I was in my thirties or forties when I read Robert Kiyosaki’s Rich Dad, Poor Dad. I felt I had joined a new religion. The book transformed me, and I wanted to follow the principles of the book and buy an investment property.
But how? My wife and I were no experts, but we saved money, but not enough to put the 20% down required by banks to buy investment properties. We could have bought the home with minimal down, but banks allow that only if you move into the home…this strategy did not work for us because we did not want to move our family.
While travelling to work each day, I passed a house that had been on the market for at least a year. It was a home with another home built on the back of it. (The parents built the home on the back of their house for their son and his family to care for them).
This house had a mortuary to the side of it, a 1/2 acre backyard, a canal behind it, and it sat on a busy road. I realized over time the house was not so much a house… it was a white elephant.
Because of the busy road and very few houses around it, families didn’t want it, and it was far too much house for most people. The front home was also close to thirty years old and zoned only for residential. I had to see it.
I found the home incredible! I fell in love with it the instant I stepped inside. I had to have it…but how? At $265,000, a 20% down payment would be at least $53,000. I learned from Robert Kiyosaki that poor people say, “We can’t afford it.” Rich people ask, “What would I have to do to be able to afford it?”
I offered this proposal:
- I pay the full asking price for the house. $265,000.
- I pay 6% to the realtors as a down payment. $16,000 (this came off the sale price of the home).
- The owners carry my loan for one year at 5% interest ($1500 per month). Since the owners carried my loan, I did not have to pay PMI 😊.
- I pay three months ahead of my loan (so, even if I default, they will be paid while they foreclose the home). $3500.
- After paying $1500 for a year, I would still pay their original asking price of $265,000 + ($1500 x 12 months) = $18,000 giving them $283,000 for the home (minus the cost of the realtors)!
And I paid only $16,000 + $3500 = $19,500 for a down payment. That is a far cry from the $53,000 I would have to pay if I borrowed from a bank.
- I agreed that in a year, I would roll the loan over to a no-cost refi through a bank.
With the help of a good man at the city offices, I turned the back house into an accessory dwelling. By law, I could put four unrelated in the front house, and four unrelated in the back house. At $400 per tenant, I brought in $3200 a month and paid only $1500 per month for the mortgage payment to the owners (plus $300 per month escrow).
This worked so well, we decided to go a second year with the same arrangement. Therefore, the original owners made $301,000 on a home they couldn’t sell for $265,000 and my wife and I owned our first investment property.
We even snuck an Airbnb with a nice bedroom, a kitchen, and a full bath in the back house for additional income. 😊
Here’s the key-
- You must find a white elephant in good condition that won’t sell.
(If you want a scrappy, smart, realtor who knows how to find a good deal, contact my son at http://kenneth-poulsen.remaxpeaksutah.com).
- The owners must own the house outright with no bank loans tied to the house (This is quite common in homes where the elderly pass away).
- Be honorable, honest, and believable. This is truly a win/win situation.
- The realtors will fight you unless you pay them at closing.
- Make sure the numbers work. This site is useful for helping you estimate your monthly payments (https://youtu.be/-5cw1xc8pTw?si=3SFEtZ-I-S7YWJPQ)
- Perfectly conform to every ordinance and covenant of the community.
Hard to find? Perhaps… but not impossible.
Find a good realtor you trust and have them help you find good quality homes that have been on the market the longest.
Work from there.
A year later, we found another home in an excellent neighborhood that sat for a year.
- Families didn’t want it because it had no basement.
- Older people didn’t want it because it had a very large yard.
- The inside needed to be upgraded.
We offered the identical terms on this house and bought our second investment property!
We have rented it for short-term rentals for the past decade.
Now, go, and do likewise!