in the last 15-years.

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