Let?s review: You decided to buy your own home, you made the choice early to offset expenses by looking at a multiple income property, you went to the homebuyer?s class, you went to see a lender and got pre-approved for a loan, you saved or arranged to have the necessary amount required to buy and you hunted, searched and analyzed more than a few properties in order to find a good one that would satisfy your criteria.

Your next phase is to begin to realize that you are now responsible for the welfare of another family or person due to your willingness to become a landlord. Your tenants pay rent and expect you to take care of their housing needs. If you chose a good property by carefully looking at plumbing, heating & A/C, electrical, foundation, structure, roof, location and price, then you should be well positioned to be able to successfully manage these duties. Often, you as the new owner will begin to make improvements to the property such as painting, installing new carpet and doing some inexpensive landscaping and repairs. These are the things that add value to your property and keep your tenants happy while at the same time not breaking the bank!

With $1,650.67 in your bank account, you?re not exactly Donald Trump just yet, but you?re getting there! Smart landlords establish 6 month reserve accounts and/or contingency funds, which protect them in times of vacancies or when expensive unforeseen repair bills pop up in addition to regular planned-for maintenance items. What I?m saying is don?t spend your reserves frivolously. In my case, a steak dinner is a tradition but the major portion of your funds should only be used to build, protect and enhance your asset?s ability to produce and sustain income generation.

By taking on responsibility in the housing market at such a young age, you will have some added benefits and opportunities coming to you. Let?s look at what starts happening: the first thing is you have overcome fear and lack of understanding by acquiring your first property. In addition, you have begun to offset expenses while saving more money, you are establishing excellent credit while building assets, and you?re gaining tax advantages while getting management, home buying and repair education at an early age. These are outstanding life skills that you can employ for the rest of your life and the longer the period of time that you have to use them, the further the compounding effects will help you to go.

This type of initial home-buying strategy can and does lead to further opportunities to grow and achieve further benefits besides those already mentioned. Individuals who learn to accept responsibility early will by nature grow more mature throughout the process and in effect create for themselves a higher status in the minds of others by being looked upon as a current homeowner and landlord. Once established, you will become known for what you can do. If you were single when you undertook these challenges, then you will appear and become more self-sufficient to the opposite sex.

What do I mean by that? What I?m saying is when you meet someone who may become your spouse in the future, they will recognize your ability to provide for their safety and protection and they won?t question or complain about your fooling around with wild ideas of becoming educated in real estate now. They will accept that this is something you do and will respect your ability to manage this part of your life.

As time passes on and you find this love of your life and the eventual marriage proposal ensues, the time will come when you?re going to want to separate business from pleasure. As a young couple the time will come when you may want to start a family or at least separate yourself from your tenants while moving up to a nicer single family home that suits your changing needs more appropriately. Perfect, because now is the time to consider renting out both sides of the duplex while you begin to investigate your new single family home.

How does this phase work? Hold on, I?m getting there! Okay, let?s assume its two years later and you have been living in and improving your duplex all along. Now taking into account that you bought a decent property in a good neighborhood and inflation and appreciation has been adding value in addition to your improvements, your $150,000 duplex should command a new appraised value of $175,000. Let me explain how the value grows: 3% annual inflation multiplied by $150,000 equals $4500.00 the first year. Let?s also say that appreciation due to demand also adds 5%, so 5% x $150,000 equals $7500.00. Now $150,000 + $7500 + $4500 = $162,000, which represents the new value for year one. The second year we do the same math on $162,000 and we get $12,960 for year two. Adding that to $162,000 equals $174,960. Okay, I was off by $40.00. Don?t forget any improvements and that you may have bought it at a discount because the old owners where motivated and you might find its worth even more.

Now over those two years you have also been paying that old mortgage of $1099.33 each month and the principle amount that you owe on your loan has been reduced by an additional $3,965.96, leaving you with a loan balance of $146,034.04. The difference between the new appraised value of $175,000 and the current amount of $146,034.04 which you owe equals $28,965.96. This number represents the equity, or value, that you currently own in the home. Knowing this, it is entirely possible to apply for and receive a home equity line of credit up to the full value of the new appraisal! If you haven?t gone overboard on buying cars, boats and running up other revolving debt while at the same time your significant other or spouse-to-be has a job and good credit with manageable debt, than the bank is going to approve this line of owner-occupied credit.

Now what you have done is set up a line of credit which can be used to buy a $145,000 single family home with a 20% down payment. This allows you to avoid paying private mortgage insurance (PMI), thereby creating a very affordable new mortgage on your new family residence.

NOTE: Do not confuse homeowner?s insurance with private mortgage insurance. PMI protects the lender while homeowner?s insurance protects you. When you put down 20% of value on a home?s purchase in the form of a down payment, you are in effect protecting the lender from yourself because if they foreclosed on you for non-payment, they could sell the home fast for less than full value and still be paid in full.

Don?t pay for private mortgage insurance if you can avoid it!

Let?s not forget that as the value of your duplex has risen the rents should also be increasing along the same lines. Now instead of $750.00, you should reasonably expect to get $800.00 per month, per side, which now delivers $1600.00 a month to your bank account. Unfortunately you still have to pay for 28 more years on the original loan amount, so you will make that good old $1099.33 payment as usual. That leaves you with $500.67 left over to pay that new equity line back with. Your new $29,000 equity line which you used as a down payment on your new home costs you $336.71 @ 7% for 10 years. Now $500.36 minus $336.71 leaves you with $163.96 left over to maintain a nice little reserve account for vacancies and maintenance/repairs. This is a good example of how to transition to a secure lifestyle while using your existing asset base to buy more.

Review:

1. Break the mold and look at multiple income property to start.
   

2. Go to a first time home buyer class to get ready.
   

3. Go to a lender prepared to qualify for an affordable loan amount.
   

4. Focus your effort on learning how real estate works.
   

5. Realize the sooner you start, the better off you will be.
   

6. Offset expenses by renting to others.
   

7. Manage tenants, deposits and property responsibly.
   

8. Plan for the future using assets and equity lines to start.
   

9. Keep reading and learning how to do new things with real estate.
   

10. Find mentors and use knowledgeable people to help you along the way.
    

I hope this little plan of entering into homeownership has given you some ideas in your quest for independence. Wishing you all the best! Your investment pal, Dan

Dan Auito is a dual-licensed real estate agent and appraisal assistant. In addition to being a 20-year veteran of the United States Coast Guard, Dan has also founded a non-profit drug prevention corporation, a real estate consulting group and is the author of ?Magic Bullets in Real Estate.? This 300-page power-packed book (due out in early July 2004) comes with a website( on line in July 2004) that further supports its readers. Dan lives with his wife Kimberly and their two children, Brandon and Briana, on the emerald isle of Kodiak Island, Alaska. Dan may be reached at magicbullets@alaska.com or by visiting www.magicbullets.com. Call 1 907 481-6300 or write 1619 Three Sisters Way Kodiak AK 99615