Seems like a lot of people are making money through becoming landlords. Thinking of taking the plunge yourself? Landlords have to put up with a lot of crap… yet I’m finding that the crap may very well be worth the effort if you’re smart and know how to work the numbers. I’ve also written several pieces about how to buy your first house and what to do when considering real estate investments that may be useful to you.

What to look for in a good deal

The best piece of real estate that you can buy follows the rule of tens:

Don’t put down more than 10% on the property

Don’t pay more than 10% interest

Buy at least 10% below the market price

1. Don’t put down more than 10% on the property
The coolest thing about being a landlord is that tenants pay off your property. The entire mortgage is tax deductible. If you don’t have a lot of cash sitting around, use leverage—let the bank’s money make you money. The less money you invest in the house, the more banks carry and tenants pay off.

2. Don’t pay more than 10% interest
Investment properties hold higher interest rates with banks because they’re a bigger risk. Investments don’t hold much sentimental value. If you’re in a pinch, banks know that you’d rather pay off something that matters to you personally—like your own home.

3. Buy at least 10% below the market price.
Rental homes don’t need to be the nicest on the block. And the misfortune of leasing your property is that it’ll probably be in worse shape than when you started. As I said in the point before, you take better care of things that you are emotionally attached to. Since tenants don’t own your property, they’re less likely to be as meticulous about the home’s care. Plus buying undervalue property means that when you sell at value, a few extra dollars will come your way.

When you’re ready to make an offer

The person with the highest offer isn’t necessarily the person who the owners want to sell to. Sellers are interested in the extras. A few of those brownie points that I have found helpful are:

Keep your offer simple

Offer a quick closing

Buy “as is”

1. Keep your offer simple
You can line up a lot of contingencies on a property purchase: home inspection, mold inspection, lead-based paint inspection, bank financing… The list goes on and on. Owners get nervous when you start checking off that list of contingencies. They just want to sell the property! Keep the number of check points smaller; it equals a quicker sale in the minds of an owner

2. Offer a quick closing
Sometimes, a closing can drag on forever. It can take months. Owners have already detached themselves from the home, and they’re ready to move on. They want the money. You know that phrase: a hen in the hand is worth two in the bush? Why’d that line come about? Because we’d rather have less now than wait for more later. People are impatient, which is great for you. Offer less, but offer it now.

3. Buy “as is”
Owners want to sell. But what if the house is filled with problems? The electrical needs some work, the carpet is stained, the windows in the back bedroom are cracked from baseball games. Say you’ll take the house as is! (With a lower price, of course) Be sure to have a home inspector evaluate the severity of the home’s faults if you’re not well experienced. The last thing a seller wants to think about is making all those minor repairs.

Along with food and clothing, shelter is an absolute requirement for human survival. And you’re going to reach a point where renting an apartment doesn’t suit you. You want something you can claim as your own. Homeownership is the American Dream! But where do you start?

Decide what you want

Your first house isn’t your dream house, so don’t expect to find something as nice as the house you grew up in. People rarely live in the same house for the rest of their lives any more. I think that your first house is a starter house. It’s modest.

Your greatest asset isn’t your money right now; time is. Use that sweat equity to remove those metal cabinets from 1970, paint the place, and save the yard.

When we went house hunting last year, my husband led me into a house. I looked around and almost died–the place smelled like cat pee. The walls and carpets looked disgusting, and in our case, we didn’t have to remove the antiquated cabinets. The previous owner already did!

Imagine what you would want for the next three or four years: number of bedrooms, yard, general location. You can upgrade to a newer, more expensive house in a few years. I think that the first goal is to get a house.

Set a budget

The coolest things about buying a house are:

Leverage means that you get to use someone else’s money to invest. The goal is to sell your first house for more than you bought it. To determine your purchase budget, use the standard mortgage formula, the 20/28/36 rule:

A lender will offer you more leverage… don’t take it. We all like to think that we can get by for a year without an entertainment budget or new clothes and household goods. But we can’t. What’s the point of a great new house if all you can do is sit around in it with no money because all of your money goes to your monthly mortgage payments?

The second cool thing about homeownership is the tax advantage. The interest you pay on a mortgage is tax-deductible. You can claim a deduction for your property tax. And after you’ve lived in your house for two years, you can defer the capital-gains tax if you buy another house worth at least the same amount of money. Keep track of all home improvement expenses like cabinets because you can use them to reduce your capital-gains upon sale. How cool is all that? Plus you get to pick the colors of your walls when you own the house.

Find someone to help you

Get in touch with a local real estate agency. From what I’ve seen, “For Sale By Owner” tends to mean “over-priced and under-experienced”; I’d keep clear. You want to find an agent who represents you. He will be the guy that shows you houses around town. Do NOT contact the agent selling a particular house and ask to see it; she can’t help but have a priority other than your personal needs. If she can convince you to buy a falling apart, over-priced place, I hate to say it, but she might! She gets her percentage off the top of the sale.

Yes, the agent that represents you might be tempted to do the same, but I have three theories to prevent this scenario:

1. Hire the dumb guy. The top agents want to make money from the top houses. You’re more of a hassle with your small budget. But the dumb guy? He’s not making as many sales. He wants to work for you (especially if he knows you want to upgrade in a few years and will need someone to sell your house and take you out to find a new house). Yet the greatest reason for hiring the dumb guy? He’ll have the inside story on everything. He’s made it to where he is through his people skills. Other agents don’t take him as a serious threat; they look at him as a friendly guy. He’s the one to share a beer with. He’ll joke about beating up cops. Other agents tell him anything. Sure, his words might embarrass the heck out of you. Yet your agent could be the one who accidentally took the key to the new house with him on vacation, so no one else could view your prospective house. Other agents will just laugh at his slip. What a silly guy! Then they might give him some hot tips because “what’s he gonna do?”

2. Make him work for the money. Ask to see gobs of houses. (Make sure he is a member of the local Multiple Listing Service, “MLS”, where other salespeople list their properties.) Get the statistics on houses from him. A tycoon once told me, “Get on them, and get on them often.” It’s true. Call for new listings. Call for information. Heck, keep calling.

3. Don’t YOU be the dumb guy. A lot of people get pushed around by real estate agents because people don’t know any better. Why let the agent pick where you’re going to live, though? First know how to interpet property descriptions. I’ve written about how disgusting homes suddenly sound “charming” or “cozy”. Know the market. A local broker posts information online. I get e-mail updates of houses in my price range even though I’m not his client. Know about the local economy. Your goal is to know enough about the housing market that when you find the house you want, you know exactly how much its worth. The asking price will be merely the seller’s perspective. You bid what you know is right. The best ways to learn? Read the paper, check out many houses, and see what’s selling and what’s not.

Examine the house

Don’t be afraid to take a flashlight with you on house tours. Poke into the crawlspace. Shimmy into the attic. You’ll find it hard to examine a house beyond the stains in the carpet or the broken light fixtures and cute doll collection. Those things can be changed. In fact, their furniture won’t be your furniture, so don’t waste your time looking there. You can fix almost anything. But you can’t fix the actual structure. Is the add-on sagging? Do you see huge cracks in the foundation? How’s the roof–a horrendously expensive repair if you find troubles.

Hire a home inspector to take a look. He’ll test every plug in the house and present a detailed report of every flaw. The inspector we hired even included photos of a ripped screen window. Most people stop at the report. Don’t! You’re paying your home inspector upwards of a week’s salary at our age. Talk to him. Ask him about crucial areas that he has noted, thing he doesn’t see as a problem, and most importantly, how much repairs will cost.

Now I jumped the gun a wee bit here. Before you can hire a home inspector, you have to put a bid on the house. A bid is pretty self-explanatory. Your elated agent will walk you through the process. The cool thing? Your home inspector found something bad about the house. Repairs will cost thousands.

What do you do? Ask for a reduction in your bid. The inspection resulted in a loss of value to you. The seller might try to haggle a little. Though the truth is that this problem is going to decrease any prospective buyer’s interest and price. Nothing is cooler than getting the house AND getting a chunk of the price knocked off, especially if you can do the major repair yourself for less.

Do you start to get stressed out when watching your stock prices yo-yo up and down?
I do. I’m willing to bet that this has consumed your mind a number of days before. Especially when you’re losing money.

When your stocks are down, it’s common for people to stare at the tickers and look at every piece of news about the market. The technology that we have today allows us to completely entrench ourselves into the market’s world.

We’ve got CNBC running news, stock prices, and evaluations at us with Yahoo Finance streaming our quotes and bringing in tons of RSS feeds chalked full of info on the market conditions. Meanwhile you’ve got a copy of business week on your desk that you can’t even begin to think about until you completely devour your copy of The Wall Street Journal.

Now if that doesn’t cause you stress, I don’t know what will.

The most well known and successful investor lives a thousand miles away from Wall Street simply for this reason. Of course with technology one could still easily become entangled and paralyzed with the random fluxuations of the market. Warren Buffet chooses not to.

What does Omaha, Nebraska have that’s so appealing to him?

Peace and Quiet. You don’t have to make thousands of trades a year. You can do fine with only making a couple good ones.

So the next time you’re pulling out your hair because your Euro-Disney Stock is flailing, tighten your belt, turn off your computer, and go spend the day with your kids.

You never know when a good idea might hit you.

When people have to cut a few bucks on their construction budget, the number one answer is always the same: spend less on the exterior.

I’m not only talking about crappy landscaping jobs. I’m talking about the money invested into the building itself. Cheaper bricks, stucco spaces as shortcuts, fake brick and stones, vinyl siding… the list goes on, and the appearance shows.

Curb appeal has huge influence. If two accounting firms build side-by-side, my guess is that more potential clients will walk into the more attractive building. It’s human nature; we like nice stuff!

Have you ever seen a real estate advertisement that only shows the picture of a lobby? There’s a reason the image is the storefront.

Drive through new commercial areas, and you can see what I mean. Sure some business types don’t need an elaborate exterior. But would you go to a homebuilder who works from a shack and ask him to build your dream home?

The companies that invest an additional $5,000 to the exterior of their buildings will increase their mortgage around $14.00/month in a 30 year loan. If you’re the more attractive accounting firm, I wonder how much extra business your exterior attracts. More than $14.00/month?

Either way, the resale value is much higher.

Now think in terms of your own home. Click here for a potentially useful site that really shows how much a bit of fresh paint and other outdoor details can spice your place up. Don’t forget landscaping. This summer, Money magazine reported that attractive landscaping can allow you to recover 100 to 200 percent of your investment when you sell.

We have a lot of mixed ideas of what “real estate” really is, yet I’m willing to bet that some avenue of real estate would suit you. In fact, I’m sure of it. Is it an empty lot that might appreciate or acres of farmland near a future metropolis? Is it a rundown house? Is real estate the site of a future Hilton, shopping center, or apartment complex? Figuring out the most successful avenue is tough.

Every person that defines success to me has engaged in some sort of real estate investing. If you’ve always thought about running your own business, real estate has to be a part of your thinking. In fact, you might find that real estate suddenly becomes the focus of your business idea.

In the state of Montana, the average income is $24,000. In one Montana community, the average home costs $280,000. An average person can’t afford a home? The thought makes me sick… yet it also makes me think, “Is there opportunity?” I think that we can find ways to break into markets that hold money potentials without shelling our entire paychecks to mortgages. Is that something you want?

Prepare your one-man battle plan

Open your closet, and dust off your many hats. If you want to win at real estate, you have to understand every level in your focus area or hire someone to do it for you. It’s silly to get a law degree just so you can understand the contracts. Yet have you ever considered getting your real estate license? I’m preparing to take the real estate exam and trust me, the info is anything but challenging. But saving around 5% on every real estate purchase might make sense.

Do you have much cash? You probably can’t operate like characters on “Flip that House”. How realistic is the image on these shows, anyway? The characters are willing to pay expensive subcontractors but not willing to break a nail.

You might not have cash to match flippers on TV. You do have that magical thing called sweat equity, though. Don’t just lead the battle; be the soldier. March in the front line, bark orders from atop your horse, and fight for yourself. An added benefit we’ve found in sweat equity? My husband loves to have endless excuses to use power tools.

Pick your target

At my office, we get a lot of rich men who want to invest their money in enormous projects like elaborate hotels and apartments around manmade lakes. Our construction company builds these items along with stadium additions and any other commercial construction idea someone might have. Do you want to be my boss, making money by managing enormous developments? And yes, he is making far beyond the average Montana salary.

Instead of being the construction company, you could be the envisioner that wants construction companies to build results. The beginning of the project costs you money. Most of the money won’t be your own, though. You’ll borrow from banks and investors. Make money off of their money once your condos or storage units are built and generating revenues.

But don’t start big

A more financially reasonable idea is the small scale. Buy crumbled buildings, remodel them and sell or rent the spaces—residential or commercial. Gain some experience in the small scale projects that can build up your credit and portfolio, then shoot for bigger if it’s your dream.

Know that success builds success

Deals are easier to make when you have past triumphs. And the best way to impress people is with your successes. If you own one hotel, you’re cool. If you own ten—holy cow! You can bet that people won’t question your authority on the hospitality industry.

The problem for most of us is that we don’t have any sort of real estate portfolio. It’s like we’re trying to get our first jobs out of college. How many interviews does that take? Make yourself look like an expert. Because I am 24 years old, most people feel uncomfortable with my ability to maintain any sort of real estate responsibility; they change their minds when I rattle off an accomplishment or two. Have they seen the map next to my computer? I’m filling it with gold stars that each represent a property in my growing empire.

Deception is okay

Contrary to my last point, you have to know when to present the aura of an expert. No one looks at me and thinks that I know how to wire a plug or build heating systems. It’s often advantageous to be underestimated. Real estate is predominately controlled by old men. Being young and female give me two edges. What advantages can you see in yourself?

If your neighbor were selling his shop and Donald Trump and I both expressed an interest, don’t you think your neighbor might want Trump’s business because a whole lot of $$ could be involved? At the same time, your neighbor might not want that property to turn into another Trump Tower so he rejects Trump and offers to me. I’m still some dumb blond girl fresh from college to him… but he doesn’t know my plans to build Katie Castle. Naiveté might just become your middle name.

Be curious

Finally, know that real estate involves risk. Yeah, yeah, I’m sure you’ve heard that before. But don’t be afraid to check stuff out. Even when we aren’t looking for an investment project, I keep on looking. The last two purchases that I have made came from being curious. Keep your eyes open. Make sure other people keep their eyes open for you, too. If they can make money from you, they will keep on the lookout for you. Money is very powerful in this industry.

On Aridni, we encourage our readers to work for themselves since this is generally the best means of aquiring independent wealth; however, we also need to remain cognizant of the trials and challenges that face the self employed in our society including the burdens of paying one’s own health insurance and life insurance premiums, having no guaranteed source of retirement, and coping with the unpredictablility of each month’s income. Among the most fortunate entreprenerurs, these costs are not an issue, but for those of us who are just starting our own businesses or are experiencing a drop in revenue as a result of the economy, the above can mean the difference between being able to pay your bills or going into debt. That’s why saving and managing our resources is so important.

Take my dad for example. He has been an alternative health practitioner for 30+ years and is widely regarded as #1 in his field internationally. He used to earn over $200,000 a year, but after my mother died three years ago his business slowly started to dwindle and now is falling apart. As of last week, he had depleted the mere $30,000 in his savings account and now keeps saying that he doesn’t know how he will get through the month. Yes, he still earns over $100,000 a year, but after he has paid the mortgage, $500/month for each of three individual health insurance plans, car insurance for two vehicles, life insurance, disability insurance, homeowner’s insurance, $15,000/year for the rent of his office space, etc. there isn’t much left over to save or spend. How can people like my father avoid disaster? If you are an established business owner, I suggest that you make a list of all the costs you have each month and try to put aside enough funds to last you for a year. Do not dip into these savings unless you absolutely have to. You simply never know what may come down the road later on so it’s best to save while it’s easy to do so. In the event that you are just starting out, try to save enough for at least three month’s rent. This may mean not buying that Starbucks coffee you are craving or waiting a little while before taking a trip you planned, but trust me you will be glad you did.

Another thing to keep in mind if you are self employed is the amount of time you need to dedicate to maintaining your business (i.e. recruiting clients) and how much time you must devote to your current tasks at hand. This is where networking becomes cruical. One of my dad’s problems was that once he became “successful” he simply assumed he would always have the same level of clientel and did not devote enough energy to obtaining new patients. So when people stopped being able to see him due to their own financial woes, he did not have people to replace them. Now, he is starting to seriously network again for the first time since he started his business.

While the self employed don’t have to worry about “losing their jobs,” in many ways they have less financial security and less cash flow than those of us who hold conventional jobs. Although they don’t have to pay for the overhead of a personal business, they have more monthly costs to contend with and in today’s world it is becoming increasingly important for these individuals to save not only for their own retirement, but for unpredicted expenses. The CEO of a trade association who earns $200,000 a year has significantly greater cash flow than someone like my dad who has to spend at least half of is income on overhead.

So if you are considering starting your own business, by all means go for it, but don’t forget to take into consideration the obstacles you will inevitably encounter as you start out.