by J. Jack Miller

Suppose you learned to manage your own houses, and had the capacity to manage many more; look at all the ways there are to create streams of income:

A. Lease property from owners who refuse to become managers at a fixed rent of $100 per house under the current market. Sub-lease it to occupants at retail rates. Ideally, your lease should be for several years. Each month this would add $100 minimum to your cash flow with no investment or risk on your part.

B Increase cash flow from various over-rides for maintenance and repair. This might include lawn and pool maintenance, pest control, emergency assistance with plumbing, electrical, heating, and cooling; inspections and corrective actions.

C. Small loans to cover the costs of major repairs, appliances, vacancies and even negative cash occasioned by unforeseen expenses.

D. Tenant credit checks

There are many more possibilities which might include cleaning, painting, keys and locks, pet leases and pet boarding, RV storage, etc., all of which are very low risk enterprises that managers can become involved in; but the biggest profit center of all is created when an Option is coupled to a lease. The lease gives the manager access to and the use and possession of a house; and when the house is subleased to an occupant, cash flow. The Option can be written to capture all the loan amortization, a portion of the rents that have been paid in, and all the appreciation.

Let's look at a fictitious situation. Smith is an investor who owns a house he can't sell. Because of the huge appreciation of recent years he has a large equity, but his payments are $1500 a month. His house would rent for about that if he were willing to manage it; but he isn't. You offer to manage the premises on a "performance lease" under the terms of which you'll turn over all rents remaining after you deduct $100 plus out-of-pocket costs for maintenance. Note that your income comes off the top before anybody else gets paid. Any month you can't rent the property, you owe nothing. Out of the money you send him, Mr. Smith still has to dig down deep to add cash each month.

Let's say at some point in the future, you've picked up several leases and have built up your cash flow. You can offer to lease the property for no fee if Mr. Smith will let you pay him $50 per month for an Option on the house at this year's depressed price. In addition, in return for your foregoing the $100 fee you were receiving, and adding $50 per month to the pot, he agrees to give you 50% of all rents collected to be credited against the down payment and price of the house. That means that your management plus $50 would be buying you about $750 per month in credits against the purchase price every month the house was rented.

The foregoing illustration was fictitious, but when an investor with a large paper profit doesn't want to manage, and can't afford to continue to hold a house, it's amazing how compliant he can become when you offer to relieve his financial duress in return for a future interest in his property. Incidentally, virtually the same approach can be used with homeowners whose income has been negatively affected by the housing slowdown. They can save their equity by moving out and letting you lease their house and still sell tax free within 3 years.