Part one of Five: “I” = Income
Income is an important element of any good investment… without it, you have to carry costs such as taxes, insurance, and any interest expense out of your own pocket. When you rent to someone else, they cover all those costs plus a return on your investment. But here’s the big news… your income is hedged against inflation. As the value of the dollar declines and prices rise, so does your rental income. If you have fixed costs such as interest on the loan, you benefit from paying back the debt with deflating dollars while your income goes up. And it gets better!
Next we talk about “D” for Depreciation.
This is the topic of this Tuesday’s LIVE STREAM with Lou Brown. Lou has been an investor and mentor for over 40 years. Thousands and thousands of people have come to Lou to learn his unique approach to real estate investing.
Timestamps:
0:01 – Introduction – “ A $730k deal! Now that’s an I.D.E.A.L. real estate investment”
0:24 – Walking With The Wise in Real Estate – Lou Brown
1:18 – Real estate is the I.D.E.A.L investment
2:23 – This week let’s talk about INCOME
10:18 – $5 discount for Lou’s “Buy, Hold, Sell” book – https://streetsmartinvestor.com/BuyHoldSell/
11:19 – https://www.WealthBuilderWorkshop.Online – on July 31st – register for $1
17:58 – Different cash flow or Income you can get when involve in real estate.
20:49 – How do you get tenants to pay costs, such as taxes, insurances, etc.?
23:25 – Recent deals Lou is working on now.
27:23 – Does the House Monster system teach you how to negotiate?
29:40 – Lou’s parting comments: Why not buy a property right now? Why wait?
If you are JUST getting started in real estate investing, you NEED to attend my ONE-DAY virtual training. I teach it LIVE over ZOOM, and it’s only $1 (yes, one dollar) for SIX HOURS of solid how-to training! https://www.wealthbuilderworkshop.online
If you’re ready for a more in-depth experience, then you owe it to yourself to investigate my THREE- DAY Millionaire Jumpstart Event. I host it four times a year in various locations, and you can attend LIVE and in person. I’m your coach all three days. Find out more at https://millionairejumpstart.com/
Listen to our Podcast:
Why Real Estate Is I.D.E.A.L. – “I” = Income – Part One
Lou Brown:
I am excited to tell you about a $730,000 deal that is the ideal real estate investment.
I tell you what we are coming off of a fantastic past Saturday where we had a Wealth Builder Workshop. It was just so exciting and we showed a lot of folks how they could shift and change their lives and have a whole new way to do their business. And I thought I’d give an example today of what happened. Now, while I was looking at a book that I did some years ago, which is “Walking With The Wise In Real Estate Investor.” There I am a few years back, but it’s interesting who is in this book, too. And in this book, I actually had a chapter called “Real Estate Is The IDEAL Real Estate Investment.”
And why do I call it “IDEAL?” I, for Income. D, for Depreciation. E, for Equity buildup. A, for Appreciation. And L, for Leverage, such as for levering your ability to buy more real estate. So we love the idea of the IDEAL real estate investment. So I thought, “Hey, why don’t I do a 5-part series on each one of these items?” because each one has so much value, and it’s so unique to real estate investing because many things that we can do in real estate, we cannot do in other industries or other investments. So when you take the combination of all the different benefits of real estate, you find that it’s the ideal thing to do. Well this week, I’m talking about Income. And of course I’m a big believer in income being the foundation of a very solid business. Why? Because your bills come due every single month, right?
So every single month, one thing you gotta have is income, or you got to have a pile of money to pay those bills that come due. Well, imagine that our entire business revolves around creating multiple streams of income and in fact, dependable, predictable, monthly income. And so that’s kind of our mantra. And when you build your business in a certain way, service-oriented, helping others solve a problem that they’ve got in their world, creates income potentially for you. Well, I’ll give you a great example of what I mean by that. So in our world, we have the Path To Home Ownership. We’re Certified Affordable Housing Providers, and we offer a program called the Path To Home Ownership. And I had a gentleman come to me and he was from Vietnam. Now he didn’t speak any English. So he had an interpreter with him and he found out more about our program.
Well, we had a particular property, it was a new build. It was in a nice area. He saw the house. He said, “I want that house.” And it was available on our Path To Home Ownership plan. Well, when we are acting as the bank for our buyer, then we require a minimum of 10% down of the value of the property. So sure enough, he says, “I can do that.” So we said, “Well, tell us more about your business.” Of course, we have an application process, and we always want to verify that the party that we’re dealing with has dependable, predictable, monthly income themselves because we always want to put people on a success path, not a failure path. We always want to make sure that they can actually afford the place that they’re moving into. Well, sure enough, he owned 2 nail salons
There is a lot of money going through the doors of the nail salon. So sure enough, as we’re getting into it, I explained to him that he’s got to have a minimum of 10% now. So the purchase price, the price that we put on this beautiful brick home in a very nice neighborhood was $425,000. Now this was way back in January of 2013. So January of 2013, he came to me and said, “Yes, I’m interested in this property.” We said, “Okay, we’ve got it on our Path To Home Ownership. We’re going to provide financing for you with a minimum of 10% down.” So in this case, that meant $42,500. A little, quick side note, he actually tried to bring me about half of that. And I said, “Nope. But, we can work with you. And we can take that amount,” which let’s say that was the $20,000.
“We can take that amount and put it towards a rent-to-own plan, but we cannot give you the in-house financing program until you bring $42,500.” He says, “Okay, wait, I’ll be back.” Well, sure enough, he comes back with the entire amount. So we were able to close and he was able to purchase property from us on our agreement-for-deed program. So sure enough, he went ahead and put his $42,500 down. And then he began making monthly payments. Now his monthly payments were $3,200.79 plus taxes and insurance on top of that. But as far as principal and interest, that’s what he was paying us. Well, what happened last week, we get a call and we’re getting paid off. Well, we actually knew that he had to put the property on the market for sale, and they called us and contacted us for a payoff of his agreement-for-deed.
So sure enough, after he made his 100th payment. Now that means he paid us for 8 years and 3 months. So basically 8.3 months, he paid us $3,200.79. So that was pretty cool. And what was interesting with the payoff is that’s another payoff of, I believe it’s $368,401.93. So, wait a minute. So we sold him the property for $425,000. He paid us $42,500 down. Now in our world, one of the things we talk about in income is bits and pieces and hunks and chunks. So in our world, the $42,500, that was a hunk of money, right? And then every month, that was a piece of money, the $3,200 coming in every month and the chunk of money, the final money was the payoff of the loan. Well, when you add together his original downpayment, plus his monthly payments accumulated over that 100th payment and the payoff of the loan, you get a grand total of $730,980.93.
So what’s very interesting about this in the income scenario is that I could have sold that property. I could have sold it for cash. Someone could have paid me off. I would have made some profit on that deal. However, because I put it in my Path To Home Ownership program, now we had a great income for a long period of time. So this gentleman that could not even speak English, had the opportunity in this country to be able to purchase a home from someone like myself, someone like you as a Certified Affordable Housing Provider, blessing someone else whose hard work and causing things to happen, causing income, causing their business, hiring people, putting them to work because of that, he was able to live in a very nice home and he was able to enjoy that home now for the last 8 years. Well, what’s the upshot of this whole deal is he sold the property for even more.
So this gentleman, we’ll call him Mr. Vietnam because I don’t have permission from him yet to use his name, but Mr. Vietnam was able to sell this home for $100,000 more. So, in other words, he got almost $500,000 for this property. He was able to get a very, very nice markup on those 500 and something thousand, I don’t have the exact number that he sold it to the new buyer for, but that gave him down payment money. That gave him a big spread to be able to put on another property. Unfortunately, he didn’t ask us for another property. So I’m sure he went and bought something else. But imagine what’s happened in this 8 years, he’s now built up his credit. He’s built up his downpayment. He was able to be in a position to buy anything he wanted to.
And it’s all because of our Path To Home Ownership program. So I love sharing with you today about the Income aspect of real estate and I think you’ll agree with me that the Buy-Hold-Sell strategy is a very great strategy. And when you get a chance, you need to pick up my book. By the way, I’ll give you a $5 off coupon, and you can go to www.StreetSmartWiz.com/BHSbook. And that will get you $5 off if you’re interested in the book, “Buy, Hold, Sell.” It’s an Amazon.com international bestseller and I’d love for you to have a copy of that and a discounted copy of that, too. So definitely you can take advantage of that and learn some more about what I believe is the Ideal Investment.
In the weeks to come, I’ll be going through that whole word, “IDEAL” and showing you some unique things that are available in real estate that are not available in other arenas. Well, we had a phenomenal event this past weekend. It was our Wealth Builder Workshop. In fact, it was so well received and we had so many people there that by popular demand, I’ve been asked by a number of folks and a number of promoters. People said, “Look, I want my spouse to see this. I want my friend to see this. I want my family to see this. I want other people to see this because I got so much value from coming to the all-day that we have decided on July the 31st, we will be doing another Wealth Builder Workshop. So that’s WealthBuilderWorkshop.online, where you can register.
Because you’re watching it, you can register for $1 and I’d love to give you the opportunity to see some of the great things that the group from this last weekend saw. And it was enlightening, inspiring that some people came on there. There was one gentleman that came on there. His name is Partiv. Now he is from India and he calls himself the Indian in the closet. And he says, “I’ve been doing internet marketing for years. I’m a Dan Kennedy platinum level client for years. I’m very, very well known in the internet marketing world.” And he says, “My partner came to you. And my partner has been doing your program now for years. My partner has made over $4 million using your program. And I’ve not made anywhere near that in internet marketing and being the Indian in the closet.”
He says, “Well, now it’s my turn. I want to learn what you’re doing.” I said, “Well, Partiv, you’ve got to come to the all-day. There is no alternative. You got to come to the all-day.” Well, sure enough, he comes to the all-day. And of course, what I’ve been coaching him and his partner on because his partner is one of my coaching clients is, “Listen, you’ve got a tremendous opportunity to gather a tremendous number of folks that want housing.” Well, he is an internet marketing guy. So he’s got copywriters and he’s got people all over the internet and they do funnels and all kinds of different things. And he says, “Well, I’ll just build out funnels and I’ll get a HubSpot and I’ll get all these different things.
And I’ll make this happen.” I said, “Why are you doing that?” And that was my first question on our first coaching call. I said, why are you doing all that? And what do you mean? I said, everything, all of it is in the House Monster. Well, why would you go doing all these other things? He says, “What are you talking about?” I said, “Look, here’s my request. Just do it my way. Just do it my way. Don’t do anything else. I know you’ve got all these things swirling in your head, all this background, all this experience, just do it my way, please. And let’s see what happens.” Well, sure enough, he was on the training on Saturday and he made himself available, raised his hand. He says, “I just want to tell everybody. I did what you told me to do.”
He says, “I turned on the House Monster. I started getting the leads and I got 91 leads on one property in just a few days. I was blown away. I didn’t realize it was going to be so profound. So amazing.” And then he said, “I am just blown away that the House Monster absolutely works so well.” So sure enough, he’s got all these customers. He says, “What am I going to do with all these customers?” I said, “Well, Partiv, the truth of the matter is you can only serve one of those customers. So you got 91 people, but only one of them is going to get the house that you’re advertising right now. What are you going to do with the other 90 people?” He said, “That’s a good question.” I said, “No, you’re going to go find them a house.
So your next job is now in the same market, in the same area to go about finding properties for the 90 customers that you’ve got right now.” And cream rises to the top, a certain percentage of those are going to have a significant downpayment. A certain percentage of those are going to have and be able to afford the monthly payment on the property. And I said, “Now you’re just going to focus on filling those orders that those folks gave you.” So he was really thrilled and he shared with the group just how blown away he was with the House Monster. So I just hope that was an inspiration for you that the way we do things is a bit different than the way other real estate investors do things. That being that we find the buyer before we buy, or if we have a property to sell, we turn on the House Monster and start bringing in a whole bunch of customers.
They show up and now we can give them an opportunity at home ownership like I did with Mr. Vietnam on that one property $730,000. So you have the opportunity to do exactly the same thing. And with the numbers that I just shared with you, obviously it works in high-end as well as low-end, as well as medium-end. Listen, it works across the spectrum. There’s plenty of people that cannot qualify for loans at a traditional bank, and here’s your opportunity to create something amazing in your world.
Scott Paton:
That’s pretty awesome, Lou. And we had a question from the from the audience.
Lou Brown:
We always do. We open up the floor to questions. So if you have any questions, you’re welcome to go in and just put in your questions right there. We always want to be of service. We always want to pay it forward and make it so easy for you to serve others and help others end up with home ownership that we’re happy to answer any questions you might have.
Scott Paton:
Absolutely. So today’s theme in the IDEAL series that we’re doing for this one and the next four. And this is about Income. So you’ve basically talked about, “Hey, we got income when we got the first $42,000 from Mr. Vietnam, then every month we got income, $3,200. And then at the end, when he paid out, we got income as well. So basically, are you just saying that there’s 3 times that you get paid and that’s all the income you can get when you’re involved in real estate?
Lou Brown:
Not quite. In fact, when we attract our customer in the first place, the first step we put them into is our membership. So we do have a Path To Home Ownership membership. It is $50 per person per year, and all of our clients, a hundred percent of our clients are on the Path To Home Ownership program. So we’re very excited to offer that to them. And it includes videos. It includes training. It includes teaching about maintenance. There’s a number of benefits and services that we provide to them. We review their credit report. We determine where they are on the credit spectrum and how soon it will be before they can end up with ownership of a home with a brand new loan from the bank. So we look at a lot of things in their world. Another thing we look at is how can we improve their situation?
So moving up on the credit scale, for example and being able to get a better credit score. We’re affiliated with a nonprofit organization that helps them with that process. There’s another organization that we work with that helps them with their utilities, with their security system, with their identity, so many different things. When they sign up for those things, they’re getting benefits as well. So you become a server, basically, of those clients in many different ways, not just housing, but in a lot of things in their life. So in our world, what we do first is they sign up for the membership and yes, there’s an income stream attached to that. If they sign up for credit risk restoration, you get paid for that. They sign up for different variety of services that they’re going to need anyway, that they’re going to spend money on. Anyway, if we can help them save money with that, you get paid for signing them up in the first place. And secondly, you get paid a residual income every month. So that’s a few examples of what we do with our clients in addition to their downpayment money. In addition to their monthly money, we want to do as many things as we can to help them and serve them always with an eye towards improving on the situation that they already have.
Scott Paton:
Beautiful. And we have a question from Erica: How do you get tenants to pay costs such as taxes, insurance, interest expenses? I guess in other words, putting all of the costs on the resident living there, as opposed to all of a sudden having your income chopped away by all these little expenses.
Lou Brown:
Well, one thing you want to always do is look at what the person can afford first. So we always look at all the income coming into the family. We divide it by 3, that’s a thumbnail. That’s not a final analysis that an application would give us, however, it gives us a thumbnail. So if they’re making $4,500 a month, then off the bat, that means they can afford $1,500 a month. Well, out of that $1,500, if they come in at the rent or rent-to-own level, then we’re paying the property taxes, the insurance out of those incomes. But when they move up to the agreement-for-deed level, which is exactly where Mr Vietnam was at, then he’s not only paying his principal and interest on the agreement-for-deed, he’s also paying property taxes and insurance. And again, they have to be able to afford that.
Lou Brown:
So when I originally talked with Mr. Vietnam, just tying in with that, I asked him, so how much do you earn from your net income from your nail salons? And it was $12,000 a month. So that said in my head, well, he can afford $4,000 a month. And we ended up somewhere in the range of about 3,700 when you add in his property taxes and insurance. So basically it worked out fantastic for him, obviously 8 years and 3 months he paid, oh, and by the way, he was an excellent payor, paid as agreed on time. He’s just a perfect, perfect client and definitely someone that has served our country well by doing what he said he was going to do and by becoming a good, solid citizen in this country for sure. So, yeah, there’s many different things Erica, that are covered and paid for out of the money, but it just depends on which program they go into as to who’s paying it.
Scott Paton:
Cool. So we’re coming towards the end of our time together, Lou, and I always like to just bring up, are there any deals that you’re working on right now? Because as we’re doing this live, there’s going to be times when you get a lead and then there’s going to be times when you talk to the lead, when the lead turns into a really good prospect, when they actually become a buyer, when they become a homeowner, when they actually take over everything and this can be a process like with Mr. Vietnam. This is a hundred months, but we don’t want to wait a hundred months to get the story.
Scott Paton:
So I wanted to give you a second to sort of talk about something that’s kind of going on now. And maybe it’ll, you know, not all deals come to completion. That’s just the nature of the beast.
Lou Brown:
I was actually sharing this on the call on the training this past weekend. But sure enough, these are 5 different deals that we’ve done over the last few weeks. And it’s just amazing what happens when you get your machine going. So you start the momentum of getting customers coming in. You use your House Monster for that, they start coming in, we can analyze them, determine there’s a script to pull out the information that you need. And there’s a phone system to manage the leads, there’s pre-recorded scripts. There’s things that are dialed in because honestly, when you turn it on, you get so many leads, you can’t quite manage it. So the idea is that you set up a machine and when you’re processing and receiving those leads, the idea is to create a machine so that you’re acquiring properties as you’re acquiring customers and you’re matching timeframes.
So some customers come in, well, they don’t need to move for 8 months. So that gives me 8 months to find a house for that one and get them set up to move in. And then there’s another one though that needs to move next week. But, I’ve just got a text earlier, literally, one of my students sent me one who is his wholesaler also sent me one that the lady is closing at the end of the month. She’s got $20,000 to put that on. She’s looking for a house right now. He said, “Do you have something?” I said, “I might have something for somebody with $20,000 down.” Sure enough, he’s having her fill out the application today. I mean our online questionnaire, but the idea is that you have a constant flow of buyers and timeframes.
So we work with those timeframes and with our acquisitions. So I’m on every wholesaler’s list so I can get and see properties coming. I mean, people say that there’s not deals out there. Well then why is it every day I get multiple deals from wholesalers? Oh, yes. There’s deals going on every day. And I don’t have time, frankly, to find those deals. So I rely on wholesalers, real estate agents. I’ve got a whole myriad of ways that we’re bringing in leads because I don’t have to worry about buying at the cheapest, cheapest price because I’ve got a customer over here that’s got downpayment money. So when I can match the two, it’s a beautiful thing and make the spread in between. So we buy from the wholesaler and we sell to our new client that is in a position to purchase. However, always keep in mind, most of our clients are not going to the bank and qualifying for a loan in the traditional sense because they cannot. Because the bank does not love them. We love them. We can look at their situation. We can determine that we are willing to take the risk, but unfortunately banks, because they’ve got so many restrictions on them, they can’t take the kind of risks that we can take. And so it’s a real opportunity and honestly, most of the time it works out absolutely perfectly. So, it’s a win-win for both sides. No doubt.
Scott Paton:
Awesome. we have one more question. Does the House Monster system teach you how to negotiate? You’re obviously a master negotiator. You’ve been doing this for 40 years, Lou. I’ve just started, I’ve just found out this thing called a house. And I’ve discovered that I can have more than one and someone else can live in it and pay me. But I don’t know anything about how I make that happen, but I know that I’m gonna have to negotiate. And usually that’s what the realtor does for me, right?
Lou Brown:
Well, the realtor doesn’t really negotiate. The realtor kind of matches a buyer and a seller together. And you kind of tell a realtor what you want to do and the realtor takes it back to the seller. Sometimes through another agent before the offer is actually made. So you don’t actually get the face-to-face opportunity to discuss with the seller what their situation is and how you could solve their problem. It’s just an exchange of numbers, so to speak. So I love face-to-face. I love when we can look at someone’s situation and show them how we can solve their problem. I actually created a whole system on just negotiations. And sometimes negotiations are done in multiple ways. One is to discuss it with the people, to discover what their situation is and show them how you can solve their problem. But another is your paperwork because when you’ve got good paperwork, your paperwork can do a lot of the negotiating for you. So that’s another aspect of what we do and how we do it, both on the buying side, on the holding side, on the selling side, when you’ve got paperwork that incorporates some of the negotiation points, you don’t have to negotiate each one of those fine points. It’s in the paperwork. If that works for the people you got to deal, if it doesn’t, you can strike through it and go with whatever’s left.
If people want to know more about my negotiation system, it’s actually available at www.StreetSmartInvestor.com/tools. So when you go to Tools, you’ll see all the different systems and one of the systems is negotiation. So you can take a look at that.
Scott Paton:
Terrific. So Lou, any last words before we we sign off today?
Lou Brown:
Well, what, this is an amazing market that we’re in. We hear people talking about, “Well, I’m saving up my money to buy a property when everything crashes.” And I’m saying, “Why? If you had a customer and they’ve got downpayment money, and you can verify that they’ve got income, why not go buy a property right now and put that property person in that property and make the spread in between what you can purchase it for and what they are willing to pay for it and what they can afford to pay for it? That differential is your profit. Why not do that? Why not give them an opportunity? Why wait? So, “Why wait?” would be my advice for the week.
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