Investments in Real Estate: Case Studies – Part 2

Ramu moved to the US from India in 1974. He went to school at night and worked during the day. After 2 years, he bought the duplex he lived in from his landlord, which he was sharing with a friend. By the age of 25, he had saved $9,000. His landlord, who was an elderly person, used to live on the ground floor and Ram would help him maintain the duplex. Ramu would cut the grass sometimes in the summer for free and the landlord liked him and treated him like family.

One day, the landlord invited Ramu over and told him that he was thinking of moving to Florida to be with his son and that he wanted to sell the duplex, and he offered it to Ramu for $90,000. Ramu did the math and told his landlord that he only had $9,000 in his savings and banks in those times needed at least 20% down payment which is $1,800 plus closing costs so he was short by $11,000. The landlord knew that Ramu was a smart and honest kid who knew how to manage his funds. He told Ramu that he will lend him the money to close the deal, but he will take a second mortgage on the home for a period of 3 years. He will only charge 7% interest and that will become due at the end when his mortgage is due which means at the end of 3 years he will pay him back the $11,000 loan money plus $2,310 interest. Ramu did the math on $72,000 which he was going to borrow from the bank. His interest and capital payment was going to be $400 a month. His taxes, which were roughly $1,800 a year would be $400 a month plus his maintenance would be $50 a month. His insurance would be $60 a month. So if he would rent out the top apartment where he was living for $300 a month, then he can easily pay his mortgage and other expenses because he was paying $300 rent to his landlord for his apartment.

He may run short of money here and there, but now because he was married and his wife was working, they had enough income to support these expenses, plus he realized that within 3 years they would have enough money to pay back the landlord. As a matter of fact they could pay him back within one year. So he negotiated another deal that within one year, if he pays back his landlord all the money that he owes from the date of closing that he will not be charged interest. The landlord agreed to the deal as his place was free and clear, so he took a second mortgage on the building and Ramu became the owner of the duplex in 30 days. Now, after signing the contract with the owner to buy the building, Ramu put a side outside to rent out the top portion of his duplex.

He also looked in the neighborhood to find out what other people were charging for the same kind of facility. He was surprised that apartments were going for $400 and in some cases they were going as much as $450 a month if they were furnished and they all asked for the first and last months’ rent. Apartments were very close to a university, so there was a demand from university students.

This was a big duplex and had 3 bedrooms. Ramu decided to rent out these 3 rooms to individual students for $175 a room. The apartment had an old fridge and stove and washer and dryer, which the landlord was not going to take with him, so Ramu decided to buy the entire landlord’s furniture, including the beds and the sofa for $2,000. Ramu told the landlord to increase the second mortgage from $11,000 to $13,000. The landlord was happy to get rid of his old things which he could not have taken with him. He could have made the same amount of money if he had sold them one by one. Ramu got a beautiful furnished apartment with window coverings, which he will have no problem renting out. He went out to the university and put up an ad on the bulletin board for leasing the rooms and in no time got responses from 3 good students who were majoring in medicine. It was their first year in college and they were all good friends. They gave Ramu post-dated checks for the month of June rent.

Ramu became a landlord at the age of 25. He came to this country from India at the age of 20 with a high school diploma and a year of college. He started working at a mattress store as an assistant manager and shipper. His job was to lift mattresses when the new shipment arrived in a trailer, and to put them in a customer’s truck when they were sold. He was tall and skinny, but he was physically strong and did not mind lifting mattresses all day long. He always worked with a smile on his face. He went to school in the evening and was able to get a scholarship because he was brilliant in his studies. When the manager of the store quit, the owner decided to make him manager and he got a raise within 8 months and had 3 people working under him. He finished his undergraduate degree in 5 years. It took him longer to get his degree because he could not take too many credits as he was working during the day. Before he got his degree, he was a landlord also and was married. He doubled the sale in his store within a year because he was very nice to his customers. He trained his staff and motivated them to learn the business. His store became the best producer in his region. His company wanted to promote him to be the general manager of 10 stores but he refused to do that because he knew it will be too demanding and he won’t be able to finish his studies and take care of his family and tenants.

By Ashok of http://becomerichinfiveyears.blogspot.com