How to Make $20,000 in Passive Income: The Beginning Real Estate Investor

I'm not going to be fancy with this: I'm just going to tell you the story of how I started investing. I figure the plainer the better--so that you know this can be done. It's a true story!

It started out with research.

Let's put it this way, if you are smart enough to graduate from high school or college with pretty good grades, and to have learned how to write a decent research paper (that analogy of course from an English major), you are smart enough to start real estate investing and to make money off of it.

The best tool that I've found, probably obviously, since you are already here, is the internet. This puts so much at our fingertips, I don't think we realize the scope of it at times. But, literally, the world is searchable through your computer interface.

Starting locally is probably best--at least that was the assumption I made. This has to do with the fact that "seeing is believing," especially at first, when you want to make sure you are doing everything correctly. You can physically go and check out the property to ensure its value--rather like an employer interviewing an employee.

This (the 'show me' or the 'meet and greet') actually doesn't always work out to be the best way or the best way to figure out the truth in all reality, but still, the principle exists in our psyche. What I mean by that is that other information can be more accurate--the statistics, or in the case of a job applicant, work samples. Nonetheless, to calm your fears--and sometimes that of those around you (how many times did I hear from my family in the Midwest that 'I was gonna get killed' when I move to New York, i.e., because they've never been to a large city, and it was just fear of the unknown), it is better to start with a good old fashioned look-see.

Important Things to Look For and Remember

You are looking at properties not first and foremost as an affective buyer--one interested in the emotional investment of a home or a piece of land. You are not looking for 'perfect' with just the right size kitchen, blatant curb appeal, or just the right views. You need to start thinking outside of the realm of a consumer, basically, and to think creatively. That means consider the property's potential if developed, and forecast into the future.

It's always, always about location. This is probably the most important information I can endorse (because it has been said before.) But also, think about that location in the future and do your research. Research population trends, growth trends, business development, ethnic population makeup, schools and their influence in the area. From this, if you do your homework, you will be armed with more information than possibly 95% of those who qualify as affective buyers.

Use This Information to Search for Bargains

It has been said that Donald Trump (though I hate his style and always have!) is deeply creative. And I don't think those interested in investing are talking about his public persona, which may or may not help his cause and finances--frankly, I'm too disinterested to consider it. I think they are talking about his ability to locate a bargain and to make money from it. And this takes a certain eye--but just the same eye, I believe, in locating a designer dress at a bargain mart or a truckload sample sale.

Creativity can be analytical, and that is what you must do--search and consider, forecast into the future.

Ask yourself, what is the potential market for this property? How can it be developed? (It really helps to know someone who has actually built a house, if you are purchasing land, ie). This will lead you to consider things the average 'affective' buyer may never consider.

Keep searching. Persistence is key to many things, I've found. This is true of writing and publishing, finding a job, or locating an investment property. It seems like a simple focus, but many so called success gurus will back me up.

Learn What you Need to

That means, if your property will require an alternative sewer system, you learn all about alternative sewer systems. Especially if THAT is the only reason a piece of land, lol, for instance, is being offered at a hugely discounted rate in an area that is not used to using them. You find out everything you can about them. You source contractors and make them give you estimates.

Do not listen to 'experts' (I know that sounds bad) trying to talk you out of something you know for certain, even if you are younger than they are or have less experience. For instance, realtors are in the business for a reason. To make money. The more expensive the property, the bigger their commission. They are not your friends--though they often make out like they are!

That's not to say you can't trust these professionals. That's not what I'm saying--but know where their interests lie, and don't trust them for your first source information. Rely on your own mind and your own instincts. To cite an example, when my sister was buying a house approximately 2-3 years ago, at the height of the real estate bubble market, her real estate agent was trying her damndest to talk my sister into signing onto an ARM mortgage. For a house in the rural Midwest selling for $35,000. Um, that's kind of stupid.

My sister is pretty smart--but actually, she's more thrifty with her money than anything--and the paying--what (?) $50 a month as a house payment for the first year or two adjustable with some stupid high interest rate later on made absolutely no sense to her. She plans to keep her house for more than 10 years and is very conservative with her money and any risk.

Don't listen. If you do, it could hurt you. Plan to do your own research and consult professionals as needed, but don't give them the ultimate say with your money or your decision.

The Happy Ending

I did all my research, and located a piece of land in a fairly upscale subdivision in the North Corridor area between Iowa City and Cedar Rapids, IA when I lived in Iowa City. It is an area of not rapid--but steady, fast growth in the level real estate playing field of the nation's interior (California, Arizona, or Florida it is not--thank God). It fronts a large lake/resevoir. Lots of building going on in the area, with few lots actually still available for purchase.

The property was listed at $6,000. Thought it must have been a fluke, but I checked all aspects I mentioned above out. Yep, this is the property that required an alternative sewer system, as the land did not perk (a term I picked up! You'll just have to research it!). Most other buyers were very reluctant to purchase this land because in Iowa, there is an abundance of flat, level land that does not require an alternative system. However, these systems are very common in states like Arizona, where builders have to contend with building on slopes and rock all the time.

Once I'd done all my research, however, and ascertained at the County Assessor that the land was actually worth at the time, double the amount being asked, I wasted no time and paid cash. I had a lawyer do the title opinion, too, although I found most of the issues I had satisfied for myself with my own research. (Still, it is nice to have the official documents in black and white.)

I have held this land for 4 1/2 years, and each year, the property value has gone up. Meanwhile, property taxes in this area of the Midwest have remained minimal. Last year, the property value reached $36,000. Which is obviously quite a bit more than I paid for it. I believe it is because of the growth in the area, and the area's location.

I was happy with this, and did not intend to sell just yet. Until I started recieving calls from people out of the blue making offers on it. I recently accepted an offer of $26,000 from a retired couple who loves the area. Since I am nice (and it appears you can still make a profit being nice) and know precisely what they will need as far an alternative sewer on the property, I accepted their intial offer and also provided them with the estimates I have from sewer contractors.

So begins my real estate investment career, ;). It's not a lot of money to some, but it's plenty, I figure, as most of this was pure profit and entirely passive. I will take the cash and reinvest it.

The end....or maybe a beginning!

Editorial Note: This is not a made up story or a scam. Felt I must put that in here. I'm currently having trouble tracking down Iowa's abstract for the land as I write this, lol, ie, to send to the couple purchasing the plot. However, I would like to urge everyone, of course, to be cautious in approaching the real estate market as it stands currently. This isn't for anyone who doesn't like to study. There is always risk involved in investments... Please see some excellent hubs by The Money Guy for general information about finance and real estate to start off with.