Karen Davis’s 6th Investment Property: Video Case Study

Property #6


Karen Davis gives us the tour of her 6th investment rental property: a 3 bedroom, 2 bath, 2-car garage home in rural Houston. This property will add $40,000 in equity and $300/mo cashflow to her portfolio.

Karen is a mentor in the Houston office of Lifestyles Unlimited. She learned to invest from her mentors at Lifestyles Unlimited who have now passed the mentoring torch on to her.

Learn how to invest like Karen by attending a free investor workshop.


    $140,000 After Repair Value (ARV)
    $100,000 “All In” (Purchase + Rehab + Closing)
    $ 40,000 Equity Capture


    $1,300 Monthly Income (Rent)
    $1,000 Monthly Expenses
    $ 300 Monthly Cashflow


    6 Properties
    $1,500 Monthly Cashflow
    $140,000 Equity


  1. Thanks for the nice comments! Yes, we do plan on getting into multifamily within the next year. Once we’ve made the move we’ll post a video update to let everyone know what’s going on. Keep your eye out for the sequel…

  2. Damon Janis says:

    Great case study, well done!

  3. Way to go Karen! The LUI video people also did a nice job with the video.

  4. Nice job, I like the zooming and pannig, very professional.

    Question Karen:

    How do you plan to roll over to Multifamily when you guy reach the 200k of (UEC)?


  5. Andy Webster says:

    Congratulations on #6 Karen. You and boyfriend are doing well. Looked at one with foundation issues similar last week and didn’t make an offer. From the looks of your photo shoot perhaps I’ll give more cosideration next time. I agree that the $1300 is OK with the equity and cashflow you are achieving. Keep following the map!

  6. Our monthly expenses include everything leaving the $300 a net gain.

    If I tried to list all the details it would be 2 – 3 pages of information. I suggest coming to the next case study where you can see live presentations of similar deals, if not from me, another member.

  7. Great job on the video and presenting our 6th house. We really are excited about what the future holds.

  8. Natalie Pilkinton says:

    Great job Karen! Good to see you growing and kickin butt! You inspire me to get out and buy more. I like the fact that you addressed the foundation issue. People get scared and leave a great opportunity ont he table. Our vendors are great in that aspect that they really can get a good deal with a lifetime warranty.

    The house is beautiful! Great job Danny and Karen. Keep it up….

  9. Trent Yeo says:

    My buddy Kermit the Frog communicated to me that he would love to rent this house from you if still available. We go way back… Also, I want people to think about how long it would take them to save $40,000 from their earned income!! That’s awesome. By the way, is your employer matching that?!!

  10. Great point on the employer matching. I know she has $0 down, but if she had put $10,000 down she would have matched her funds 4 times over. That is a 400% rate of return. How is your IRA and 401k doing?

    People, 401k’s are weak. Take control of your own money and see what happens when you are in charge.


  11. Hi Karen,

    Could you please break down the monthly expenses? And how big was the 2nd loan and which terms (interest, length, etc) did you sign on it?


  12. michelle says:

    Great Video! Way to go Karen and LUI team!

  13. Hello Bill,

    If you put $10,000 into a 401k and your company matches it, that would be $20,000 on your balance sheet. No monthly cash flow and very little control.

    If Karen put $10,000 into this deal, she would owe $90,000. On her balance sheet, she would have $50,000 equity up from $10,000. 400% rate of return. She would also have $300 a month cash flow and complete control. She did not even mention the equity build-up, appreciation or the tax advantage that actually increases her rate of return even more. The deal is way better than she even describes.

    In her case, she put $0 down, owes $100,000 so she adds $40,000 to her balance sheet. Infinite rate of return.

    Does that help? The idea is give yourself a matching deposit but better.


  14. Amber FitzPatrick says:

    For an outsider looking in, its exciting to be able to see the actual results after all the work you put into these investments! I appreciate you hitting on specifics like how your team of vendors (lender, foundation company, etc.) helped you move forward quickly! My only critique is that i wish the video was longer. You are a excellent presenter and very easy to follow. You are on fire and your confidence is off the charts! I can’t stop smiling because you have reached the goals you have set for yourself and then some!

  15. I am new to this site, how much time does it take on average for each house? And how much money did you start out with??? Thanks.

  16. Fransisco says:

    Congrats Karen! Very nice video and good results!

    You said that when you reach 200k in equity you will move to single family, are you going to do borrow against the equity in the homes or are you going to sell of your portfolio?

  17. somsong charoenpon says:

    I’m also new at lifestyle,but I am verry excited to be a part of this movement,I’m looking foward to the succes ahead.Thank you for the vedio.

  18. Way to go Karen, you’re still one ahead of me but I’m catching up. Like the others, I wish the video could have been longer, that was a really short presentation/explanation for 22K of rehab. Sounded like you spent 3K on the foundation and 19K on paint and carpet, and I know that can’t be right.

    The production quality is really great, my hat is off to the editor and camerman.

  19. farhan hasanali says:

    Congragulations on your 6th property. I have a question how did you manage to get around the seasoning.I paid cash for my property and now lenders are telling me i have to wait 6 months before i can get the cash out if you can help me out on this one it will be greatly appreciated.Very nice video and the house looks beautiful.

  20. Hi Karen,

    If you can please give us the break down of the $1000 monthly expenses (insurance, loan, HOA, taxes)? and I have the same question as Fransisco, how do you plan to rollover to multifamily, 200k is unrealized, at this point.

    Thank you very much, congrats for your success.


  21. Bill Lanning says:

    My question is for Steve Davis regarding the 10,000 down rather than zero down. How would this match her funds four times over? Can you clue me in on what you are refering to?

  22. James D says:

    Good for Danny and Karen. Great deal, excellent presentation.
    Where was Danny?

  23. Farhan, there’s a difference between Karen’s approach and yours from the very beginning. Karen never put any of her own money into the deal. Because she didn’t use her own money, there is no need to pull any out. She simply conducts a “rate/term” refinance versus a “cash out” refinance which is what you are trying. Because she’s not cashing out, there are zero seasoning requirements. With that said, there may be a new refi program for you and others in the same situation. Listen to Steve’s radio show from 5-11, titled “Setting the Record Straight about Financing” and you may be surprised.

  24. Great to see how you did this deal. How about more info on folding the cost to purchase and rehab onto the loan.

  25. Since this deal was zero down, can I assume you used a hard money loan? Is that why the “all in” cost was so high? Was a large portion of the amount closing costs for two loans? Can you break that out for us, how much for closing on hard money, how much for closing on conventional loan, how much for repairs?

  26. Karen, congrats! Can you tell me how you expect to capture the 200K figure? Are you counting on the market rising in the area in 3-5 years? If you plan on renting it, should you figure to set aside cash for repairs due to tenants use or plain old wear and tear? What happens if it doesn’t rent right away or you have gaps, will you be able to cover the bills?

    Curious about the 401K comparison- 401K money is pre-tax income that grows tax deferred. It’s not entirely fair to compare projected gains (taxable) to retirement money. What is the capital gains state tax rate in TX and what will Obama set the fed rate at?

  27. Great start for the video podcast!

    JP – I think the 200k equity capture is the target for all six of her properties.

    The equity capture of this one should be $40,000 and with the other five houses makes it $140k total equity capture.

    Also, Texas has no capital gains taxes, or any income tax, for that matter.

    The real trick to these properties in general is you are making a reasonably safe, very leveraged investment. I put down $20,000 on a house that sold for $100,000 and keep it for 2 – 5 years, I should realize equity appreciation of 3-5% a year, plus the renters are paying my mortgage, plus the cash flow.

    Compare that to a 401k, where I put in ,500/year of my own money, the market should gain 8% a year on average (you did put your money into bonds last year, didn’t you? Oops.) Even with it being a deferred tax situation, I still never end up with the kind of cash flow at the end of ten years in the market that I can with real estate. Oh, and I didn’t factor inflation of 3% with the 401k. With real estate, rents go up as a normal aspect of inflation. The fed goes out and causes hyper inflation? Your rent should be able to go up accordingly. Your 401k, probably not.

    Also, with real estate, there are no “Black Mondays”. Even in the California real estate bubble, people had years of warning before it finally started to normalize. You can go on vacation for a week, and come back and things are pretty much how they were.

  28. Sounds so good, what could possibly go wrong? Is this and all your other properties in individual LLCs or other entities or are you buying huge insurance policies?

  29. TRENT,
    What lenders are you using that do not have 6 month or more seasoning right now? Citi was about the only one left I knew of that offered NOO no seasoning rate/term refi’s using new appraised value and they pulled out as well. The ones that DO offer no seasoning will not take the new appraised value and will go off original sales price for the LTV. Everyone I know of has put the 6 month seasoning restriction on these loans. Any info would be greatly appreciated! I am about to do 2 more and would love not to wait 6 months. I’m sure rates will be going up by then. Thanks.

  30. Anna Catherine says:


    Excellent Video, I love it!!!!

    I have a few points regarding the contents of the video:

    40k unrealized capture: It doesnt include fees and closing cost at the time of selling it. They can be around 7% of the sales price (140k) around 10k, 10k of 40k represents 25%.

    What is not being told is the time that may take to sell it (or others houses took to sell now) to make the 40k.

    140k value houses take more time to sell/rent than the Lifestyle’s model (under 100k), you need a better tenant that makes 4 times (gross) the amount of rent (around 62k/yearly) and it may take 60 to 90 days (depends) for sale, unless you take the price reduction’s route to accelerate the process.

    Having six houses with differents contracts and start dates will be more difficult to sell them in certaint window if you want to take the multifamily step (if you want to apply the 1031 exchange).

    If you have an interest only or ARM’s loan, you have that amount of time to sell it at any price. Probably you can elaborate more about the finances.

    Depreciation on 80k value house, its not too much savings, its about 3k (80/27.5), basically you may not pay taxes on the rent’s income (about 900/year savings)

    Those 40k depends on market conditions, liquidity, closing fees, timing, etc.

    I think what you did is GREAT, but market reality can drain the expected profits significally.

    The best of luck.


  31. Jeff Smith says:

    Hey Anna,

    Thank you so much for your contribution to the discussion. As Karen mentioned in an earlier post, an in-depth analysis on this forum would not be practical, as our educational events review these transactions in substantially greater detail. But I would like to weigh in on a couple of your concerns.

    Even though the subject property doesn’t fit the mold of Lifestyles endorsed investment property (and I agree that at this price-point an investor must consider loss to vacancy for all the reasons that you point out), Karen’s operational philosophy matches it precisely. A part of this approach that Del Walmsley instilled in Karen is exactly what you suggested – reduce the price “to accelerate the process.” For that very reason when Karen considers the property’s value and rental comp – it’s already discounted. With a fresh remodel and a lower price than anything else available in the area, Karen’s property will achieve maximum exposure, and her skill at selling the lease will insure a quick move-in, as well as a very qualified (potential future buyer) tenant. The property in all likelihood will lease prior to the completion of the repairs and during the 30 day notice period of future turn-overs.

    Also, what Karen has been taught through this organization about the tax advantages you mentioned are two-fold. If the straight-line approach produces too little of a depreciation deduction she will use a cost-segregation strategy, which can significantly raise that deduction and because her projected hold time is 2-5 years this may actually be her best approach. When she decides to trade up to an apartment project and take advantage of the 1031 exchange, she can affect the timing and selling fees by selling the property to her tenants (preferred, and a part of her screening/marketing strategy is to target tenants who can be buyers in 1-3 years) or packaging and selling to a yield-play minded landlord, as Del did so many times. These investors will surely require a discount (some of which has already been calculated in her conservative comp), and in an earlier post Steve Davis referred to several of the ways that investment property makes money that this presentation left out – and those are projected to offset any additional discount that Karen would consider.

    I highly encourage you to attend our next case study and participate at this level in a live discussion that can include lots more particulars as it will only sharpen me, you, and everyone else present.


  32. Chris Robinson - Lifestyles Mentor says:

    You go girl! This is a great representation of what we do here at Lifestyles and how we are enabling our members to retire themselves in 5 years or less. It still amazes me every time I see someone take down a deal with this much cash flow AND this much equity capture. Back when I was doing single family houses, we could either get cash flow OR equity capture but not both like we are seeing today. Viva La Recession! :)

    I think enough has been said about the inadequacies of 401K’s in the comments, so I will not harp on that anymore. :) However, I did read an article that came out today about the fact that Medicare is going to be bankrupt by 2017 and social security will be bankrupt by 2037. This is earlier than expected…. I will post another thread about this article in the next few moments.

    The video reminded me of an episode of ‘Flip that House’ or one of those professional network TV shows. Kudos to the video guys for a job well done. Perhaps next time we can do a video walk-through of a property before repairs as well to show everyone that no matter how bad a property starts out, there is nothing that can’t be fixed as long as there is room in the deal for the repairs.

  33. Sasha C. says:

    To Karen and the Life Styles group!

    I love to see what you are doing.
    Steve you invited me to join about a year ago…I’m so dragging my feet and loosing opportunities…
    I’ll be there to join and learn how to take control of my financial future on your next event! No more procrastination.

  34. Trent Yeo says:

    SM, I haven’t used the program myself. It’s brand new but sounds promising. Again, listen to Steve’s show from 5.11.09.

  35. JP- to give you an update we completely finished with the rehab shortly after the video was done (so roughly about a week ago) and I am meeting our new tenants today to sign their new 1 year lease. Basically if you follow the lifestyles model of best product best price and advertise correctly these houses will rent. They don’t sit vacant for long unless your doing something wrong, thats why having an office full of mentors that have done this is sooo helpful.

    Trent- Kermit has a history and we don’t like his kind in our houses.

  36. Trent Yeo says:

    That’s cool. He just really likes your taste in color. Matches his lime green hatch-back too…

  37. Great job Karen. The house looks great. I am pleased to see that you DO NOT FEAR DOING A REHAB JOB. So many people step over excellent propeties because they need a few repairs.

    I do suggest a few more details on rehab and a few more details on financing in these type videos.

    You can tell by all the posts that this got a lot of attention from a lot of people. There is nothing quite like a geat example of a great idea!!

  38. Hi Jeff

    Can you do cost segregation on a single family?


  39. Karen, I likah u movie

  40. Jeff Smith says:

    John, size doesn’t matter.

  41. Stephen Davis, Host says:

    JP, this is a common response. Forgive me if this sounds harsh against you, it is not. It is harsh against the ideas. My mentor had to “crush” this garbage out of me as well.

    The first question you want to ask yourself is this: “Am I in the financial position I want to be in?” If not, can you admit it is you that caused it? Or are you still at the maturity level that says “It’s not me, it was Bush, it’s Obama, it’s my company, it’s the government, it’s my parents, it’s my spouses fault. I am doing everything right. The world is screwed up not me.”

    Your comments and ideas are reactive and fear based. Remember I am attacking the ideas, not the person. “What about bad tenants, what about maintenance.” The fear is I am afraid I will get a bad tenant and that things will break in the house.”

    Here is a funny way many (I suggest most) people think. They discount the fact that some people have done this stuff successfully.
    “I have been married 5 times. Marriage doesn’t work.” “Women are all bad” or “men are all bad.”
    “I am a member of a gym and I am still fat. Gyms (diets) don’t work.”
    “I am so smart, I figured out that tenants and maintenance kill the deal. The 8000 members of Lifestyles didn’t.”

    Remember, as you drive down the street in your town, there is what on every street corner? Rental property. Every gas station, every strip shopping center, ever high rise. If rental property didn’t work, how come as far as your eye can see there is nothing but what?

    Here is the proactive response. I am afraid of tenants and maintenance. I guess if you guys have been in business 20 years, your members own close to 20,000 single family homes and over 400 apartment complexes, you must have thought of that and it is part of your business model. How do I deal with that?

    Here is the answer:
    Bad Tenants: “Best product, best price.” The only way to get a great tenant is to have a great house. See rehab in video. We run credit and criminal reports on all prospective tenants (about $15 that they pay.) We verify employment, income and talk to the present landlord. Tenants don’t turn bad after they move in, they are bad before they move in. If you got one, you let them in.

    Maintenance: We rehab our property so every system is either under warranty, has a 5 to 7 year life expectancy or we have a home warranty. Our leases are written so that the tenant is responsible for 90 % of all maintenance.

    The key for anyone trying to make changes and grow financially is to become proactive vs. reactive (fear based.) Read Stephen Covey’s incredible work “The 7 Habits of Highly Effective People” to really master this concept. This book is part of the recommended reading list for members and mentors and you can get that list free in the listener kit at the top of this page on the left.

    Feel free to respond and challenge any idea I have. Don’t hold back. Let’s get the challenges and fears out there and replace them with effective thoughts that can get you what you really want out of life. We call it “Peace, Joy, Love, Wealth, Health and Happiness.” (Disney World)

    I hope I shared some idea that may help.


  42. farhan hasanali says:

    Hello Trent Yeo,
    thanks for the advice i am going to listen to it today. If for some reason i dont understand anything which vendor has that program so i can talk to them in details how this rate term financing works. Any information will be greatly appreciated.

  43. This is all very fascinating information and I am interested in learning more.

    However, upfront, if the property is such a great value at $140,000 (a little below market in that neighborhood), then why not sell it now? It sounds like she has done everything you teach to position it to do so.

    Why collect $300 per month for years on end if she can walk away with $40,000 now (minus commission of course) on a quick sale and not have a $100K debt?

  44. This is a great question:

    The reason you don’t sell it is because you just killed the goose. We will get back to that later.

    This is the cry of the poor and middle class. “Buy low, sell high.” That is speculation, gambling and short term gratification.

    The books and tapes you see on late night TV always tell you to do that but it is ineffective and cuts your rate of return down massively. It also creates a job for you. You sell this house, make $30,000 after closing costs. Wait….now you pay taxes. Self-employment and earned income. (yes this is earned income not investment income) Your $30,000 is now closer to $17,000.

    Now add up your monthly bills. Let’s say everything from car note to house note to food and toothpaste is $3000. How long before that $17,000 is gone? Then what do you have to do to get another $17,000? you are right back out there looking for your next deal, rehab and sell it so you can find your next deal, rehab and sell it and so on and so on.

    After one year of investing she has $1500 a month cash flow for the rest of her life. Go to year 5. $7500 a month. She is financially independent and has 30 houses paying themselves off and her cash flow goes up every year.

    The “flipper” is still getting the short term gratification of the $17,000 but is still working.

    The goal of the millionaire is to build a goose that lays a golden egg that meets and exceeds all your monthly bills or lifestyle goal. NEVER TOUCH THE GOOSE. Love it!

    Hope this helps. Get our free listener kit (top of page) and read Robert Kiyosaki’s “Rich Dad, Poor Dad.” That book explains this in greater detail. Hope to meet you at an event soon.


  45. I agree with Jim, take the money and run. A Bad tenant can make you wish you never went down that road and the $300 a month won’t cover much should the hot water heater need replacing!

  46. Lance Summey says:


    Congratulations on your purchase and successes. What a great movie! I started watching it and quickly realized that your house #6 is exactly the same floor plan as our house #4. As the movie continued, the numbers you mention are almost identical to the numbers for our house. My wife and I have purchased a couple of houses that are a bit over the normal 100K limit, and honestly I always felt like we were “cheating” a little bit, but the cash flow and equity capture were too good to pass up. After seeing this movie, I’m glad to see that a mentor made the same decision we did, and my confidence is higher and I’m more inspired.

    Thanks for sharing your experiences!


  47. I know I have a lot to learn here but you know that no-one, especially the poor and middle class will ever be unhappy with a quick $17,000 net deal in the pocket, rest assured.

    So apparently this is not $40,000 equity capture, rather less than half of that. It is just difficult to understand how one should mortgage or borrow their way/future into being a millionaire. Hard to understand how owing $500,000 or $1,000,000 in mortgages for a few thousand $$ a month is worth it.

  48. Help me understand why it would not be a good idea to take the equity from a quick sale here and apply all of that to the mortgage on house # 5? If increasing cash flow here is the goal, then paying down the mortgage on #5 would accomplish that.

    Rather than buying more and more houses to rent, each with another mortgage, and small cash flow, why not have a strategy to eliminate each of the previous mortgages, thereby increasing cash flow?

    After a few deals like that, you would be financially independant, mortgage free, with a great return on your investment, and only a handful of paid for houses, each with a 100% cash flow in your pocket.

  49. Jim,

    You are one of my favorites so far because you are my twin. I thought just like this when I started. Don’t stop being skeptical, keep asking questions and when you get the answer you need….act.

    You say: “no-one, especially the poor and middle class will ever be unhappy with a quick $17,000 net deal in the pocket, rest assured.”

    Exactly, that is the instantaneous gratification I was talking about. That is also what will keep them poor and not even in the middle class. “They constantly kill the goose to live a little higher on the hog.” Stephen Covey live.

    When I started, my mentor Del kept buying little houses with $200 a month cash flow. I knew that was just plain dumb. I was flipping houses making $5000 to $20,000 a pop. 3 years later he was retired and I was still working.

    He had an estimated $6,000 a month income and about $600,000 worth of equity in his houses. I had nothing and I was looking for my next “flip” deal. I changed right then. I started buying those little useless $200 a month cash flow houses, then a 10 unit, then a 40 unit and so on. Now I was wealthy too.

    You also mentioned a belief that the $40,000 is really $17,000. No. Only if you make a bad move like sell it so uncle Sam takes it away from you.

    I can not stress enough that these concepts that you bring up are simply ineffective. They are neither right nor wrong, good or bad, stupid or smart. Keep them coming. Expose them to direct thought. Remember, however, to only expose them and question them with people who have the results you are trying to achieve. Not family, co-workers, bosses, friends or anyone else that is in the same financial position you are in or worse. “You do not go to fitness instructor that is 50 pounds overweight” Steve (the jerk) Davis HA

    Keep in mind that buying at the rate she is, in 5 years, Karen will have $7500 per month for the rest of her life even if inflation stops. $700,000 equity. Where will you be in 5 year if you keep doing what you are doing? Sorry for the motivational hype but….you can do this Jim.


  50. JP,

    I had those same thoughts before I joined Lifestyles, having bought a rental house that gave me unexpected expenses and trouble tenants.

    What I learned when I got here is that after 18 years and 8000 members, just about every conceivable problem you could think of has been addressed.

    I learned that I had bought a house outside the “bread and butter” parameters that minimize vacancy. I was taught to minimize maintenance by not putting a house on the rental market until it is in “perfect” condition. I learned that I could be selective in my screening process with tenants by offering the best product at the best price.

    This video was only 2 minutes long, so there’s no way to give you the detail that you would get in one of our 2-day, 16 hour classes. Much of the questions that have been raised on this thread are answered in great detail in the class.

  51. Keep doing what you’re doing Lance. It’s just another example that real estate works even at this level.

  52. David Fisher (PIG) says:

    Awesome job Karen !!!

    Way to motivate other people. Real life examples people can see is better then any sales pitch from a talking head. (hides from Steve)

    You are doing it and proving it works.

    I just started myself with lifestyles a little over a month ago. I looked at a few properties but they were not right. Yesterday I put in an offer on my first property in San Antonio. I think the first one with a life styles Agent in that area as it is a new office.

    I hope to report back and show it can be done in San Antonio !

    I would say Wish Me Luck!! but its not about luck !!! It’s about following a plan and sticking to it.

    Don’t let all those mental blocks and obstacles hold you down from your true potential.

    I don’t want to just talk about it. I don’t want to just preach it. I am going to prove it through my own actions !!!

    Now is the time people. What I am trying to say is the environment created by the sluggish economy is ripe for getting started NOW in real estate and starting that passive stream of income.

    I suggest to just go to a free seminar like I did. I was skeptical and well to be honest ignorant of how it works. I thought I knew better. I thought it was some type of scam. I am skeptical by nature. just listen with an open mind and see real world examples and you will find the truth.

    Just do it its free you have Nothing to lose. I promise you will get something out of it even if it isn’t about passive income potential there will be something you can apply in it that makes sense for you.

    David Fisher
    New member and hopefully soon successful investor

  53. David Fisher,

    You rock. What encouraging and accurate words.

    My father actually said to me one day, “I am glad you are doing real estate because what I did didn’t work.” He had tried the corporate 30 year route with 401k’s, IRA’s and such.

    I never felt so relieved and proud. I no longer felt like I had anything to prove. Only a truly good man could say that and not want to defend themselves and their strategies.

    That taught me what Covey meant by many people who are smart and hard working get bad results. Not because of them, but because they have the wrong map.

    My dad was given the wrong map and he worked hard and long to no avail. He had been given a map to peace, joy, love, wealth, health and happiness (Disney World) by people who had never been to Disney World. He never had a chance.

    Stephen Davis

  54. Jim, I would also add that the assumption that debt=risk is a complex issue and not necessarily true in all cases. That’s the Dave Ramsey way of thinking, which we endorse up to the point of investing.

    The wealthiest people in the world also have the most debt. Donald Trump has billions of dollars of debt.

    Some might argue that you are at MORE risk if your rental properties are paid off. Not only are you getting a lower return on your equity, but your equity is at risk if you get sued.

  55. Jim,

    Please forgive me. I actually like your strategy now that you lay it out like that. I did not catch that.

    Each person can do it differently. Find out what your monthly cash flow goal is. Let’s say $5000. If after tax, insurance, maintenance and vacancy (adjusted for our model) you only need ten houses. Get all 10 then take every bit of cash flow and pay down the debt or flip a house and pay down the debt. Follow your path and model to the “T.” It will work.

    I do want to make sure you understand that most worry about debt is because or consumer debt. Cars, homes and credit cards that require payments out of your income. Once you have a couple of rent houses and you see they are income producing assets not income draining liabilities, you will gain confidence in your ability to “sleep well” at night with $1 million dollars worth of real estate and $800,000 debt.

    Fun Point: Credit Robert Kiyosaki (I love that guy)

    Is your personal residence an asset or liability?

    Asset’s put money in your pocket each month, liabilities take it. What does your home do?


  56. I’m not afraid of tenants Stephen, but it’s naive to think that every month there will be $300 to play with. I agree with Jim that a better approach might be payoff another mortgage to increase cash flow or simply to bankroll some cash for unforeseen expenses so that she can still make all those payments.

    And Danny: Congrats on the lease, but you should know a lease isn’t worth the paper it’s written on should you sign up with bad people. If your tenants walk, you will have to decide whether it’s worth the legal expense to try and get them to pay- most times it is not- these are renters. Again- Stephen, I’m not saying I’m afraid of renting only that you need to be prepared for the potential pit falls of being under capitalized. I’ve had bad tenants, and that did not stop me from being a landlord- but I learned a lot from the bad experience and the bottom line is you had better be prepared should one or more go south on you!

  57. David Fisher (PIG) says:

    I have learned if you screen properly

    1.Do the background checks criminal/ financial rental history speak with their current landlord.

    you should know a lot about that future tenant.

    If they are bad there is insurance you can buy for vandalism.

    Security deposits are there for a reason.

    there are times when you take a double or triple security deposit according to results of the checks.

    you just explain they did not qualify under the initial lease contract but have another one they do qualify for if they are more risky.

    In the end it is YOUR choice and your tenant you picked them.

    Most people that have headaches don’t screen properly. My father was one of them. I grew up around the worst types of rental tenants. I learned from my fathers mistakes.

    My father was a creature of habit and even though he rented houses for 30 years. I did not use him as a mentor. I choose someone that is successful at it.

    This is a hard pill to swallow for some but it is reality. look to people that are doing it and successful at it. Don’T reinvent the wheel.

    David Fisher

  58. This is great information Steve and I appreciate you taking the time to respond.

    It seems to me you fail to acknowledge any advantage to acheiving this level of success while paying down or paying off existing mortgages. You advocate just buying more and more houses which equals more and more debt, while belittling those that take a conservative approach to investing. That is exactly what I struggle with. Debt = risk. Which is better more or less risk?

    A combined strategy of owning rent houses and “flipping” a few, as you call it, to reduce debt would allow for lots of cash flow and fewer properties with no debt and plenty of equity. I would be a whole lot less skeptical if you were preaching that as a goal. Talk about a winning plan to acheive that and you will really have my attention.

    “Where will you be in 5 year if you keep doing what you are doing?” Sleeping well at night for one thing because I will not have hundreds of thousands of dollars in mortgage debt on lots of rent houses.

    “Keep in mind that buying at the rate she is, in 5 years, Karen will have $7500 per month for the rest of her life even if inflation stops. $700,000 equity” In 5 years with her ability to identify and rehab she could have the $7,500 per month income on 7 or 8 houses with no mortgages owed, and $700,000 in equity.

    Please explain why that would be a bad goal.

  59. Trent Yeo says:


    Excellent quetions. First, It’s not necessarily a bad idea. However, the determining factor for deciding whether or not you want to pay off a mortage is most often answered by what stage you are at in in your wealth building. ie) If you don’t already have enough passive income to meet and exceed your bills, dedicating your money to pay off a (low interest) mortgage hinders your ability to go out and buy more income streams and prolongs your progression. It would take Karen much longer to build equity through principal paydown than it does to use someone else’s money and instantly capture $40K.

    Also, the equity you would have sitting in a paid off house is what we call “dead equity”, or non-performing equity and your rate of return is actually lower in that case than if you used leverage. Once you are financially free and determine that you are no longer in the growth stage, then by all means, there is nothing wrong with paying off the houses at that point.

    With that said, you also need to have an understanding of what your risk tolerance is regarding asset protection. An attorney who sees a bunch of houses with a ton of equity may begin to foam at the mouth. On the other hand, if all they see is debt they may not even take the case. Something to think about!

    I’ll leave you with this one; part of building wealth with real estate is appreciation. Would you rather have $1Mil in real estate appreciating at say 3-5% or $500K? Using leverage you will have the ability to acquire more assets and therefore build wealth exponentially.

    One of the most important types of leverage to a real estate investor is “OPM” – Other People’s Money

    Hope this helps!!


  60. Excellent insight Steve, Trent, Brian -

    So much more to ask and learn, probably best to do that in one or more of your seminars. You have really addressed a lot in just a few of these messages. Thanks for that.

  61. Anonymous says:

    hey steve how did you figure 5-7 years and 7500 a month can you clarify that for me please thanks

  62. David Fisher (PIG) says:

    What he meant on that is if she bought 6 houses in 1 year with 1500 cash flow.

    In 5 years she would make 7500 cash flow. 5 years x 6 houses a year = 30 houses
    5 x 1500 = 7500 cash flow from the 30 houses.

    He is just projecting her continuing her rate of success.

    Get it !! Got it !!!Good!!!

    I am told after the first 2 it becomes easier. You learn with each experience but you can really slim down and estimate costs much better with experience.

    Yet you have to understand she is not satisfied at single family houses she wants to move on to multi family houses where more passive income with less work is potential.

    The group allows you to grow at whatever level you are ready to accomplish.

    Some come in with bad credit and little to start with so maybe 1 house in their 1st year is what they can do.

    Some come in with some good cash and can do a few in their first year.

    Some come with a lot of money but are afraid to do it so their is a program for them where they can be a passive investor in multi family apartment deals and it still works for them.

    That is what sold me on lifestyles it is a program that grows with you and will adapt to as little or as much as you want to participate.

    It is your path !!! You choose it!!! Please at least get on the path to success don’t stay in the weeds and hope. That first step is the hardest getting over traditional thinking and all the negativity of friends and family saying you cant do it. Yet have any of them actually done it or tried ? Follow those that succeed and you will too.

    David Fisher

  63. Brian and Steve- two points from your comments:
    Brian, if you have to worry about being sued because your props are paid off than you are under insured! Whether or not they are paid off should not bother you in that respect.
    Steve: I carry debt on my home, obviously that doesn’t put money in my pocket but it does provide a roof over my head and any interest I pay is tax deductible to a point.

  64. Take the $1400/mo that she’s earning after 1 yr of effort and multiply by 5 yrs = $7,000/mo. That doesn’t take into consideration rent increases and principle paydown which also increases cashflow. My gut tells me that she’ll be in multi-family long before that 5 yr mark anyway. $7,000/mo is probably conservative.


  65. I figured the $7500 by taking 5 years with the same results. Karen produced $1500 a month cash flow in 1 year. I simply assumed she did not get any better at locating or closing, had no good or bad luck, but just continued at the pace she was going.

    5 times $1500 is $7500. 5 times $140,000 is $700,000 equity capture.

    My past experience says it will be more because people do get better and almost always get “lucky.” By lucky I mean they stumble across 4 houses or a little 16 unit apartment and take a leap forward.


  66. Stephen Davis, Host says:

    JP: Thanks for the continued comments

    On Brian’s comment of being sued because your property is paid off is still accurate even with insurance.

    You are a $1 million target with $1 million in insurance and mortgages on your homes. You are a $1 million dollar target plus the value of your homes when they are paid off. It is higher risk. They can get it all. With mortgages they will leave the property alone.

    Remember that you started the risk conversation when you talked about the risk of debt. Now you say having them paid off reduces your risk.

    What this shows is that each of us has different risks we are afraid of. You are afraid of debt. That seems risky to you. But having a bigger target on your back for lawsuits doesn’t seem risky to you.

    For some debt is not risky. They have been at this for 30 years, they have been through two up and down markets and still made money. The them having the bigger target on their back is more risky. They keep their property financed as high as possible to still cash flow.

    To me neither is risky enough to worry about. I agree with you, JP on the insurance. However, I laugh at the “what if you can’t rent it” fear. Why? Because I have mentors that have been at this for 30 years and by my 5th year I had over 100 units of single and small multifamily. I only had one eviction before I moved completely to multifamily. I have had years with 104% occupancy even in multifamily. Yes. 104%.

    What are your thoughts on that? How many units do you already own and what is your goal? Do you ever call into the shows? Listeners would like your questions. A lot don’t have the courage to ask these straight forward questions.


  67. scott b says:

    Loved the video testimonial… would like to see more. Suggestion: instead of remote shoot, get a green-screen at your office and use photos of property behind video of person (your video guy/gal will get it). That way, you can cut down on the shoot overhead and concentrate on the content. SB

  68. Josh Dickerson,

    There are several ways to do it and yes, you have enough equity even after sales costs.

    The 1031 exchange allows you to take every dime of capital gain and move it to a larger piece of real estate tax deferred….deferred until after your dead.

    First get with a 1031 exchange specialist. See the vendor list that comes with the Free Listener Kit at the top left of this page if you do not already have a copy.

    There are even strategies to do it if you sell the properties at different times. They just have to all close during a certain period and you have to buy your next deal within a certain time period.

    Are you a member? Then call Karen directly at the Houston office. 1.866.945.6565. She will direct you where to go next.


  69. Josh Dickerson says:

    I have 8 rental properties, all producing positive cash flow. I believe those 8 have about $175 K in equity. Should I be thinking about jumping over to multi-family? How would I sell all 8 in a timely fashion to have the equity liquid to make a deal in multi-family?

  70. Can someone give me a link to Steve’s show from 5/11?

    My wife’s parents & grandparents own 7 rental properties and have ran them for years. My wife and her mom are both real estate agents (though my wife is inactive at the moment).

    I’ve been wanting to get into some rentals for years, but was always under the impression that you had to have 20%-25% in cash as a downpayment. We’ve just always found other stuff to do with our income.

    On some recent business trips to Houston, I came across Del’s show. Based on what I’ve heard there, as well as a case study like this, it seems as if the whole idea of needing a 20%-25% downpayment isn’t really all that accurate. I’d love to listen to the financing show from 5/11 to see what kind of options are out there, but I can’t seem to find it.

  71. WJCC-

    There are a lot of different financing options out there today. However, there are also requirements and restrictions. If you want the link to the 5/11 show, I’ll ask the media director where to find it. You can contact me at Karen@luinc.com.


  72. Sweet… I have property that I rent… for $920 dollars a month and property is free and clear..”No mortgage, except for taxes” What would u advise me to do with that property… the renters keep on doing small improvements and just the other day… my tenant called me and ask if they could build a deck on the back yard. Should I go ahead and sell it or keep it. I paid around $36,000 dollars for it and I think it it worth around $70,000 to $90,000 dollars. I’m not really sure. what should I do?


  73. Alex;

    It looks like you have the sweetest of all deals – a property that generates $900 per month in income and best of all NO DEBT. It can’t get any better than that!

  74. Alex-

    I suggest you call some of the lenders on the vendor list and find out what options you have. You might want to look into refinancing the home or taking out a home equity line of credit (HELOC). As nice as it sounds, I wouldn’t allow the tenants to make any improvements to the home without your permission.

    No debt is great but leverage can be just as sweet. By refinancing or getting a HELOC you can still cash flow and buy even more properties that do the same. Seems to me like the sweetest deal of all!


  75. Do you think it’s wise to purchase all this property with a boyfriend? What if you breakup? What a mess that would be. I think most real estate attorneys, accountants and other wise folks would advise that it is a very bad idea.

  76. Jeff Smith says:

    The personal relationship and the professional relationship are separate issues, the latter being defined by a partnership agreement. With a good partnership agreement however, co-venturing with my sweetheart, Mom, or a even 25 strangers is not a fearful event.

  77. Bryan Hubbell says:


    Great comments regarding the “love the goose/kill the goose” discussion. I’m looking forward to renewing my association with LUI. I, like others, still have yet to pull the trigger.

    Nice reminder that we should be following those who have and not those who have not.

    Hesitant PIG,


  78. Jeff,

    you mention a “good partnership agreement”.

    Is this a standard form you use with a provisions section to custom tailor the agreement?

    If so, how may I get a hold of one?

    If not, which partnership agreement do the mentors suggest to use?

    Please advise.

    Your help is greatly appreciated.

  79. Jeff Smith says:

    There isn’t an “LU Approved” partnership agreement as there are so many variables to consider. Additionally, I do not recommend skipping your visit to have an attorney prepare or review the terms that you and your partners wish to include in your document. The attorney will interview you and have a questionnaire for you to complete to use as a guide for preparing your specific agreement. Check out the vendor directory for some lawyers who do this kind of work regularly, including my attorney, and if you are a Lifestyles member check the calendar for upcoming classes taught by those professionals.

  80. Great info Karen, thank you!

  81. Gene Dinelli says:

    Excellent story to your 6th investment! Unfortunately, A divorce years ago wiped me out. I literally have no money and decent credit but am very eager to join LU and change my life. You guys address objections (excuses) very respectfully and I want to believe that it’s not just a pitch. If I join, can I truly start buying properties, in my situation, with nothing more than discernment and my strong work ethic and a very strong desire to succeed? Remember: No money and decent credit.

    • Stephen Davis says:

      Yes you can. You may want to do what I did to get started and that is whole sale deals to build up capital. If you join up we will walk you through the deals step by step.

  82. Great to have you on board Gene! After you’ve attended the 2 day seminar be sure to call us for help every step of the way.

  83. Kelly (Challenge) says:

    I know I’m late here, but after reading this, I feel lost on the whole equity thing. By the way, huge congrats Karen! I thought the point of this is to acquire SF / MF that provide a good cash flow. I’ve done the calculations, and understand where I’d like to be. Equally I know people have different goal with realty.

    Why take the time to capture the equity? Stuff like this has baffled me for the longest of times. The other thing is how I read mixed things here. Where you see the “all in”, but then you see how people haven’t paid anything or very little. Aren’t lenders (Financial Institutions) requiring 20% down, and don’t you have to cover rehab costs too? Again, stuff like this makes me confused.

    I’m close to having that first projected funding complete. I suppose I should ask: Is saving up that amount still the way to go or has it changed? In the end I’m counting down to getting a house late Q1.


    • Stephen Davis says:

      If you have not asked your mentor this questions yet, give me a call. This is too complex for “comments.” Stephen Davis, VP 713-201-7784

  84. Kelly (Challenge) says:

    Thanks Stephen,

    I really appreciate you letting me talk to you briefly. I’ll call you after 1:30PM on 12/16/2011 if that’s OK with you. I say after that time because I want you to enjoy your lunch time. :)


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