By Younas Chaudhary
Oil prices took a hit in the early 1980s. So I started investing in real estate to diversify my income. Did I have prior experience in real estate? Absolutely none.
My first investment was buying an older apartment building in Wichita, Kansas, but initially I could not qualify for a bank loan. So I went straight to the apartment owner, offered him a 10% down payment, and asked him to carry the financing for the remaining balance on a 15-year-loan term–and it worked.
Soon after buying that apartment, I bought older homes, duplexes, and a fourplex, and all of those real estate properties were owner-financed with a 10-15% down payment. Owner financing is an easy way to get into older real estate properties with minimal investment up front, as long as you can negotiate lower interest rates and loan terms directly with the owner. I always chose properties that were over 15 years old and were paid off or had little owed to a lender. The properties I chose were always located in well-established neighborhoods, where I could get renters easily, and were close to city bus/train routes. These increased my cash flow strategically over time and the location of these properties would continue to appreciate in value.
The cash flow from the rental properties gave me enough money to buy more owner-financed properties. In such instances, I considered it a win-win situation, because the owner typically received a lump sum at the beginning along with steady monthly income, and I could rent the property out and make a decent monthly income that covered my mortgage payment and expenses, and I could use that income to invest in buying more properties.
Was this a smooth experience? No. From pipe bursts to plumbing and electrical issues, I had to get my hands dirty whenever my tenants called, but I quickly learned the process of dealing with tenants by hiring a good handyman.
If you want to make money in real-estate, try this owner-financing trick to buy more and more real-estate properties.
In making owner-financed real-estate deals, you must maintain a sizeable cash flow to pay the monthly mortgage and enough money to cover maintenance expenses, and then the remaining revenue is all yours.
Investors sometimes put their money into buying newer properties by taking bank loans, but I believe owner-financing is the way to go, especially when buying older properties.
Like everything else in life, you must vet all your tenants and make wise decisions.
Owning residential properties has its own headaches, because there is nothing worse than getting a call in the middle of the night from a tenant with a clogged toilet or water seeping through the floor or roof.
Therefore, when I moved to Houston in the mid-eighties, I slowly moved away from investing in residential properties and shifted my attention to buying commercial properties through State Venture LLC, one of my real estate companies. I noticed that my return on investment in commercial properties was much higher than that in residential properties. Moreover, the majority of the maintenance obligations were shifted to the tenants, and I did not have to worry about those day-to-day headaches.
By the early 2000s, I had gained enough expertise in real estate that I started buying properties in Vancouver, Canada. The banker who loaned me the money to buy the properties mentioned to me that I was paying high prices, as the market was quite high those days, but I persevered and purchased a mixed bag of real estate in the Vancouver area including homes and undeveloped land. Those properties increased in value within a five-year period, and I purchased more properties with upside locations.
My investments in real estate steadily appreciated in value. My main business is in oil and gas, but that is volatile and carries high risks with decent rewards, and often depreciates in value.
I got into real estate to diversify my risk, steady my income, and secure assets that appreciate in value with the passage of time. This has proven to be a safe, solid, and successful investment in the long term.
Disclaimer
The views, thoughts, and opinions expressed in this article are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. Further, I make no warranty regarding the accuracy or effectiveness of my recommendations, and readers are advised to consult other advisors as well as their own judgments in making business decisions.
YBC Foundation 