I have a book review for you today that is bound to get you thinking.
Most people think of their personal home and their rental property as two entirely different animals; rarely do they ever come up in the same sentence. Our personal home is just that; personal. Rental property and real estate investing always end up on the business side of the equation.
What if you entertained the idea of how you can use one to build upon the other? “Turn Your Home Into a Rental House Instead of Selling It” by Terry and Angy Sprouse will permanently change your perceptions of exactly how these two things can intermingle successfully.
Statistics say that the average American will move 7 times in their lifetime. Most folks will sell their house, use that money to buy their second house, and will repeat this process throughout their lifetime.
But what if you were to use a different strategy? What if you were to refinance your existing house for your down payment on your new house and keep it for a rental? How would that work and how could you keep it affordable?
Let’s Strategize for a Minute
By following a few simple rules most people can make this happen again and again. Remember that real estate investing is a long term strategy. Regardless of where the market stands today, according to the U.S. Census Bureau in 2012, from 1940 to 2010 the average increase in a house (adjusted for inflation) was about 5% annually. What that says is that over time, you can expect a good solid return on real estate no matter what the economy is today.
All you have to do is look at the millionaires out there. Investing in real estate is always a strategy that the super-rich use to create wealth.
Owning real estate is “Like having a pension without retiring – only better”. Terry Sprouse
The Rules of the Game
Chances are your first rental home if you implement this strategy is going to be a typical starter home in a nice neighborhood which makes it a perfect candidate for a rental home. Here are a couple of rules you need to follow:
Rule #1. Never end up with a higher mortgage that your rent will cover. As you get more experience you will insist on rule #2.
Rule #2. Your rent should cover the mortgage payment, the expenses associated with the property and provide you with a good amount of cash flow. Done properly, this additional cash flow will help offset the increased mortgage expense in your new personal home.
Does this mean you should “step up” gradually when you buy your next personal home rather than taking a giant leap in price? Yes it does if you are planning to use this strategy.
Tips for Creating a Successful Rental House Business
There is so much wisdom in this book I’m not going to even attempt to try to cover it with one blog post. But here are some important topics Terry covers in his newest book.
- How to screen your tenants
- How to handle problem tenants and situations that inevitably come up in your business
I love it when he says, “Don’t sweep the problems under the rug”. We have all been tempted to just ignore them in hopes that they would just go away; big mistake.
- The tax advantages of owning rental property
- Why investing in “transition areas” greatly increases cash flow. Here’s a clue; you want to invest where most people like to rent
- Detailed information on how to conduct a proper due diligence process
- How not to get nailed by the EPA while you are doing renovations on the property
Terry breaks down the 5 steps to take before a project begins. This information alone is worth the price of the book. Failing to follow these strict guidelines could land you in “EPA Hell” with fines of more than $37,500 per incident per day! (Realtors and property managers; you are also affected by these regulations.
Forms and Contracts
Included in “Turn Your Home Into A Rental Instead of Selling It” are all of the forms and contracts you will ever need. You can save a bundle of cash by simply having a local attorney look these documents over to be sure they are OK to use in your state as opposed to having each one created.
Do Yourself a Favor
This is the third book written by Terry Sprouse and he got his wife Angy in on the process this time. This is not theory here, but their real life experiences of building a fix and hold real estate portfolio of homes. Whether you are already in the game, or are still sitting on the fence waiting to buy your first property, do yourself a favor and get the book. It is a wealth of information. I highly recommend this book for anyone even thinking about adding rental property to their business.
Be sure to check out Terry’s blog “Fix em UP Rent em Out” here.
If you haven’t already subscribed, be sure to do that today so you don’t miss any of the business building tips I have coming your way. I want 2013 to be your best year ever! And if you enjoyed this article, please share it.
Bio: Terry Sprouse started his fixer upper and rental house business following the attacks on the World Trade Center in 2001. His job was becoming increasingly uncertain as the economy spiraled downward, and he decided to start his own business to provide a cushion of economic security. His wife and their two sons can often be found working alongside their parents. Terry has written two other books. The first book is entitled, “Fix em Up, Rent em Out.” It was an award-winning finalist in the 2008 National Best Book Awards (USA Book News). Terry's second book is “Carve Out Your Niche: How to Live Your Passion, Write your Book, & Help Others Change Their World.” This book describes the techniques that he learned to write, self-publish, and promote his popular first book. “Carve Out Your Niche” was an award-winning finalist in the 2011 National Best Book Awards (USA Book News).