Are We Wired for Economical Failure?

In many ways we are born with a disadvantage. Most of us are not given any kind of financial education. We go through our academic life learning about literature, history, science, math, etc. Yet I’m willing to bet that 99% of graduating high school students would not be able to read a financial statement let alone due their own income taxes. And then there’s our education at home where money is usually a taboo topic and improper to bring up at the dinner table. It gets worst if you were born into a lower-income or middle class neighborhood since there are less role models to learn from. The challenge to find a mentor that can teach you financial literacy can be quite an obstacle. Below are some jotted notes that can help give some insight of our inner workings of what makes us tick and what we can do about it.

  1. Life is not fair. It wasn’t designed to be so. Those who accept this are at an advantage then those whom think it should be. Those whom believe life should be fair tend to perceive themselves as victims of the system. This is a self-defeating mentality since nothing is guaranteed in life much less owed to us by rite. It’s a false hope to expect it and a lifetime can be wasted expecting justification. In simplest terms – not everyone wins. Nature/biology is ruthless and very competitive where there’s a winner and a loser. You gain control by making a choice on what aisle you plan to be on and what you’re going to do about it. If you incorporate this reality, you incorporate a type of fight or flight mental fear and can be used as a competitive edge to motivate you into taking action. This relates to the concept that we’re set to fail from the get-go. You have to take action against failure, swim against the current of failure or you’ll be part of the average stats: 50% divorce rate, 80% of small business fail, 30% of Americans are in some form of prescription meds, the average has $60,000 saved by the age of 60, the average attention span is 5 seconds, the average now has about $38,000 in personal debt not including home mortgages. Let’s make one thing clear here – failures such as temporary setbacks are expected and a good thing if and only you continue to persevere towards that goal you have set in your horizon and you learn from the mistake from that failure. Failures (setbacks) are expected and are a sign that you are making progress in your life whether it be financially or spiritually. True failure is when you have given up. Do you now understand the distinction? Failure is your stepping stones for progress.
  2. Hexaco: Psychometric Personality Assessment Test (scientific)
    is one of the most accurate test assessment.
    Conscientiousness is one of the five personality traits which is the most correlated with business success. The four sub-facets of conscientiousness: diligence (hard work), organization (efficiency, getting things done, executing), perfectionism (make the least amount of mistakes possible, checks and balance) and prudence (intelligence on how to reach success – making the right decisions. This is where most lack strength due to mental prewiring). The average millionaire takes 20 years to become a millionaire. This amount of time is usually due to a lack of the sub-facet of prudence. Those whom have developed strong prudence along with the other 3 sub-facets get there sooner. Prudence is developed by reading books and having mentors. Find out what you don’t know by admitting you’re lost and seek what, how, when, where and why. (Warren Buffet reads 8 hours a day – he used to read more, Elon Musk averaged 2 books per day, Bill Gates reads 50 books per year, average CEO read 5 books a month, Mark Zuckerberg started a book club reading a book a week)

3. After the age of 25, it’s hard for us to rewire our mental framework. After the age of 25, the way we can rewire our mind is by massive trauma. Adults 25 and older can relearn through trauma. Going through a traumatic experience will aid in the rewire of your mind. Most of us have wiring skewed for economic success. Use what affects you traumatically as a tool to influence you to take action and make commitments to change and realign your priorities and situation. This can have a life changing effect.

4. The greatest advantage you have is that other have been there and done it! The have failed and succeeded before you. And many have laid down a path on how they did it. Most of them have read books on it all happened You’ll be at an advantage by learning from other people’s experience including their failures and successes. Read and meet successful people. Most of them want to share and help you succeed if they believe you sincerely want it and are willing to work for it. Try working for a successful person in their business to see how they operate and what habits aids to their success.

Are There Real Estate Agents that Specialize in Low-Income Neighborhoods?

There are real estate agents that do specialize in catering to investors. You want to find an agent that charges between 5% and 7%. You’ll also want to find an agent  that you could see  there  profile online  as well as a picture of them with their listings. Be wary of agents that charge an additional commission fee. During my first few property purchases I realized that I was being charged $400 commission fee, while being a buyer. I’ve never heard of that before and nor have many other buyers and sellers. Let alone other real estate agents. Unfortunately I learned of this fee after the fact. It was mentioned in one line in the real estate agent contract. However you will want a real estate agent that knows the neighborhood landscape. This is critical in areas where a one block distance can make a $100,000 difference in pricing. It’s not uncommon to see neighborhoods drastically change from one blocks to the next. You’ll want to get as much information from the real estate agent. Before meeting with the real estate agent create a list of questions. Develop relevant questions such as: has there been any new development in the area? where are the bus stations located? Has there been a increase or drop  in the population  for this area? Where do people in this neighborhood work? What Industries or companies dominate the area? Apart from sinking economical rent, you’ll want to get a sense of why someone  would move into the neighborhood. Is there a hospital nearby? Or is there a manufacturing company that employs many people nearby? You’ll also want to keep an eye out for empty lots or abandoned homes. This will give you an indication of the density. Usually less dense neighborhood means less economical activity.. All these factors are to be considered and can be useful information when deciding on buying a property. Most of the time especially good real estate agent will have this information readily available especially if they know the landscape of the neighborhood and specializes in investors

What Type of Tenants Should I Expect?

It is no surprise that in low income neighborhoods you may encounter a greater probability of eviction and a longer time spans in vacancies. These two caveats are inversely correlated. You will normally have a greater probability of evictions if you’re less selective in the tenant screening process however you may fill up your rental units faster. Conversely you may experience a longer time span of vacancies due to being more selective in your tenant screening process. A key element to keep in mind is that the majority of your tenants will have past credit problems, an eviction, low income or minimum wage, a single parent struggling financially, and possible a felons that will have a hard time finding a job should they get fired or laid off or quit. Of all the applicants you may find approximately 15% will pass your screening process and be worthy tenant. You’re basically competing for the top 15% tenant pool and so you’ll want your rental unit to stand out to help procure them. Something that will tell give you an advantage such as a fresh paint job My screening process is no past evictions a monthly gross household income of three times the rent amount, no past felonies on their record, two person per room occupancy limit,  no pets allowed and a cherry on top would be if they have a credit score of 620 or better. At times you’ll come to realize that no one is passing your screen test so you might become anxious and start being more flexible. When this occurs I may be flexible with the pass eviction so long as it’s been at least 5 years or longer since the last eviction. However there are some things that should not be bent too much such as monthly gross income. A low monthly gross income will indicate whether that person can pay or not the rent.

Is There a Specific Type of Property I Should be Focusing on?

There is much of a debate between which is a better investment: single family rentals (SFR) or multi-unit properties. Due to the possible High rate of evictions along with make payments on the pending on how selective you want to screen your tenants which will have a correlated effect of timespan vacancies your best bet is to focus on multi units. That way if you’re going through a rough time with one of your tenants such that they’re not paying their rent you have rent coming from the other unit and that why you’re always producing Revenue from one unit or another. Due to this reason, rentals in low-income neighborhood it is usually best to focus on multi units.

What Type of Condition are These Properties in

The conditions of these properties vary greatly from being abandoned nearly crumbling to pieces to being completely renovated and rental ready. The ideal property is one that has tenants already living in them. There’s two major factors why you should consider purchasing rental property with tenants living in them. The first one is instant cashflow. The day you buy the property you are making money. You’re generating revenue for your new real estate investment and the second reason is if there are tenants living in the property it means that it at least is functional enough or that if you need to make repairs they shouldn’t be major. You at the very least know that the electrical system works, that the drainage system works, and that the mechanical which is Heating & Cooling works. Now this isn’t always the case but for the most part that indicates that it’s a functional rental unit. Depending in what state and Market you’re invested in houses will have a similarity in their Construction. Mid-West homes for example many are built with bricks and are 100 years or more old. In such cases you’ll want to check to see how old is a plumbing does it still have the original galvanized steel or has it been switched to PVC and have the water lines been converted from Galvanized Steel 2 PEX tubing which is flexible and rupture proof. And the electrical system are they still using tie knots or have they upgraded to code. Are there leaks coming from the bathroom in the tub or the toilet and if so has it rotted the floor joist and surrounding wood underneath? How are the floor joists are they split or broken making the floor uneven. Are the sockets grounded? many old homes don’t have grounded sockets even though they may have a three-prong socket. Do the windows need replacement? check if they can be open and closed without them falling apart due to the frame being cemented by previous coats of paint? One window may not be too expensive but when you have to replace 15 windows it really adds up. And how about the roof? What condition is it in? Do you see water stains on the ceiling? Or how about openings on the soffit where squirrels and other can come a wreak havoc. Removing squirrels for example can cost hundreds of dollars until an entire family os eradicated. these are things that should be considered when purchasing a property based on its condition. You want to have a notepad and taking notes of all these observations that need to be repaired. It Will Be Your Arsenal for when you need to request a better price for the property. If you can demonstrate to the seller the reasons why you need the property go down in price such that you can justify it due to the repairs that need to be addressed and the cost associated with it. Overall it’s best to hire a property inspector. For under $500 you can get it inspected from top to bottom including termites.

How do you find these properties

There’s different mediums to find such properties. You’ll have the most exposure on the internet video of sites such as and other similar website. What many investors do as well is drive by neighborhoods they have an interest in investing and look at houses that need a little TLC or are behind in maintenance and inquire who owns that property once they’re able to get in contact with the owner by means of looking up to see city/county records or by sending them mail asking them if they would like to sell the property. If someone is living in the property you can leave them a letter with your information and that you’re interested in purchasing the property. This is also the way you purchase real estate with no money down. You in contacts with a property owner that is not doing anything with their property that may live somewhere else and has a property that is not producing anything and decaying while they’re paying taxes basically a liability in their finance and you offer to work out a payment plan with them. It’s a win-win situation since the owner is losing money holding onto a non-producing property and the investor gets to own a property with no money down and begin the renovation to get it rental ready. However there is another way and is how I find the best deals. The wa6 I have founf the best deals is through word of mouth. Networking with people that may or may not be involved in real estate that may know someone that is selling a house or know someone that has passed away and the property was inherited by their daughter or son whom don’t know what to do with the property nor want to become landlords. This is opportunity knocking to get a property at a highly discounted rate. Many times the inherited party views  property as a nuisance since they have no intentions of becoming landlords nor want to managed the upkeep and pay taxes. One of my better deals was when I was looking to buy a duplex and met the owner during the viewing of another property. I started conversing with them and ask him about renting and buying properties within the vicinity. After about 20 minutes he mentioned in nonchalant manner that he was looking to sell another property which he had not placed on the market or had not told anyone yet. I inquired what the property was and it so happened to be a fourplex building with many upgrades Electrical Plumbing Central AC large units with high ceilings three or two bedrooms one was three bedrooms a lot had been put into this property. The going rate for this property at the time was $125,000 and I bought it for $60,000 and even though I inherited subpar tenants it begin to cash flow immediately. I can say undoubtedly that if this 4-Plex would have been placed anywhere on the internet it would had not lasted a day. The best deals are when they haven’t yet been advertised to the market. Whether that be the internet or newspaper or any other medium. Every time I start a conversation with someone I try to give it to real estate if they know anyone that’s selling property. Big be surprised how many people know someone that’s selling property that hasn’t been placed on the market, I want to get rid of it  and due to external factors need to sell it the sooner the better. This is one of the pros in this real estate business is at everyone in one way or another is involved in it either you’re a renter or a home buyer or someone who has received property via inheritance. The reason this is a pro is that although everyone is involved not everyone cares to do business with real estate and may not be willing to put the effort to get the most out of their property that’s where an opportunity to get a good deal comes into play.

Are These Neighborhood Safe?

Like most things it depends. In what it does it depend it depends on how you manage situations and how you address people. Some what of what you can call how street smart are you. In this I mean you treat everyone with equal level of respect without forfeiting your fortitude. There is however an advantage to being a landlord. In many of these neighborhoods there is a very weak economy such that many many people and especially the youth I looking for however they can earn money. And as a landlord they understand that there’s always work to be done especially manual labor. So if anything you’re somewhat of a Beacon of Hope for the time So if anything you’re seen as somewhat of a Beacon of financial stimulus Hope. You will get request for work whether it be sweeping floors or demolishing a wall they’re there ready for the fear. Initially their work ethic is impressive. You and ask yourself why aren’t these guys working in a normal job. But after a few days you see the wear on them with less stamina all brought down due to the addiction to drugs and soon get the picture of why they’re on the streets and not working a full-time job. One of the first things I realized being in landlord in a low-income neighborhood where there is a concentration of crime due to drug addiction and crime Carries a weight of respect. One of the first things residence message neighborhoods think is that you’re rich. And it isn’t that you got rich by being like you’re playing the lottery it’s that you got rich by being a Savvy businessman. Whether that be true or not it aids in receiving a sense of respect. Being alone also signifies that you’re not a pastor p to be taken advantage of. Tell one that is real walking on the wrong side of town. They know he’ll be there today and most likely tomorrow and will be able to describe faces and names to the police. Another aspect of the fear of being in a bad neighborhood is that there’s much bloat of it in the media and word-of-mouth. My wife and I along with our two year old daughter lived in one of our duplexes second floor for nearly 3 months . Often times you would come late near midnight hours with no sense of fear or sensitive insecurities. This is not to say that you should leave your guard down and be aware of your surroundings how are it never came to the point where we were attacked or feared for our lives or felt endangered in a way. As long as you keep to yourself keep confidence in what you do and say treat everyone with equal a respect and go about your business there should be no problem even when you’re conducting business such as collecting rent or posting pay or quit signs on doors or evicting tenants or showing rental properties Etc. Never get in disputes with tenants that elevate into a heated argument. You will get in on two arguments with tenants with collecting late payment or property damages but never let it escalated to a point of insults or disrespectful comments. It’s always important to keep business ethics at play. So are these neighborhoods dangerous they can be but that depends a lot on you and how you go about your business and how you interact with everyone. In many ways you are in control of the situation.

Why I Choose Rental Property in Low-income Neighborhoods?

The reason why I chose to purchase rental property in low-income neighborhoods is because of the return on investment or ROI. With enough research and due diligence it’s not uncommon to get anywhere between 20 to 30% on ROI. So you may be asking what’s the catch? Why aren’t all Real Estate Investors buying everything in low-income neighborhoods? The truth is that there are many Real Estate Investors that specialize in buying rental properties in low-income neighborhoods. There are also other investors that diversify in having rental properties in low-income neighborhoods and rental properties in upper to middle-class neighborhoods as well. However you will find a group of investors that would not purchase rental properties anywhere near a low-income neighborhood. The reason being is that low-income neighborhoods require more work to manage. It requires a more Hands-On property management. For starters, you have a higher percentage of evictions. Many of your tenants live paycheck-to-paycheck. If they lose their job or have an unforeseen emergency expense such as their car breaking down, could mean a tenant paying rent late or not paying rent at all. Most low income neighborhood property landlords know that this is a reality in their pool of tenants. The way landlords have managed to leverage this reality is by accepting tenants that are enrolled in Section 8 vouchers. The Housing Authority helps low-income families pay rent. The Housing Authority will deposit up to 100% of the rent amount directly into the landlords bank account. It is a stable and secure way of always getting rent paid on time. Uncle Sam pays its bills. However there’s still the caveat of the quality of tenant that will be residing in your property. As a landlord you still need to provide proficient screening to avoid getting a destructive or problematic tenant regardless if the rent is being paid on time. However if you screen your tenants right and use a backup system such as Section 8 you can have very good ROI and your property.

Check your Trash Dumpster Before you Purchase!

When purchasing a new rental property there are things to take into consideration that may not show up on your checklist or even a professional inspector’s list. One thing I recently confronted was a damaged city trash dumpster used by the tenants to throw their trash. Its so happened that the bottom of the trash dumpster was deteriorated and so when the city came to pick up the trash, half of the trash

Real Estate Checklist
Deteriorated dumpster

would get poured out to the middle of the alleyway. It did not take long for me to realize that I had a mountain of trash all over the place right outside my rental property. It took me about two and half hours, a pair of thick gloves plus holding my breath and ask him myself “what did I get myself into??” I ended up calling the city’s trash division to get it replaced. They said it would take up to two weeks to get a trash dumpster replacement. Although this has no direct financial effect on you as far as purchasing the new rental property, you may want to ask the new seller to manage that issue before you become the new owner. Ideally it could be taken care of while in escrow so that it has ample time for to be resolved or replaced. And if

Real estate checklist
After cleaning up

you have new tenants coming in, it will definitely help not having a mountain of trash in your alleyway. This is today’s food for thought in real estate rental business


Should you Hire a Property Manager that does the Maintenance?

Selecting a property manager may be one of the most important decisions you make for your rental property investment. Recently I had purchased a 12 unit apartment building in a low-income neighborhood in Saint Louis, Missouri. I bought it in a short sale. Since I was an out-of-town investor, I needed a property manager as soon as possible so I can go back to running my business- in other words my full-time job.

Depending on your property’s condition, you will require a certain type of property manager. As for my 12 unit building, most of the units were rentable as far as occupancy inspections were concerned. However, being the new landlord that I am and wanting to make a rough diamond shine with a goal of bettering the margins with increased rents, I decided on hiring a property manager with a background in general contracting.

The ideas was to have my property manager manage the building and simultaneously do renovations. While I was back home slaving away, the property manager would go to Home Depot to make purchase orders for ongoing renovations. I would then get a call from Home Depot and the sales clerk would run down a list of the items being bought by the property manager. The sales clerk would then ask me for my credit card information to process the payment. Home Depot makes the process nicely convenient for you when you’re out of town. In the beginning all seemed to be working well. It wasn’t until I started noticing that the purchases were getting more and more expensive per day. In one situation two sheets of drywall was purchased to fix a hole the size of a tennis ball. The purchases were becoming exaggerated and I started to become suspicious. However, my suspicion served little to any use since when you’re away from your properties, you can’t really say “no you don’t need to buy that much caulking for the bathroom ..” and so you’re at the mercy of whatever the contractor says. I realized that I was somewhat powerless in managing the details of the expenses and materials being purchased. This is a situation you don’t want to be in since you’re bound to have a hemorrhage of cash from your pockets and not necessarily directed to your property’s improvements.

Property Manager's Mess
Property manager’s aftermath of worked completed #1

Property manager's mess
Property manager’s mess after replacing windows

I finally had to pull the plug on the project since I realized I had no idea if the purchases corresponded with the work being performed. Nor could I really tell what was the quality and progress of the work at hand. When I finally arrived back to Saint Louis, it did not take me long to realize how poor of a job the property manager had done with the renovations. In addition, I soon realized I had paid a premium in materials. Materials I suspect that were bought with my credit card but used on other unrelated properties or projects. The paint on the walls were done carelessly and were sloppy at best. The old window replacements were left in the unit broken up with large and microscopic piece of glass throughout the rug. It literally took me weeks to thoroughly clean the unit to get it rental-ready. The new ceiling fans were hangin at a 45 degree slope. And in one situation, a tenant had stated that the property manager had arrogantly claimed to be the new landlord. It was bad decision to hire this property manager all around.

Whether you’re in a hurry to get your new property investment ready for the market or decide to kill two birds with one stone by hiring a contractor while you’re at your full-time job, I strong suggest you don’t do it! Be there while the renovations are in progress. You’ll soon realize that by being onsite, you will be able to prevent many things that could have gone wrong. You’ll be able to confirm what really needs to be purchased and what does not. And more importantly you’ll be on top of the quality and materials to get best result for your investment property. An additional advantage to being onsite is that you’ll pick up a few learning tips on how things get done which will help your bottom line if you do it yourself for your next renovation. It was a tough and expensive lesson to be learned. Nowadays I do most of my work since I can save thousands of dollars and I know I’ll get it done right one way or another. Occasionally I’ll hire a contractor but only if I’m onsite to approve what gets bought and the quality of the work being performed.

Cleaned rental property
After cleaning property manager’s mess, rental ready property

Rental ready property
After a week of cleaning, it was rental ready