Today I’m answering your questions about how small investors are making passive income in real estate, and the topics I’m going to cover are:
- Start Small and Grow Your Passive Income
- A Simple Real Estate Investment System
- A Real World Solution for Real Estate Investors
- An Introduction to Tax Defaulted Property Investing
- Buying Cheap Investment Property at Auctions
- Earning Passive Income From Tax Delinquent Property
- A Buy-Low Sell-Low Passive Income Strategy
Want to learn how to purchase bargain real estate? Would you like to buy mortgage-free property for pennies on the dollar? Or earn double-digit interest rates secured by real estate? Then you don’t want to miss this FREE Mini Course.
Start Small and Grow Your Passive Income
There are many ways to make passive income in real estate. Today, I’ll reveal a place to get started which can be expanded as you begin to earn money. You can actually bootstrap your way to financial independence and economic freedom.
Passive income has many definitions, in today’s instance, I’ll narrowcast to one type of property. That does not mean you’re restricted in any way, but I will create a lesson and a template that you can follow and expand. I’ll start out with single family homes and that could easily be grown into small apartments or small office buildings.
When I talk about how small investors are making passive income in real estate, what do I mean by small?
Well, I’m talking about single-family homes or 2-6 unit apartments, I’m not talking about REITs (Real Estate Investment Trusts), I am not talking about ETFs (Exchange Traded Funds), mutual funds, or real estate syndications.
A Simple Real Estate Investment System
I’m Ted Thomas, and I’ve been investing in a subset of traditional real estate for the past 30 years. I’ve been involved in this business which means I’ve been involved in passive income opportunities because many of my student investors following my instructions are making passive income as you will see today.
I’m going to show you examples of my student investors who have created passive income with real properties and seller financing.
Bottom line, real estate may generate passive income in a variety of ways, and I’ve chosen a simple system that can be replicated in many markets.
A Real World Solution for Real Estate Investors
Let’s talk about how small investors are making passive income in real estate using my system.
This is not glamorous, and it’s not going to be like watching late-night television or one of those daytime shows with an attractive woman as the host and she and her handsome partner renovate a mediocre house and make it into a mansion by the end of the 28 minute infomercial.
This is going to be the real world. We are not going to knock down walls or smash fireplaces with sledgehammers. We aren’t going to completely remodel the house.
We’re going to buy for pennies on the dollar at tax defaulted auctions and sell or rent those properties with installment contracts. What we’re going to do is make some serious money with small investments.
This is how small investors are making passive income in real estate. In the recent past, I’ve had dozens of students who’ve completed many tax-defaulted purchases and resales. Once you understand it, you can rinse and repeat again and again.
An Introduction to Tax Defaulted Property Investing
My arena of specialty is tax defaulted properties. The property owners have defaulted on the property tax payments, and the local government, the county, has taken action. The consequences of tax default on real estate are severe and final. It all works like this…
The state legislature in all 50 states mandates that all property owners pay property taxes. The legislature governs the state and passes the rules they enact down to the local county board of supervisors and county commissioners.
The county board of supervisors or commissioners then demand that the county treasurer levy and attempt to collect the property tax. If uncollectible, the treasurer will evict the owner and seize the property to sell for pennies on the dollar in order to receive the revenue that is due on the back taxes.
Buying Cheap Investment Property at Auctions
The treasurer is authorized to sell the property at a public auction to the highest bidder.
The starting bid at the auction is unbelievably low, just the back delinquent taxes. In other words, the county is willing to auction the property for 60%, 70%, or 80% or more below the tax assessed value.
The starting bid on a property could be as low as 10 or 20 cents on the dollar, and additionally, the treasurer will cancel the mortgage or deed of trust loan, selling the property with no loan encumbrance.
Everything you just learned happens in all 3,000+ counties across the United States.
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Earning Passive Income From Tax Delinquent Property
Now I’ll explain how small investors are making passive income in real estate from tax delinquent property.
The monthly payment for those who rent to own properties is usually high because the mortgage or deed of trust along with maintenance and taxes are high. If you don’t have those mortgage payments, you will have cash flow, which is passive income.
An Example of Passive Income With a Tax Defaulted Property
- County tax assessed value: $100,000
- Public Auction starts at 10 ¢ on the dollar, and the property is purchased for 25 ¢ on the dollar ($25,000)
- Monthly rent: +$1,000
- Monthly maintenance: -$100
- Property tax: -$100
- No mortgage or deed of trust to pay
- After reserving money for maintenance and property tax, the potential passive income = $800
This is an example only.
A Buy-Low Sell-Low Passive Income Strategy
Markets and locations are different. If you can’t afford to buy a mansion in the county club, start where you can afford.
One of my students purchased dozens of properties in bread and butter areas, which some people call working class areas, these are not pretty houses; they’re somewhat used and abused.
He buys the properties at tax auctions for 10 cents on the dollar, which is only a $5,000 purchase price on a property with a tax assessed value of $50,000.
I teach my students to buy at a very low price and then resell for less than the market price.
In this case, my student sells the property for $30,000 and accepts a $5,000 down payment. He wants passive income and sells on a contract of sale, for 10 years at $350 a month.
10 years is 120 months X $350 = $42,000, plus add the down payment of $5,000 back in.
So my student receives $47,000 on a $5,000 investment.
Conclusion
We hope you enjoyed Ted’s lesson, “How Small Investors Are Making Passive Income in Real Estate”
Think about what you could do if you could purchase mortgage-free properties for pennies on the dollar, which is exactly what happens every day at tax defaulted property auctions.
It doesn’t take a lot of money to purchase real estate at a tax sale so this is certainly how small investors are making passive income in real estate, and the profit margins are huge. A large margin mitigates risk and gives you the options of selling the property at a discount for quick cash flow or using seller financing to produce residual income for years.
Many investors like to do both and use the cash flow to keep adding properties to their portfolio of real estate that generates passive income. The process is repeatable, so once you know how to do this, the sky is the limit.
If you’d like to know more about tax delinquent property investing, Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, and personal coaching with certified coaches.
Learn how to reap huge rewards from tax lien and tax deed investing! Get started today by taking advantage of Ted’s Free Master Class! Act now, it costs you nothing and will give you a big head start!
Ted Thomas is America’s Leading Authority on Tax Lien Certificates and Tax Deed Auctions, as well as a publisher and author of more than 30 books. His guidebooks on Real Estate have sold in four corners of the world. He has been teaching people just like you for over 30 years how to buy houses in good neighborhoods for pennies on the dollar. He teaches how to create wealth with minimum risk and easy-to-learn methods.
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