The Smart Real Estate Controller

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Investor vs Homeowner Approach

The first thing you need to know about acquiring real estate is the "homeowner" and "investor" approach. We are not interested in the homeowner approach, we are interested in the investor approach.

You may very well be a homeowner already but any real estate you acquire from following this course, we are going to take the investor approach. 

What is the homeowner approach? This is the most common approach you see among your friends, family and colleagues. Acquire a house, put down a 10% to 30% deposit, take out a mortgage, pay back the mortgage loan plus interest for 20 years and BOOM you own your house 100%!

This is perfect if you simply want to live in the home for a solid number of years and have the comfort of owning it one day. And perhaps after a few years it's worth more than what you paid for it, which is good for a decent investment. But it's not good for an investor and here's why.....

  • You might not have the money to put down a deposit
  • Mortgage lenders have too many requirements including the need for good credit rating
  • Most of your money will be tied up into just one property for years
  • You will not be able to see a return on your investment for a long time
  • Owning one property will not make you much money

This is how a good investor sees real estate.....

  • Having as little of his/her money tied into a property (liquid money)
  • Having more than one avenue of funding the property
  • Focusing on controlling the property rather than simply owning it
  • Being able to see profitable returns in a shorter period of time
  • Being able to control more than one property at a time

Proven Real Estate Investment Strategies

The keys are control and liquid money and this is how the most successful real estate billionaires invest.

People tend to confuse ownership with control but this is simply not the case. The biggest business models these days focus on control over ownership. Uber does not own taxis but they control the way they operate and transact. Same with Airbnb, they don't own any rooms but they control how people can rent them. Also see Netflix.

Some of the best real estate moguls like Donald Trump do not have 100% ownership of ANY of his own properties. In fact he only owns 30% of Trump Tower and the rest is owned by various other investors, yet it's his name on the property. Other billionaires also control property whilst having little to none of their money in their properties.

Why do they do this? They do not want to tie up most of their money into a limited amount of properties because then that limits the amount of properties they can control. If they can find invest some or none of their money into multiple properties and bring in a controlling structure then they can control more properties and make much more money!

Here's an example:

If you have $100,000, you can do either A or B.

A.

Acquire ONE house worth $100,000. Rent it out and collect $500 rental income every month.

After 5 years, you have collected $30,000 in rental income and the value of the house is now $150,000. $80,000 return on your initial investment!

B.

Buy FIVE houses worth $100,000. Put down $20,000 deposit on each and borrow/mortgage $400,000 (5 x $80,000) for the rest. Rent it out and collect $500 rental income for each house every month.

After 5 years, you have collected $150,000 (5 x $30,000) in rental income and the value of your houses now total $750,000 (5 x $150,000). That's $900,000! Subtract the $400,000 to pay back the loan/mortgage and that's $400,000 return on your initial investment! Even if we factor in paying interest rates on your loan, that is still at least $300,000 return on your investment!

These are of course very simple examples but it shows that you can make much more money if you focus on control and liquid money rather than simply ownership. In A, you own the house and make less money. In B, you don't own the houses but your money is much more free to acquire more properties to control them and you made much more money!

Even better, I am going to teach you to acquire and control real estate with $0 of your own money!

Finding The Property

The important first step. You can simply find suitable houses through estate agents. Either online or visit their offices. Keep your first few houses simple. Ideally you want to be looking for:

  • 1-3 bedrooms
  • Near shops, schools, bus stops and train stations etc
  • Near offices and other places of work
  • Around $100,000 to $200,000

No need to waste time trying to find the "perfect" house that fits everything. Try to get something that fits the criteria close enough.

Estate agents are an easy way to find properties but you are mostly going to be paying full price. Speak to a few estate agents and see what they can offer.

I personally like to find great properties elsewhere for a tremendous bargain that most people don't know where to find them. I can usually find houses for around 20% to 30% off the asking price instead of paying full price or negotiate 5% discount through estate agents (if you're lucky!) . Typically a house worth $100,000 market value will be worth $150,000 market value after 5 years, making $50,000 return on interest. There are ways to pick up a house worth $100,000 market value but negotiate and pay $70,000 for it. So if you pay $70,000, after 5 years when it's worth $150,000, that's $80,000 return on investment on just the value alone without even adding rental income! So it pays very well if you can negotiate an amazing deal. Click here to access my guide on acquiring houses below their market value! 

When you find the property, do some other quick research into the area;

  • How much are the other houses nearby worth? Are they the same as the house you want to acquire?
  • How much rent are those other houses charging?

Finding Finance

The best way to control real estate and keep your money liquid is to finance it elsewhere. Mortgages are a viable option but as mentioned, there certain requirements and you still need a deposit. This may work for some but not all. The best way is to bring in a partner who can provide the financing but does not want to be part of the controlling process. This is a partner who simply wants to inject the money and receive their profit.

Depending on what your arrangement is, some finance partners are happy to inject most if not all of the money. It's actually not hard to find a partner that is willing to put all of the money in the purchase of the property! Your job in controlling the property is to make sure it is well-managed....more on that later!

Finance partner can be ANYONE that is willing to finance the purchase of the property:

  • Friends, family or colleagues
  • Professional investors
  • Highly paid professionals

Highly paid professionals are my favorite choice. They tend to make a lot of money in their jobs and are always interested in investments yet know very little about them and are happy to let other people invest for them. Almost all highly paid professionals are interested in real estate investment. They can be doctors, lawyers, bankers etc. They have the money and tend to prefer to not get involved in managing the investments, prefer to have someone else do it for them. 

For both investors and highly paid professionals, I would recommend getting to know as many as possible in Facebook groups as well as networking events. There are literally 100's of real estate related Facebook groups, as well as 100's of business and real estate networking events in your city to join. Real estate is an easy topic to get into. When people know you are involved in real estate, people generally want to work with you. Join as many Facebook groups and business events and events for those professionals. The more you meet the more choice you have in potential finance partners. Choosing the right partner is just as important as finding the right property. Here's what to look for:

  • Are they willing to finance most if not all of the purchase?
  • Will they allow you 100% control to manage the property?
  • Do you enjoy spending time with them on a personal level?

Purchasing The Property

A property can be purchased in the following ways:

A.

Your partner provides you the financing where you own and control and house 100% and you keep all the rental income but you pay back the loan plus interest at a set period of time.

B.

Your partner provides you the financing where you both own the house 50/50. Your partner does not do anything else but you control and manage the house and you split the rental income 50/50 and split the return on investment 50/50 when the house is sold after an agreed period of time.

C.

Your partner provides you the financing where he/she owns the house 100% but you control and manage the property and split the rental income 50/50. You may also split the return on investment 50/50 when the house is sold after an agreed period of time.

These are simple examples based on your partner providing 100% of the finance. Your own arrangements may differ slightly depending on your own situation and whether you decide to also finance part of the house yourself. 

The first step in controlling the property is making sure that both your names are registered as the owners. Make sure that you both understand what to expect from each other. 

Investment Strategy

You should also agree on a strategy when renting the property out, the 4 basic strategies are:

  • Single lets. This is renting the entire property to a single unit, i.e. family or couple. This is the easiest to manage and has the lower return potential
  • Room by room. This is renting the property room by room to individuals. This is typical for single professionals or students wanting to rent. This is medium in terms of ease of management and return because there are more rules to abide by but you can make more money renting out each room
  • Short stay lets. This is for business travelers and tourists looking to stay for a few days or weeks. This is the riskiest as rental income is less predictable but if you are able to book out your property all year long then the return on investment will be very high as travelers are willing to pay a premium for their stay!
  • Break-even. Why would you want to simply break-even? Because this is the easiest and least risky strategy. You can choose any of the above strategies to break-even without the pressure of needing to generate regular income. Some investors simply want to break-even because they want to hold the property long-term and just profit from the increased value

As a beginner, it is best to start with single lets to build some experience. Don't be mistaken, although single lets provide lower returns, those returns are still very favorable. 

Managing The Property

This is where the control comes in! You call the shots!

You choose how the property is managed and who rents it. It is your job to make sure everything is running smoothly. If you are a hands-on person then great you will already know what to do. But we're not interested in learning how to fix sinks or find a gas engineer to when the boiler breaks down. We're investors and we're here to make money.

The best strategy is to have a management company run the property for you. Management companies are most experienced and they will be able to manage it a lot smoother. They usually charge around 5%-10% of the rent which is a small price to pay to avoid potential risks and even bigger costs in the future. By doing this, you have effectively kept your own money and time free whilst maintaining control of the property. This will allow you the freedom to acquire and control another property whilst you're benefiting from rental income and increase in the value from your first property!

Finding the right management company is purely a matter of preference and there are plenty to choose from. I'd recommend Googling a bunch of companies and finding them on Yelp and even visit a few of their offices to get a feel of them and see which ones you are most comfortable with.

Renting Out Your Property

The beauty of hiring a management company is that they can help you to find tenants making the management and renting out process as easy for you as possible. So it pays to find the right company.

However, if your management company does not find tenants for you then you will need to find the right estate agent to find tenants for you. You can go with the same estate agent that you acquired the property from or another agent. 

If you do not wish to pay a fee then you can always go through the free option of Gumtree or Craig's List. Personally, I would pay the small fee and have the agent do it for me so I can free my time to look for another property.

Build Your Portfolio

By freeing up your time AND money BUT still have control of your property, you can build a huge real estate portfolio and gain huge returns on investment with 0% risk!

Here's a simple example assuming you prefer to invest $0 of your own money:

You find a 3 bedroom house worth $100,000 and agree with a finance partner over the following:

  • He/she finances the house 100% and you control and manage it, both names registered as owners
  • The house should be single let. The rent should be $500 per month and you split that rent 50/50
  • The house is to be sold after 5 years and the increase in value is split 50/50

You hire a management company to manage the entire property and pay them around 10% of the rent as their management fee.

After 5 years....

  • The house is now worth $150,000
  • The total rental income is $30,000
  • The total management fee is $3,000

50/50 on the value increase ($50,000 / 2 = $25,000) and the rental income ($30,000 / 2 = $15,000) is $40,000. Minus $3,000 and your return on investment is $37,000 after 5 years on 0% risk!

Normally, of course, you would be receiving rental income every month and not have to wait 5 years but I've calculated them together to illustrate your total return. 

Again, this is just a simple example and your situation may be different. You may find a $200,000 house or charge $600 rental income or agree to sell after 10 years.

Also remember, this is just for ONE house. The beauty of freeing up your time and money means you can add another house to your portfolio! You can work with the same finance partner or a different one. You may have 10 houses with the same partner or each of those 10 houses are with different partners.

As another example, whilst the management company is managing the first house for you, you acquire another house under the same conditions as the first one. Now you have $74,000 after 5 years! You can continue to follow the same pattern and acquire 10 houses and have $370,000 after 5 years!

If you just want to calculate it on rental income:

  • On 1 house, the rental income is $500 per month, which is $200 return to you per month ($250 - $50 management fee)
  • On 2 houses, that's $400 return per month
  • On 10 houses, that's $2,000 return per month
  • On 20 houses, that's $4,000 return per month

Remember, this is income that you receive EVERY month, with 0% risk and 0% effort and that you can continue to build up as much as you want!

Also, remember that I have used an extremely simple example. If you were to acquire properties worth at least $200k to $300k or charge up to $1,000 per month rent or decided to use the properties to rent room by room or as a holiday let etc, you can easily to generate around $20,000 or $30,000 in passive income!

Here's a case study:

4 bedroom worth $400,000 on the market. Negotiated 20% with the seller and paid $320,000, financed by the finance partner.

The condition of the partnership is for the partner to finance the purchase 100% and to split the rental income 50/50, then split the value of the increase once the property is sold after 5 years.

The property is to be let room by room at $500 per month per room ($2,000 per month in total). The managing company will manage the entire property for you at 10% of the monthly rent ($200 per month). 

At the same time over the next few months, 9 similar properties are acquired under the same conditions each with a different finance partner.

After 5 years the result is as follows:

  • The market value of the property has gone from $400,000 to $600,000
  • $120,000 in rental income has been collected
  • $12,000 in management fee has been paid

Which means that passive income in those 5 years for one property had been $48,000 ($120k / 2 - $12k), or $800 per month.

Once the property is sold, the share is $140,000

($600k - $320k (paid by the partner) = $280,000 / 2 = $140,000

Making the total share after 5 years for one property to be $188,000, or $3,133.33 per month!

And since 9 other similar properties were acquired under the same conditions each with a different finance partner; after 5 years the result is:

  • $1,880,000 in total!
  • Or $31,333 per month!

So you can see just how powerful this is especially once you start to grow your portfolio....all with 0% cost and risk!

Key Things To Remember

  • Your property doesn't have to fit your criteria perfectly
  • Take your time to know your finance partners well. Spending more time with them in the beginning could save you even more time with them in the future and avoid potential issues
  • Passive finance partners are the ideal choice (willing to inject the money but does not want to be part of the management/controlling process; just simply wants to receive their profits
  • Learn as much about property investment as possible as this will help you to build your portfolio faster and improve your investments and returns. I would recommend getting help from an experienced real estate investor and join other like-minded investors o help you in your real estate journey (see The Property Investment Collective Members Club image at the bottom of this page)
  • Even if you are handy in looking after property, it is always smarter to pay a small price to hire an experienced management company
  • Always have your agreements with partners written down to avoid confusion in the future
  • Start with single lets first. Once you have built enough experience, try room by room and short stay lets

Once you are able to build real estate wealth using this investment strategy, you can apply these techniques for potential clients and make even more money! (Guide on R2R coming soon!)

Now go and be smart real estate controller!

 

The Smart Real Estate Controller is just one strategy that smart real estate investors use. There are literally 1,000's of other strategies in real estate investment. If you want to learn to be a superstar in real estate, then I would highly recommend joining The Property Investment Collective Members Club where you can learn everything you need to know in real estate investment. You will be part of a community of like-minded investors and have ALL the help you need from an experienced real estate investor at EVERY step of the way in your real estate journey!

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