Recommended buy? Yes
Amazon Link & Price: Investing in Duplexes, Triplexes & Quads — $14.49
Original introduction to book: Biggerpockets.com
Reading Difficulty: Taking candy from a baby
Quick Synopsis: Investing in small multifamily properties of 2-4 units is the way to financial success.
1) Why Real Estate?
2) Why Residential Multifamily is the Best
3) The Making of Millionaires
4) Creating Wealth from Thin Air
5) Buy and Hold, Pyramid, or Refinance?
6) Using Brokers to Your Financial Advantage
7) Finding Your Property
8) Valuation of Your Property
9) Verification and Due Diligence
10) Making Offers
11) Closing and Your Costs
12) Managing Your Property
13) How to Sell and Pay No Taxes
14) The Fastest and Safest way to Wealth
15) Where do You go from Here?
Appendix: Real Estate Appreciation by Metropolitan Area
“Investing in Duplexes…” is a recommended read on Biggerpockets.com; I had also seen the book at Barnes & Noble and flipped through the book. The book is not a difficult read. I’m a slow reader and I was able to finish the book in about four hours.
This book offered a few new ideas and techniques I plan to start incorporating in my investment strategy. Most of the ideas in this book are refinements of my existing techniques rather than entirely new techniques. One example: when purchasing a property, close late in the year but early in the month. If you close late in the year, there is a credit for real estate taxes. By closing early in the month, you will receive 90%+ of the rent as a credit at closing and your mortgage payment won’t be due until the beginning of the following month. I knew about the prorated rent as well as the tax ‘benefit’, but had never considered the benefits of using both of these techniques to significantly reduce my down payment.
“Investing in Duplexes…” is divided into four sections: 1) Real Estate Wealth Building; 2) Buying; 3) Holding and Selling; and 4) Your Wealth-Building Program. Each section is roughly broken into four chapters. The real meat of Larry Loftis’s book is in Sections 2 and 3. Section 1, “Real Estate Wealth Building”, covers the Why of real estate investment.
Larry Loftis firmly believes the key to increasing your personal wealth and planning for retirement is through continued investment in residential real estate, specifically residential multifamily real estate. Loftis defines residential multifamily real estate just as Fannie and Freddie do: 2-4 unit buildings that are either owner occupied or non-owner occupied. Loftis specifically makes a case to purchase quads or triplexes.
Throughout the “Real Estate Wealth Building” section, Loftis describes how he and others profited from the purchase and ownership of real estate. He makes the case for real estate through a variety of examples. Loftis invests in the Florida real estate market, with a focus on Orlando, and New Smyrna Beach. Many times I find examples in real estate investment books hard to swallow: they could simply be invented by the author to illustrate a point. However, an aunt and uncle of mine used to live in Orlando, so I have a personal connection with the area. I knew some of the areas Loftis mentions and I also knew about the rent and appreciation in the area, which added significant credibility to Loftis’s arguments.
Probably the best chapter in Section 1 is Chapter 5, “Buy and Hold, Pyramid, or Refinance?” This chapter really struck a chord for me because Loftis lays out an investment strategy which he refers to as “Refinance”. This is the same strategy I have been using and will continue to use for the foreseeable future. My agent and my banker never really described this strategy, nor could I find it specifically referenced anywhere else, which lead me to doubt my own plan.
Loftis recommends purchasing a property, rehabbing the property over a one year period and refinancing the property at the end of the to then reinvest the cash from the refi in another property.
To me, this investment plan seemed like a no-brainer. You still control the asset, yet you have access to the equity. Properly managed, there should not be an issue with this plan. Finally, I found someone who agrees with me. Maybe I had read about this plan in other books, but Loftis really hit a home run for me with this strategy. Chapter 5 is a Must Read.
Section 2, “Buying” thoroughly describes the purchasing process and how to reduce your down payment costs. Most of these items I had already learned but my implementation needed to be tweaked to help improve my returns. In some instances and situations, by tweaking my strategy during the purchase process, I may reduce my down payment by up to 40%, which really improves the cash-on-cash return.
In Chapter 9, “Verification and Due Diligence”, Loftis’s law background is quite evident. The chapter opens with the quote from President Reagan “Trust, but verify.” Loftis encourages you to use the numbers provided by the seller as an initial starting point when evaluating a potential purchase…but to then call to verify each piece of information you are provided including taxes, utilities, service companies, etc.
I have never called to verify a specific piece of information when I’ve purchased a property; I’ve only used the seller supplied information. I almost got burned once with some water/sewer bills and simply figured “caveat emptor” ruled these transactions. After reading Loftis’s book, I plan to do some more due diligence on these purchases prior to signing the deed.
As you would expect, Section 3, “Holding and Selling” is about property management and reduction of taxes during the sales process. Loftis’s book was not really geared toward property management, and Section 3’s two chapters (Chapters 12 and 13) are very slim. Overall, I was not very impressed with Section 3. However, Loftis does finally get through to me to look for rental properties for middle to high income earners. To date, my investment strategy has been to invest in low to low-middle income rental properties, slowly building cash flow to purchase the middle to high income rental properties.
With my strategy, I do sometimes have to deal with bonehead tenants. For example, I recently had a tenant tell me that they got tired of paying bills, so they refuse to pay their water and sewer bills (my reaction: “Come again??”). Loftis argues that middle to high income earners will generally not try to pull a stunt like that. That being said, I do have other tenants, in the same town as the ones mentioned above, who are low income earners, but who are incredibly polite, courteous and do pay all of their bills on their own. They just aren’t great money managers.
Section 4, “Your wealth-Building Program” was also a very slim section. In this section, Loftis lays out the three ways he sees to create wealth with real estate: Buy and Hold, Pyramid, and Refinance. When he lays out these sections, the process is more of a bullet point presentation which really helps to sum up the book. If I were young with no pets or kids, I would very seriously consider Loftis’s “Pyramid” program.
In this program, Loftis recommends living in one unit of the 3- or 4-unit building you have purchased, fixing that unit, then moving to another unit in the same building, and repeating until you have refinanced or sold the fully updated multiplex. Then you repeat the process. Loftis’s plan is much more nuanced than I just presented, and I highly recommend reading, understanding and considering his “Pyramid” plan.
Overall, I recommend purchasing and reading this book. I say ‘purchase’ because you can then take all the notes in the margins you want, dog-ear the pages and stick the book on your shelf for future reference.