Building Wealth One House at a Time by John Schaub

This book has much detailed and down-to-earth advice on how to buy income property/rental property. I love the beginning and the end of the book, but the middle section about seller financing was lacking some serious details for me to understand how it would all work out. Overall, I have learned a TON from this book. My notes below do not include seller financing, preforeclosure, and foreclosure. If you are interested in those areas, I recommend checking out his other book called Building Wealth Buying Foreclosures possibly borrowing from your local library (because these books are expensive!). Otherwise, read my notes below!

General advice on income properties:

  • Buy a house in the best neighborhood you can afford
  • Don’t buy corner lots
  • Don’t buy houses with extra frills: wallpaper, fancy trim, pool/hot tubs
  • Buy in a good school zone
  • Buy in a neighborhood that’s on the way up
  • Buy close to where you live and study the market

Strategies for surviving the market crash: 

  • Get your home paid for.
  • Use options to buy in a hot market: a contract that gives the buyer the right, but not the obligation to buy.
  • Avoid personal liability on dangerous debt: debt you can’t repay from the cash flow on the property that is security.
  • Limit your losses: if you own a losing property, cut your losses.
  • Renegotiate debt that you cannot pay

Cause and effect of cycles:

  • When rents are cheap relative to prices to buy, either rent will increase or selling prices will fall.
  • Construction cycle: smaller Homebuilders rely on banks for construction loans typically one year in length. When they can’t sell, they are under pressure to pay. You could buy houses at a bargain price in a down market by just paying off the construction loan.
  • Older neighborhoods where renters are being displaced by owner-occupants who buy and fix up a well-located but older home will increase in value. Look for this trend and houses that you can rent for a few years while the neighborhood improves. They often are a better investment than new neighborhoods.

Finding opportunities that others miss:

  • Empty houses
  • Houses that need work – especially in nicer neighborhoods
  • Out of town owners
  • Landlords who are not maintaining their property
  • For sale by owners
  • Letters to owners who may need to sell
  • Foreclosures

Ask questions to know what the other party wants

  • Are you the owner?
  • Where is the house?
  • How large is the house?
  • How large is the lot?
  • How old is the house?
  • Does the house need any work?
  • What school district is the house in?
  • What are the neighbors like?
  • How long have you owned the house?
  • Have you made any additions or remodeled?
  • Is the house listed with a realtor? If so, when does the listing expire?
  • Do you have a current appraisal? If so, how much?

Step 2 questions:

  • Sounds like a great house, why are you selling?
  • Can your existing loan be assumed?
  • What’s the balance on your loan now?
  • Are your payments current?
  • What will you do if you don’t sell? Is the owner moving away? When? The day they move, most owners are really ready to make a deal.
  • How long has your house been on the market?
  • How much did you pay for the house? (If the owner balks at this question, tell them you want to buy in a neighborhood that is appreciating. Ask if the house has appreciated since they bought it. You can point out that you can learn this info in the public records and would appreciate their time-saving assistance.
  • If you don’t sell the house, would you consider renting it? If the owner’s answer is yes, you may be able to buy it from him or her with a small down payment. The owner won’t get much down when he or she rents it.

Use your time wisely:

  • Ask questions on the phone. You will be surprised how much sellers will tell you
  • Rank motivation and potential profitability from 1 to 10. Use this to compare houses to decide priority.
  • Motivated seller: asking them questions like “are you ready to sell your house today?” Or “can you be out by this weekend?” To show you are interested in buying NOW.
  • before sitting down with seller, write down your strategy using figure 4.1

Knowing what a house is worth before you make an offer:

  • If you are buying on a street with many foreclosures or short sales, calculate your best offer, and then reduce it by 20%
  • pay no more than 10% down, pay no more than 10% interest, buy at least 10% under the market
  • 72/rate of return = years of a house that will double value
  • Buy properties that produce enough rent to pay the expenses and repay the loan
  • Buy properties that are relatively easy to manage and easy to sell
  • Borrow the longest term possible

Making an offer:

  • Let the seller make the first offer
  • Never never never try to think for the seller
  • Make your first offer an offer you know will make you money and see how she responds. If you decide you’d like to buy this house for about $175k, the seller wants 250k, offer 160k. If they make a big move in your direction, go up to 165k, then settle the difference at 175k. If they move to 245k, offer them 175k, with 10k down, balance payable at $1000 a month including 3% interest.
  • Don’t let the seller shop your offer (get you to bid with another buyer). Tell them you have two houses you like theirs better but if they don’t accept the offer by end of day, you will buy the other house.

Renting a house:

  • Spend the money to clean the whole house
  • Introduce yourself to the neighbors and ask them to keep an eye out for you. Tell them if there is a problem with the tenant you want to know about it and will do everything in your power to fix it.
  • Usually, a tenant can afford to pay between 30-40% of their income as rent.
  • Rather than charging a late penalty, give tenants a discount for paying on or before the first of the month. Pay on time and not call for maintenance to earn the discount.
  • Give tenant phone numbers to call for “emergencies” – 911, police, plumber (for leaks). Then have your weekend off.