Information Marketing Association

By Rob Minton

In February of 1996, I purchased a small two-bedroom home in Euclid, Ohio, for $56,500. This home was a bungalow on a slab (no basement). The second floor was unfinished. The home had a detached one-car garage. This same home today would probably sell for $100,000.

I remember this purchase distinctly because I almost didn’t buy the home. It was the middle of the winter, and I offered the seller $51,000 for the home. He rejected my offer. I was irritated because he wouldn’t negotiate at all. It was full price or no deal. I ultimately paid full price for the home. By the way, there is a lesson there for you to learn. Don’t try to save a few pennies when making dollars. The home was a great deal at $56,500. Many investors would walk away from the deal because the seller wouldn’t negotiate. A deal is a deal, and a few thousand dollars doesn’t make a difference.

I bought this home with a 5-percent down payment loan that required an investment of $2,750. I realize for some, these numbers make you laugh! Remember it was 1996. I also invested another $1,300 in paint and carpeting to spruce up the place a little. I didn’t finish the second floor, although I had plans to in the future. My total investment was around $4,000, including the “sprucing.”

I took a 30-year fixed rate loan on the home with a rate of 7.5 percent. The total monthly payment was $507. I rented this home for $595 under a straight rental program. My first tenant lived there for a year or two and then bought his own home and moved out. I then offered this home on a Rent to Own Program. My rent to own program wasn’t anything like today. I received $700 up front, and the monthly rent was $655. I selected a tenant/buyer who had just gone through a bankruptcy. These folks were my best tenant/buyers.

Over the years, I increased the rent to $695. I sold this house to my tenant for $86,000 in October, 2002. The cash to me, according to my settlement statement, was $25,336 after closing costs and credits back to the tenant/buyer. This cash didn’t come to me, though, because I used a1031 exchange and invested into two new properties. Remember: homes buying homes.

The first home I bought with my profits was in South Euclid, Ohio.I paid $99,000 for this home and put 10 percent down, financing roughly $89,000. This home was purchased in December of 2002. I still own this home today. My total house payment was about $865. My first rent to own tenant/buyer paid $4,000 up front and a monthly rent of $895. This tenant/buyer lived in the home for about three years and moved out to buy a bigger home. I just recently put a new tenant/buyer in the home. This tenant/buyer paid up front and is paying a monthly rent of

Now stop for a moment and think about this house and the concept of Velocity of Money. I purchased this home with profits from the little two-bedroom home. I used house money, not my money to but it. I now have received two up-front payments totaling almost $5,000, and I still own the house.

The second home I purchased with my profits from the little two-bedroom house was in Willougbhy, Ohio. I paid $116,000 and put 10 percent down, financing about $104,000. My total house payment on this property was approximately $900 a month.
This home was rented to a tenant/buyer at $1,295 a month. The up-front payment received was $4,500. The tenant/buyer bought this home in December of 2005, and I received a check $24,346.

Lets recap where things stand now: My $4,000 investment turned into $25,000. This $25,000 was invested into two homes. The rent to own programs on these two homes brought in $5,000 in total up-front payments, plus $24,346 in profits. Can you see the velocity of money in action? Remember, I still own the home in South Euclid.

Now I have $24,000 in my bank account. Here is how I am investing the $24,000. I partnered with another investor and purchased two homes. I invested roughly $4,500 for my 50-percent ownership in these two homes.

I am investing the remaining $20,000 into a 8,000- -square-foot commercial property.This commercial office building is two stories, offering 4,000 square feet of office space on each floor. We are moving the my company into the second floor of this building. The first floor already has three tenants paying rent. We are buying this building for $550,000.

We negotiated to have the seller finance the purchase with a $50,000 down payment.A few of my team members are also investing in this building with me. My share of the down payment will be approximately $30,000. We plan on paying off this building in 10 years.

Are you still with me? My $4,000 investment has now turned into 3 houses (South Euclid home and two homes in the partnership) and one $550,000 commercial building.

I have no idea what the commercial building will be worth in 10 years. This is because the value of commercial properties is much more dependent on the income and expenses of the property. For simplicity’s sake, let’s assume that this commercial building appreciates at 5 percent a year. At the end of 10 years, this property could be worth $850,000. If we pay this building off during this 10 years, we will have a free- and-clear retirement fund. I will be 45 in 10 years.

What I don’t know is what will happen with my three houses. I would guess that one or two of them will ultimately sell to the tenant/buyer at some point in the next 10 years. These profits will obviously be reinvested into more properties. However, let’s assume these three homes never sell to a tenant/buyer. At a 5-percent average annual appreciation rate, they would be worth roughly $540,000, providing $190,000 of equity. I think it is probably safe to say that I will have turned my $4,000 investment into a million dollars.

This process started in 1996. The 10-year payoff of the commercial building will be complete around 2016. Here is the great thing for you to see:

The little two-bedroom home wasn’t my only investment. I bought several other properties in the 1990s. Could it be possible, that each home I purchased in the 1990s could turn into a million dollars over the next 20 or 30 years? I sure am going to try to make it happen.

I really believe that an investor (YOU) could turn one home purchased today into a million dollars in 20 to 30 years by applying the velocity of money. This means that you are one down payment away from a million-dollar real estate portfolio. Real estate investors who are using the homes-buying-homes approach, you already have million-dollar portfolios in motion.
If one home can turn into a million dollars, investors who act will be multi-millionaires if they continue to reinvest their equity/profits into more assets.

What would have happened if I didn’t buy the little two-bedroom house? Absolutely nothing. For many of you reading this, 2006 is your 1996. Where will you be in five, 10 or 20 years?Could you use the velocity of money just as I have to create a million dollars? Of course you can.

I am not some rocket scientist, but this is easy. This entire process starts by FUNNELING ALL YOUR INVESTMENTS THROUGH YOUR REAL ESTATE

I don’t have a lot of money sitting in a savings account or a 401(k)/IRA. If you were to rob my house, you would be severely disappointed, unless you like books. If you were to hack into my IRA account, you would be out of luck. No new car for you. Most of the money that comes to me is put right back to work and invested into new assets.

When I recently received the check for the sale of the home in Willoughby for $24,346, I didn’t spend a penny of it. There were so many other nice things I could have used the money for. I could have bought a bigger house for my family. I could have bought a fancy new car. I could have gone on a nice vacation. I could have purchased the home theater that I have always wanted. Nope. I did none of these things. I used the money to create more assets. By the way, this isn’t as easy as it sounds. My wife sometimes has other ideas for the money. But I didn’t get distracted. I didn’t take my eye off the ball. What is more important, a new car or a building that will be worth $850,000?

This is why self-discipline is so critical to your success as an investor. Throughout your journey, you will be tempted by many things. You will be tempted to stop investing because of evictions or tenant problems. You will be tempted to spend your profits instead of reinvesting them. You must control these temptations and stick to the plan. The plan is to turn each home into a million dollars.

To get more information on the strategies I used to begin my real estate investing, call the real estate information center at 1-888-845-9670 and enter ID ?. Leave a message with your mailing address.
Minton is a CPA who left the world of public accounting to pursue a career in real estate. The president of The Home Selling Team, Inc., in Cleveland, Ohio, he has since been a successful broker, author and consultant. An investor in all types of properties himself, his Income for Life program of deals with single-family homes in desirable locations bought and sold with a proven rent-to-own method outlined at www.quitworksomeday.com.