Strategy: Buy 3/1 & 2/1 SFHs in hard working, blue collar “C” neighborhoods. Morris Invest has leases on some of their properties upwards of 5 years!
9 Steps of Passive Income Summary
- Find house
- Contractor – SOW (scope of work) / Repair estimate
- Inspection. Needs to match up with contractor SOW (above) = compare the two & do what is needed for your rental.
- Purchase + Repairs = below market value?
- Buy House. Ca$h, Private$ or Bank loan (financing)
- Property Management 6-12%
- Rent the house: Ca$h Flow
- Snowball: Refinance to buy the house #2, 3, 4, 5,…
- Rinse and repeat …. back to step #1 (house #2)
Deep Dive into the 9 Steps
- Realtor. Criteria: Distressed properties that need rehab, need help, tlc.
- Hire Contractor for your Rental. C.L search for “free estimate” contractors. Base grade materials: Formica countertops, cherry cabinets, high traffic/cleanable carpet; Nice bathroom: vanity. SOW: take the middle bid including time frame and overages. Overages i.e open up wall and find a surprise, who pays? 50/50? Who goona foot the bill? Could be $3-5,000.
- Inspection. Structural & Safety. (listed on report). Probably fix all of these if needed… Foundation crack: Fix with hydraulic cement or carbon fiber stripping? Electric: 100 v.s 200 amp service? Depends on–Is furnace gas or electric? Plumbing: Replace galvanized/pvc with PEX. Roof – minor/major? 10-20 year roof life, then it’s minor. Windows- replace w/new. Water heater: replace with new (to prevent leaks). If major structural/foundation, do not buy. Slight crack no problem. Carbon fiber stripping or ready to fall off cinder blocks = major. Plumbing – new vanity. Vinyl floor. Bathtub re-glaze or new. Cabinets new or reface. Drywall touch ups, paint & carpet. Cut back tree branches & landscrape (yard appeal). Usually do not buy Central Air, let the tenant put in window A.C.
- Ca$h on Ca$h return. Example: $40k house, $700/month rent. ROI 700×12= $8,400 / 40k = 21% gross. Now 40% is super conservative, includes: vacancies, repairs, taxes. $8,400 x .6 (take out .40%) = 5,040 (Net). $5,040/40k = 12% Net Cash Flow (conservative minimum). If below 10-12%, ask/negotiate with general contractor if everything is needed, any wiggle room?
- Buy House – HELOC, borrow toward more homes. Make multiple payments/month = little to no interest! Private financing from “Uncle Joe” – mortgage note/interest. Note: check out his private $ videos. Equity partnerships – 50/50 split – you do the work, they bring the $.
- Property Management- stay away from companies with fees, should be included in their price. In 2 weeks after rehab, should have move in date for renter. If competition is renting for 750, I rent for 725 to avoid vacancies.
- Snowball – take equity out and put toward next property. Appraise for 70k, purchased for 50k.. Ask bank if they do Cashout/refi on property? Banks like to give loans on rented/cash flowing properties, typically 75-80% of value. Next, buy 2nd property.
- Rinse/repeat. You can do this on 10 properties FAST. Or you can use HELOC, private $, etc. Use 2nd house to buy your 3rd house, etc, etc.