We went to the Internet and, based on the information we received at the seminar, began searching for properties. VA foreclosures required a bid, with the highest bidder winning. They also came with a predetermined mortgage rate. These loans, which were all conventional thirty-year fixed rate mortgages, were very easy to qualify for. When we began buying real estate the rate was 8 percent and over time it dropped by increments to 6 percent.

Initially, our focus was on southern Florida and the Phoenix area so we contacted real estate agents in Port St. Lucie, a bedroom community of Palm Beach, as well as in Phoenix. Our reasoning was this: We were interested in the lowest cash investment required, and those two states qualified. (Each state within the VA program has slightly different parameters. For example, in Florida the VA requires $1,000 down to buy property. In Arizona, the amount is 5 percent of the bid price.)

The Phoenix real estate agent mailed us packets of available VA properties, including photos, along with a breakdown of purchase costs, suggested bids, management fees, expenses, taxes, insurance, estimated repairs, and net cashflow.

The agent in Florida put the same information up on his Web site. We looked at several properties and analyzed the numbers that were provided. Then we played with them with the help of a financial calculator (we bought ours in Staples for about $50). The aim was to determine the maximum amount we were willing to bid and still receive a positive cashflow. When we found a property that we liked, we would put in a bid based on our calculations. If our price won, we were delighted. If we lost it, we didn't care because we weren't willing to pay more for the property.

After making a few bids but losing, we had a winner. This particular three-bedroom, two-bath single-family house in Port St. Lucie was priced at $98,000. Our credit was good, so we knew we would qualify for the loan with no trouble and we knew that we could use money from our savings and stock sales to cover repairs, the down payment, and the closing costs. The fix-up took a few weeks and our agent had a tenant standing by to move in within thirty days.

Yes, owing $33 sounds like we were going in the wrong direction, since we had no cashflow for such a big outlay of time and energy. But to us it represented the potential for financial independence. The indisputable fact was that we owned an income property that our tenant was going to pay for. Recently we refinanced the loan at 6.125 percent, which reduced our monthly loan payment to $579.

We closed on this house in October 2000. In that time the prices for properties in Port St. Lucie have skyrocketed. The house was recently appraised at $126,000, a 23 percent increase in value. Our initial investment of $7,900 bought an asset in which we have $26,000 worth of equity (the appraised value minus what is left to pay on the loan). If we sold the house today for $126,000, then that's a whopping 329 percent return, excluding annual cashflow.

"Wow," we said to each other. "We can do this again." And that's what we did, repeating the same process. Something wonderful was happening. By converting earnings and paper "assets" to true assets that were providing cashflow and equity, we were taking control of our lives in a totally new way. Excited and motivated, over the next two years we won the bids on three more properties, one in Clarksville, Tennessee, and two more in Port St. Lucie. Because one of the Port St. Lucie homes was not financed by the VA, we had to find our own financing. Through the agent in Florida we contacted a loan agent for a local bank. We qualified for a conventional loan with an interest rate of 6.75 percent with 5 percent down. Because the VA was not financing this house, the number of bidders dropped, and our bid of $60,600 won the three-bedroom, two-bathroom home.

We closed on the property in December 2000. This house, based on similar properties in the area, is worth about $82,000-and that's a conservative estimate.

We located a single-family VA home in Tennessee, again over the Internet, for $500 down on a price of $78,000. This time, the agent, who sent us pictures of several homes, had a harder time finding a tenant. The fix-up costs, which came to nearly $3,000, were more than anticipated and the taxes were higher than estimated. When he finally found a tenant a couple of months later, the house had a net negative cashflow of $40. We also didn't like the way the management was handled. When this house appreciates enough in value, we will sell it. We are also looking at other ways we can turn this house into a positive cashflow property.

We went on to buy another VA foreclosure in Phoenix, this time at a purchase price of $118,500.

Even with this slightly negative cashflow property, our tenant is still buying our asset for us, and we have enough income from our other investments to cover costs and maintenance. Today similar properties in the area are selling for $128,000.

When we went to look at it, the real estate agent showed us a new development that was being built and we snapped up a new house that was under construction for $127,500 with 5 percent ($6,350) down. We based our decision on the word of this guy that it was in a good, rapidly appreciating area. However, once the house was completed, it sat vacant for months because the agent, who was also with the management company, was unable to rent it. Management, we learned, was a key factor to the success of our real estate empire. We were recommended to another management company, which was able to rent the new home within a month. The monthly cashflow is $75. Recently the VA foreclosure program has become so popular, and the loan so attractive, that bids have risen and consequently cashflow has eroded. Sometimes, cashflow projections are negative instead of positive. Because we want positive cashflow properties, we've turned to other options.

The agent in Florida is now connected with a developer of new homes. We bought one last year with our own financing. The builder recommended his loan program and he was willing to discount the price of the three-bedroom, two-bathroom house if we used his lender. We qualified for the loan and went ahead with the deal, purchasing the house for $102,750 with 5 percent down. The builder picked up the $3,000 closing costs. The advantage of a new home, of course, is that there is no need for fix-up. Also, maintenance is minimal.

Today similar properties in the area are selling for $126,000. We are currently buying another one of these new homes.

The monthly cashflow on our first seven properties is $324. Our equity totals nearly $130,000 with an initial cash investment of approximately $60,000, which includes closing costs and repairs. That's an average cash-on-cash return of 7 percent, excluding appreciation and tax advantages. Plus, and this is the most important part, the tenants are buying our assets for us! Here's the "magic" formula we use: Borrow the money to buy assets and have someone else pay it back.

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