How to Lower Your Real Estate Investing Risk to Zero

How to Lower Your Real Estate Investing Risk to Zero

Imagine you were buying an investment property the traditional way.

Because you bought this house the traditional way you now have to sit back and hope. You hope that you will be able to find a renter. You hope that you will be able to rent it out for more than your payment. You hope that you won’t have any major repairs to take care of. You hope for a lot of things. And then you wait and see how you did over time.

That’s traditional real estate investing. You buy your properties and find out how you did afterward.

The biggest difference with buying real estate without your cash or your credit is that you know how you are going to do BEFORE you move ahead with the deal. This way you only choose winning deals and leave all the other deals on the table.

How can you do this? You use a “subject to” clause, which states that your agreement with the motivated seller is subject to your finding a qualified resident to occupy the property. In other words, your agreement is subject to your finding a qualified tenant-buyer. If you don’t find your tenant-buyer, then you don’t move ahead with the deal.

CAUTION! When you use such a powerful ‘subject to’ clause, you need to be respectful of the seller. You need to let them know right away if you are having any problems finding your tenant-buyers—within two to three weeks. Under no circumstances would you ever want to tie up a seller’s property for several months and then tell them that you cannot find your tenant-buyer. That would be both unfair and wrong.

What you do when setting up your deal is to have both halves of the transaction complete before you ever fully commit to the deal. You find your motivated seller and lock up the property. Then you quickly go out and find your tenant-buyer. Then and only then to you fully commit to moving ahead with the deal.

How to Sidestep the Landlord Trap

Unless you have a way to get out of the hassle of the day to day management of a property, you are still going to run into the landlord trap. Here is a way you can safely sidestep the landlord trap and escape the headaches and hassles of tenants and toilets.

When you are talking with the motivated seller, you will say to them, “Mr. Seller, to make this a real win for you, would you like me to take care of the day to day maintenance on the property? Why don’t I take care of the first $200 of maintenance in any one month. That should take care of 98 percent of the problems. Would that work for you?”

Of course, the seller will be thrilled that you will be taking over the day to day upkeep on the property.

But wait a minute, you say, how does that get you out of the landlord trap? Next you go meet with your tenant-buyer. You tell your tenant-buyer, “Mr. Tenant-buyer, you’re coming into this property like you are the future owner. And we expect that you would treat the place as if you did in fact own it. Of course this means that you are going to be responsible for the maintenance on the property. But to make it a win for you and so that you know that you won’t have any major repairs that you are responsible for, let’s put a limit on it—the first $200 in any one month.”

See how easy it was for you to sidestep the landlord trap. If a repair happens and it costs over $200 who is responsible for it? That’s right, the seller is responsible. If a repair happens that is less than $200, who is responsible for it? That’s right, your tenant-buyer pays for it. What are you left responsible for? Nothing! You get to sit in the middle making money without the headaches and hassles of traditional real estate.

Of course, you do have specific responsibilities. Each month you have to collect a check, deposit a check, and write a check. The beauty of the system is that once you have set up a property correctly, you have a hands-off residual stream of income that flows to you each and every month. Then at the end of a period of time, you get a flood of money when your tenant-buyer gets his own loan on the property, cashing both you and the motivated seller out of the deal.

Creating Multiple Streams of Income

Let’s say it took you an entire year to find and put together your first deal (we have students in our residential mentoring program who are averaging one a month, but let’s be conservative.) After a year of part-time effort, maybe 5-10 hours a week, you have your first deal set up. And each month you are earning a stream of income from the property, plus you collected a big chunk up-front as the option payment, and you are waiting to collect a huge chunk of money down the line when your tenant-buyer gets new financing for the property and purchases.

Then the next year you go out and look for more deals. By now you are much better at it and you find two deals. Again, once you set up each deal, it’s a hands-off investment pumping residual streams of monthly cash-flow into your bank account. In year three you find four properties in your spare time and set them up. You keep doing more and more deals as your expertise increases. The only limit is your own ambition.

By setting up each property as an independent money-making machine for yourself, you are creating multiple streams of income buying homes in nice areas with nothing down.