Making money by renting houses.

I met a young man (about age 35) whom I believe, will be very wealthy one day. We both happened to have stopped at an empty “for sale by owner house” at the same time. He was running around searching for slightly run down rental houses in blue collar neighborhoods and trying to lease them up at slightly under market rates. He looked for vacant rental units that needed sprucing up, he rented them (as is) on ten to fifteen year leases at about $100 under what the house would rent for if it was spruced up.

For example if it was a $750.00 rental neighborhood he wanted to pay $650.00 rent. He rented from individual owners only, not from leasing companies who managed properties. He provided the leases with clauses in it that protected him. Long term, 10 years or more, the right to sub lease, all major repairs are owners responsibility, all minor repairs his responsibility. He could spruce up the houses anyway he wanted as long as it was in good taste, and in keeping with the neighborhood norms.

His goal was to rent the homes right away, then spruce them up and raise the rent. If owners wanted to sell they would have too sell to him, as he held the lease.

When I met him he only had two houses under contract. He said he would go looking for more houses when ever he was off work. I asked what brought him to this innovative method of land lording as I had only run across a similar method once before. He replied that he had limited resources and that this way it required less then a $1,000 a house. When I asked about spruce up money? He replied he would use the renters deposit. On his second deal the owner waved the security deposit so he would have more money for the spruce up.

He said that it was hard to find the houses but he knew it was just a matter of time and effort. The reason for the long terms was he wanted fixed rate lease contracts so he could raise the rent over time without his rent going up as he made his profit from the spread . His goal of 10 houses the first year was proven difficult and he thought it might take longer to reach his first ten houses then he had thought, but he had two under leases so he knew it could be done.

I pass this on just to let you know that there are people out there finding ways to slowly get rich with limited resources. If I was younger I would be doing this too. I will stick with mobile home rentals and sales/financed, as at my age I want faster cash flows. I will for-go the longer term appreciation in values that his method will provide. He has a good plan and the dedication to it that will make him rich.