STANSBERRYS INVESTMENT ADVISORY

RESEARCH REPORT

The Tax-Free Way to Make

500% Gains in America Today

Stansberry Research
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Baltimore MD 21202 USA
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 The Tax-Free Way to Make
500% Gains in America Today
By Porter Stansberry and the S&A Research Team

The recent financial crisis and the U.S. governments intervention have created an extraordinary oppor-
tunity for us right now...

It has led me to put a large portion of my own capital into one investment... which has absolutely noth-
ing to do with stocks, bonds, precious metals, or anything like that.

What makes this unique investment so great? It allows you to invest a small amount of capital and con-
trol an asset worth much more than what youve invested.

It allows you to get income on your original investment of up 10% per year (or more). It also allows you
to profit from the coming wave of inflation... and it allows you to diversify some of your money OUT of
the U.S. corporate financial system.

And perhaps best of all... depending on your circumstances, it allows you the possibility to eventually
collect all of your capital gains... completely tax-free.

As I mentioned, Im personally putting a large percentage of my investment capital into this unique situ-
ation. In the past 50 years, there may never have been a better time to make this financial move.

You can do this no matter where you live in the United States. It takes a bit more work than buying
stocks. But it will definitely be worth it in the years to come.

And I have a secret weapon on my side, too...

One of the guys Im working with on this idea is one of the best investors in America when it comes
to this unique asset. A few years ago, this guy quit his job making hundreds of thousands of dollars a
year... to spend all of his time investing in the same thing this report is going to show you how to take
advantage of.

He did that because we now have a chance to make this investment at record low prices.

But before I share my secret weapon with you, its important that you understand the context of this
incredible opportunity...

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 Table of Contents
Make $100,000 Tax-Free... While You Sleep
1. Mortgage Rates Are Just Coming Off Record Lows
2. Homes Are 56% Larger Than in 1973
3. The Price Per Square Foot of a Home is Still Near Record Lows
4. Housing Prices Have to Soar to Get Back to Fair Value

A Common-Sense Approach for Prospering in Real Estate

1. Why Cash Flow Is King
2. Five Key Costs You Must Watch
3. How to Find and Keep the Best Tenants
4. The Surest Way to Grow Wealth
5. How to Boost Your Cash Yield
6. How to Get Started

Make $100,000 Tax-Free... While You Sleep

Your own house is the last great tax shelter in America...
Its the only investment where all of your capital gains are tax-free (up to $500,000 for a married couple).
And based on some simple math, triple-digit, tax-free gains could be on their way much sooner than
anyone can imagine...
Most people expect the opposite of that today... For example, Yale professor Robert Shiller recently
predicted it could take a generation or more for housing prices to rebound. We might not see a major
turnaround in our lifetimes, he said.
But lets look at some simple facts... backed up by decades of data.

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Fact No. 1:
Mortgage rates are coming off record lows
When you look at nominal prices, the median
cost of a home today in the U.S. is up around
25% from 1979. But that figure can be mislead-
ing... Remember when you compare buying a
home in 1979 with buying a home today, youre
not comparing apples to apples.
A $200,000 mortgage at a 15% interest rate
back then would cost you over $700,000 in
interest over the 30-year life of that mortgage.
So youd spend nearly $1 million total to buy a
$200,000 home!
Today, mortgage rates are around 4%. A $200,000 mortgage at 4% would cost you around $145,000 in
interest over the 30-year life of that mortgage. So youd spend roughly $345,000 total.
When you factor in mortgage payments, homes today are a lot cheaper compared with homes
back in 1979 or any other time in history.
But thats not all...

Fact No. 2:
Homes are 56% larger today than they were
in 1973
Since 1973, the size of a new home is up 56%.
Back then, the median size of a new home
was 1,525 square feet. As of 2013 (the most
recent available data), the median size is 2,384
square feet.
Now lets take this number and compare it to
the home price to get a price per square foot.
That gets us to...

Fact No. 3:
When you adjust for inflation, the price per
square foot of a home is coming off record
lows
As the chart shows, the price per square foot of
a home in America in real terms is near
record lows...
The historic average price is $98 a square foot.
Based on the most recent data, were now
around $82 a square foot. Housing prices would
have to rise 20% just to get back to average.
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Fact No. 4:
Housing prices have to soar to get back to fair value
Again, the facts here are simple:
Home prices have crashed by roughly a quarter.
Meanwhile, mortgage rates have crashed
to all-time lows.
This makes single-family homes more affordable than ever.
I measure affordability by comparing the median family income to a monthly house payment on the
median house price in America at current mortgage rates. And I figure fair value for homes is the his-
toric average level of affordability over the last 40 years.
Right now, the fair value for the median U.S. home is around $260,000. Thats around $54,000 more
than the median home price. Take a look:
Were in a situation where just a return to nor-
mal would mean a $54,000 rise in the price
of the median home in America. Personally, I
expect housing prices could soar even beyond
that level...
Its not impossible that this up move in hous-
ing could be even greater (percentage-wise)
than the great housing bubble that supposedly
just burst.
Me? Im buying.
You are foolish if you dont do everything you
can to take advantage of this. Even if you already have a house, go get another.
It is probably the greatest opportunity for you for the next 10 years. And it is here now.

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 A Common-Sense Approach for Prospering in Rental Real Estate
We know many readers are interested in purchasing real estate as an investment... but lack experience.
To help you learn the ins and outs of investment property, S&A Editor in Chief Brian Hunt sat down in
May 2012 with professional real estate investor Justin Ford.
Justin is my secret weapon. He is a good friend of Stansberry & Associates. And he is one of the best
investors in America when it comes to real estate.
The founder of real estate investment firm Pax Properties, Justin is a south Florida-based investor that
owns and operates nearly 100 rental units for himself and his investors. Hes one of the first people we
contact when we have specific real estate questions. Brian and I are even partners in some of his deals.
As I already mentioned, thanks to the recent financial crisis and U.S. government intervention... we now
have a chance to invest in real estate at record low prices.
If youre looking for a common-sense approach for prospering in this market, read on...

Brian Hunt: Justin... At Stansberry Research we have written a lot about investing in U.S. real estate.
Theyre also actively investing in real estate themselves... in some cases, directly with you.
We know many readers want to take them up on this idea and buy some income-producing real estate...
but theyre inexperienced. Could you provide us with some guidelines for this idea?
Justin Ford: Sure.
Theres an acronym I use to tell people what I think are the four most important aspects of real estate.
The acronym is CAPA... And it stands for cash flow, amortization, positive leverage, and appreciation.
The first three you can control. You can control whether you buy a property that has cash flow or not,
whether you put a loan on it that amortizes or not, and you can control whether that loan has positive
leverage or not.
The only thing you cant control is the fourth item, which is appreciation. Unfortunately thats the one
thing that everyone focuses on. Everyone plays appreciation as if it were a point-and-click game in the
stock market. Its not. And thats why everyones gotten into so much trouble.
The good news is, if you focus on the first three things cash flow, amortization, and positive leverage
you can almost guarantee a positive return.
A lot of things would have to go wrong for you not to be successful. Youd have to have a lot of bad luck
or youd have to be a very bad practitioner, one or the other, or a combination of the two.
But if youre a moderately successful practitioner with just average luck and you focus on those three
things, you should have a positive outcome. And the sharper you are as a practitioner, the better the
outcome. Plus, if we have any rebound at all in the markets, which for various fundamental reasons is a
high probability, then you may do extraordinarily well in real estate.

5
Brian Hunt: Lets cover cash flow first. Could you walk us through the numbers to keep in mind when
computing cash flow for a potential investment?
Justin Ford: Absolutely. Positive cash flow is just like anything else in any business you run. You have
to make enough money to pay your expenses, and then you have to have a little left over for the unex-
pected, right? Whether its a Laundromat or a dog kennel or a candy store, cash flow is king, right? Its
the same thing with property.
Now, people dont think of it that way with property again because many new investors in real estate
have been conditioned to invest in the stock market. Theyre not really prepared. Theyre just trained to
invest the way brokers want them to invest, which is point-and-click, buy, sell, buy, sell. Its all price-
driven.
Brian Hunt: Most people in the stock market are obsessed with capital appreciation. They want to
double their money on some hot growth stock rather than focusing on cash flow and income from divi-
dends.
Justin Ford: Right. And heres the proof. If I ask the average stock investor Do you own Google? and
they say yes, then Ill ask, Well, how much did Google earn last year and how much did it earn this
year?
They wont know Googles cash flow. But if you ask them what the shares are trading for, theyll know
the answer to that. Thats because they are focused on share price and share price appreciation... and not
much else.
Of course, now if youre involved in the day-to-day operation of a business or a property, then youre
focusing on cash flow. Whether its a house or an apartment building or a mobile-home park or an office
building, cash flow is king. Your cash flow must at least pay your expenses.
Lets take a $100,000 property as an example. Well imagine its a house and $100,000 is your invest-
ment. And lets say that that property produces $20,000 a year in gross potential income, meaning every
month you can rent it out for around $1,600. By the end of the year, you received around $20,000 if
your property is rented out every month.
Now, things never go perfectly, so youre going to have some vacancies. Youre going to have this, that,
and the other happen. Youll also have normal expenses things like real estate taxes, insurance, main-
tenance, repairs, minor things like license fees, maybe accounting fees, and if youre not managing it
yourself youll have a management fee, etc.
Its not unusual for about 50% of a propertys gross income to go towards expenses. Lets say of this
$20,000, $10,000 is consumed by expenses, vacancy, and collection losses. That means youre left
over with $10,000 as net operating income. Thats a really good deal. You spent $100,000 and you got
$10,000 back that you can theoretically put in your pocket, so thats a 10% return.
Now, being a prudent investor youre not going to put all $10,000 in your pocket. Youre going to keep
$2,000-$4,000 depending on what you foresee in the future as reserves. But still that $10,000 right
now belongs to you. Its your net operating income. And thats a good return. Thats cash flow.
Now, let me tell you what happened in the bubble [2003-2007]. In the bubble, people didnt do cash
flow. They would buy some ridiculous $400,000 home that used to sell for $150,000, and they were
hoping to sell it for $500,000. And the rents on that thing were maybe $15,000 to $20,000 a year. They

6
werent even good operators, so they wouldnt get the $15,000 or $20,000. They might only get $10,000
in rent out of that house.
And then all of a sudden that house that used to be worth $150,000 is now worth $400,000; the taxes
have gone up, the insurance has gone up. So now the $10,000 theyre squeezing out of there on the rents
while theyre hoping to flip it doesnt even pay their bills. It doesnt pay their maintenance, doesnt pay
their repairs, doesnt pay their license, doesnt pay the accounting, doesnt pay the advertising, doesnt
pay a lot of things. So theyre negative.
So theyre coming out of pocket, but its OK. Yet they still think, Its only a few grand and we all know
real estate goes up forever, so who cares? They know they can sell it for $500,000. And they do it once
or twice and it works, and theyre geniuses.
But then once it all stops, you have nothing but cash flow going out, not coming in. We all know what
happens then: The value of the property goes down. They may have loans on it, so now they owe more
than the house, and theyre hurting. And then they end up with their credit destroyed. They lose all the
properties they had.
The moral of the story: If you focus on cash flow even if youre a flipper, even if you like to buy and
sell and never want to be a landlord flip cash flow. Flip cash flow properties. Dont flip noncash flow
properties, because then if your flip flops you have a Plan B.
If your flip doesnt work out if the market peaks, if some disaster happens and all of a sudden the mar-
ket becomes scared and no one buys anything youre OK. Youll be able to bide your time and break
even. I have a few properties that went underwater, that are worth less than the loans on them. But they
all [produce] cash flow, and so they carried themselves through that tough time.
Brian Hunt: OK... lets work on upping the cash flow by managing expenses. Can you walk us through
the four or five major expenses a real estate investor has to focus on?
Justin Ford: Sure. The first ones are real estate taxes and insurance.
Real estate taxes are tricky because they change over time. Fortunately, almost every jurisdiction in the
country has their property appraiser and tax assessor website online. A few of them have privacy laws
that sort of prevent that, but for most jurisdictions the information is available. And if its available, use
it! Its extremely valuable to see what people paid for properties.
You can see previous sales, and you can see the taxes. And you know, the one good thing I can tell you
about the post-bubble years is my tax bills have come down a lot. But when I buy now, I know that in
the future, as my properties start to appreciate again, my tax bills will go up.
You should keep that in mind. But regardless, at the very least, youre going to want something that [pro-
duces] cash flow now including the current taxes and youll always want that margin of safety. And the
margin of safety should be 50% more than what you need. So if you need $15,000 to pay all your expenses
and your debt service, your property should generate about $22,500. And then, you can weather most
storms and youll be fine. You have that margin of safety. So major expense No. 1 is real estate taxes.
Next is insurance. There are people who dont believe in insurance, but I think its ridiculous not to have
insurance on an investment like this, especially if youre a small investor. Youre putting a significant
amount of money versus your net worth into this property, and if it burns down overnight you dont
want to be taken out of the game, right? And the banks will insist on insurance if youre using a mort-

7
gage anyhow. And if you have partner investors, they should be protected by insurance, etc. So insur-
ance is important.
The one thing about insurance that might be useful to people is try to do maximum self-insurance.
When people sell you insurance, they will sell you a lot of things you dont need. They will try to sell
you all the bells and whistles. All I want is catastrophic protection.
If the window breaks, if the water heater breaks, Im not going to call the insurance company. Basically,
the insurance company should probably never hear from me. The only time theyll ever hear from me is
if the place burns to the ground or if theres hurricane and I get significant damage. Thats when theyll
hear from me, but thats about it.
Supposedly, one agent and another should quote you identical rates. But its just not true because one
agent is going to throw in all these bells and whistles you dont want. And one agent is going to use a
much higher replacement value than the other one. So I use the most modest replacement value and I
strip everything out. I take a little bit of risk, but big deal. All Im looking to do is protect myself from
getting taken out of the game. I dont need to insure against a bunch of these small expenses. Im already
budgeting for reserves for that.
Bottom line, this is what I would say about the insurance expense: Keep it stripped down to the bare es-
sentials only. Your cash flow will benefit from this.
Your next major bill is also inevitable repairs and maintenance. Were dealing with physical structures
here, and everything decays and needs to be kept up. Even if youd only buy existing buildings, if youre
in this game long enough, youre basically in construction because every building you own youre going
to rebuild over time. Almost every stick, every piece of glass almost everythings replaced over time,
little by little, and thats OK.
Brian Hunt: Over your career, have you found a rule of thumb for maintenance costs? Like maybe 1% to
2% of the property value per year?
Justin Ford: Something like that. Typically, around 1% is what Ill budget.
But the value of the property actually is not as good an indicator because to you might be looking at a
2,000-square-foot home in Austin, Texas that sells for $100,000 and a 2,000-square-foot home in Boca
Raton, Florida that sells for $400,000. Theyre both concrete block construction. Theyre in a little dif-
ferent climates, but basically theyre going to undergo the same rate of decay. So theres no reason you
should budget $1,000 for Austin and $4,000 for Boca.
But oddly enough, I do often use the 1% rule just because what does happen is certainly the workmen
in Boca are much more expensive than the workmen in Austin. Its part of the reason that the proper-
ties are different prices. So I do use 1% per year as a quick rule of thumb. But the other thing is that it
always depends on condition of the property.
Typically when I buy a property, I go in and I do some initial renovations. When renovating, youre al-
ways going to take care of any deferred maintenance. Deferred maintenance is another term for taking
care of things that badly need fixed.
So if youve replaced the old water heater... if youve shored up the old roof... if youve taken care of the
old windows... if youve put in new flooring where its needed... if youve done those basic things, then
you should be able to reset your clock and not expect a ton of problems.

8
Of course, if you leave all that deferred maintenance in place, then youre going to have a flood when the
water heater breaks, and youre going to have a flood when the roof leaks.
When I go into a new deal and this is very important it goes back to the initial cost and assessment
of your whole deal. When I talk about the cost of a building going back to our $100,000 property
for instance if it is a $100,000 deal, I mightve paid $90,000 for the property itself, and then maybe
$3,000 for closing costs and $7,000 for improvements and repairs. Or maybe I paid $70,000 for it, and
$25,000 for closing cost and repairs. For me the total deal cost is not the purchase price. Its what it costs
to acquire and then put the property into service. Thats really what it costs.
Brian Hunt: Do you personally go in and do the maintenance assessment or do you contract that out to
someone?
Justin Ford: Both. I have a certification as a home inspector in Florida. And it wasnt because I wanted
to run around and do it for work. Ive never done it professionally.
I just did it for my own edification. I ended up becoming good friends with the contractor who taught
the course. Sometimes hell go with me to inspect a property. I also have an excellent maintenance man-
ager on my staff, and Ill walk with him through the building. Sometimes I bring other qualified friends.
For the building I just bought a 26-unit near the beach it was just me, my maintenance manager,
and an electrician whom I use. We made sure there was adequate service to the apartments. We checked
the condition of the breaker boxes, that type of thing. And then, we also checked the interior of the roof
from the scuttle holes, even though it appeared to be brand new. Due diligence is the name of the game.
So we had a reasonably confident assessment. But for the average investor especially if youre just
starting out definitely, absolutely use a professional. So the question becomes, how do you find a good
professional, someone you trust? I would say you can check through friends, if you know people who
know what theyre doing. But make sure that they know they are knowledgeable in what they are talking
about.
But yes, absolutely, a good GC (general contractor) walking through with you is key. Some of them will
do it for nothing, but you may need an actual, physical inspection report. The insurance may require it.
And I do use inspectors whenever I buy small residential properties.
There are four major systems you want to be concerned about in a property. Theres the heating and
cooling, called HVAC heating, ventilation, air conditioning. Theres the roof. Theres the electric.
Theres the plumbing. And then you can consider the foundation a fifth if you want to, but those are the
basic structures.
Beginning investors sometimes get really caught up on the wrong things like, Oh, look, that burner on
the stove isnt working and that windows cracked. Forget that. I mean, look at all of it and use it to get a
few extra bucks off the seller if you want, but really what youre looking at is the major systems.
Brian Hunt: Was it a lot of work to get the home inspecting license for yourself? Is that something that
the average Joe could do within six months?
Justin Ford: No, it wasnt a lot of work. I think it mightve been a few weeks of night classes or some-
thing. It wasnt incredibly strenuous. But it helped me to learn a little more. I appreciated the input.
Ive even thought about getting a general contractors license. Thats a big, big undertaking, and I havent

9
been a direct contractor, but Ive been directly involved. Again, I would do it for my own knowledge just
to make me a better investor.
Brian Hunt: What are a few of the other major expenses that I need to keep in mind?
Justin Ford: Lets say we got the repairs done. Next is vacancy. Vacancy is a real expense. I always bud-
get a 10% vacancy in my properties. Right now in the counties where I operate, the average vacancy is
only 5% because the rental market is very strong. And on stabilized properties, we probably average less
than 5%. Right now, we have, I think, 96 units in Florida. And I believe we have one vacancy currently.
Thats it.
Granted, a month ago, I had 20 vacancies because we just had finished renovations on a couple of prop-
erties. So there was a big transition going on there. But right now, were whats called stabilized. You
get to a point where youre stabilized in the property. Youve finished the renovations; youre marketing
and so forth. But you have to budget for vacancy. And you also have to budget for carrying costs, which
is very important. Because if your project takes a lot longer than you expected... if it takes six months
more, if its a big job... thats six months of taxes, insurance, and interest if youre borrowing money that
you have to budget for.
Youre going to have to pay that even though the propertys not producing it. Typically, once its stabi-
lized, the property will pay all of your bills. Until its stabilized, youre paying those bills.
Hopefully, youre paying them out of your original budget that youve already provided for. But if you go
over budget, then your reserves kick in. And if you go over reserves, then you kick in.
Brian Hunt: How about one more expense to be aware of?
Justin Ford: I didnt mention debt service yet. But let me make a point thats pretty interesting. Debt
service is not an operating expense, and this is an idea that can be useful for people much later in their
investment career. Operating expenses exist whether you buy something all cash or whether you have
debt. Operating expenses exist no matter what. Debt service, you can choose to have or not. You can
choose to use debt or not. The main reason to do so is to increase your return on investment. Well talk
about that later.
First, when you come up with your net operating income, its before debt. And then with your net oper-
ating income, you pay your debt, OK? And then, what remains is the positive cash flow.
Brian Hunt: For tenants do you generally target middle-income people or very low-income people? Do
you shoot for properties that are trophy rental properties or do you do a mixed bag?
Justin Ford: To date, I focus mostly on working-class, middle income. Lately, however, Ive started to
shift a little bit. I started investing aggressively in rental properties in 2003. Soon, it became a bubble,
and the one thing that saved me was I never chased the bubble.
When I was writing my first course on property investing, I told people its a bubble and I told them not
to buy noncash flow properties. And I followed my own advice. Its a good thing that I did. Through the
boom and the bust, I took my lumps. But I was never late on a mortgage payment. My properties basi-
cally paid for themselves. Whenever they went shy, it wasnt by a huge amount. I could afford the cush-
ion to kick in.
Anyway, I went after working-class tenants because that tends to be where your best cash flow is. I

10
didnt necessarily go after Section Eight [government-subsidized tenants] or that type of thing. Ive never
targeted that.
Occasionally, Ill get a call from Section Eight tenants. And if you pass our application and you meet our
qualifications, well gladly accept you as a tenant. But its very rare. We basically just do standard mar-
ket rentals. Our tenants tend to be landscapers, waiters, waitresses. Some are teachers, some are artists.
Some guys who work at racetracks. Im thinking of all the different people. Some guys are airline pilots,
who are sort of itinerant.
Brian Hunt: Where do you place your ads to reach those people?
Justin Ford: Craigslist is actually very good. Im also a licensed real estate broker and a mortgage broker,
so we use the MLS [Multiple Listing Service] as well. But most of our rentals do not come not through
the MLS.
We do get some agents bringing us tenants as well, and were happy to pay the commission. We use
some aggregator sites, like Trulia and Postlets.com. And because we now have a small portfolio of soon-
to-be 70 units or so near the beach theyre vacation-type rentals, and theres a strong vacation market
we go long term with them.
But whenever we have vacancies that are near what you call The Season down here in Florida which
is about mid-December to about mid-April/end of April we market seasonally. There well use Vaca-
tion.com and HomeAway.com. Theres a few others. My property manager handles a lot of that, and she
is great. And shes well-incentivized for that, too.
Then, we also do local papers, and I love these. Everyones got like a Penny Saver or that kind of thing.
Ours in Pompano [Florida] are called the Pompano Pelican and the Forum. The Pelican is good for us. Its a
small, 20-page newspaper full of local community events and that type of thing.
You get to the rentals section, and we run about 250 words in there, including our website BeachPads.
net. And we pay about $35.00 for that. Since Im marketing a lot of apartments at once, its well worth it.
That is a great, great source for us, the local newspapers.
Of course, we also do signage. You have to do a lot of signage. For any property you own especially if
its on a street with a lot of traffic put a discreet sign there. Why not generate the phone call? And make
sure your phone number is visible... not these small, fading, Magic Marker things.
I believe marketing is extremely important. When I first started, signs got us everything. I didnt adver-
tise for three or four years. It was such a strong market then.
Then, the market started to crater. We got hit by many bad things all at once in Florida. We had four
hurricanes in 2006, so our insurance rates went sky high. And by then the bubble had peaked, so real
estate taxes went sky high. Subprime lending allowed everyone to buy, so the rents went down. Because
of my focus on cash flow, I survived all of that. But a lot of folks were taken out quickly because they
didnt. They only did the flipping... and got punished for it.
Once the bubble burst, the rental market was in upheaval and we started to actively market. I truly
believe in marketing, marketing, marketing, because if you have a unit that rents for $1,000 a month,
two weeks 15 days of vacancy is $500 youre not earning. A lot of people are pennywise and pound-
foolish. I would much rather be willing to spend that $500 on an MLS commission, whatever else, and
get a good tenant in right away.

11
But theres one more thing Ill say about this. Never be desperate. Desperate buyers become desperate
sellers. They get hammered. And desperate landlords become desperate plaintiffs in lawsuits against
poor tenants. So dont be desperate.
Its better to be vacant than to accept the wrong person on a lease. I have properties that have motel
licenses as well. Those are nice because if there are problems, its easier to get bad tenants out. But if
theyre on a lease in Florida, if we follow everything, I can get bad tenants out in a month and half
maybe two and a half months if they fight us. In some states, its going to be longer.
My motto is we try to choose our tenants as carefully as we choose our properties. I treat my tenants
exactly how I would want someone to treat not only me, but my son or anyone else. In fact, we try to
surprise them. We try to give them a much better experience than they would ever expect, and we tend
to do be successful in that. Our tenants like us a lot. If they move, they come back. They refer people to
us. Sometimes they move from one property of ours to another property we own. They ask us if we have
stuff in another state. Its very, very important to build that kind of relationship.
The point I want to leave with you is: market, market, market. If youre on a tight budget, the first thing
is get aggressive. Jump out there. Lets say youre going to close in two weeks. Start marketing now. Start
marketing your one-bedroom apartment now on all your free sites. Do your signage. Do your Craigslist.
Everything thats free, do it.
And then if thats not working for you immediately, as you get closer to your deadline, spend a little
money, and then offer it in the MLS and be willing to spend a commission. Be selective when you get
your person in, and then your chances of operating a good, successful business will be much greater.
Brian Hunt: To determine how much I should be charging for rent, should I just get out there and look
at comparables in the neighborhood? Is there a website or a formula I could use to help me?
Justin Ford: Yeah, I do like boots on the ground information very much. There are also a ton of web-
sites. Some of them are valuable. Rentometer.com looks excellent for gaining a quick view of where rents
are at in an area.
But if Ive bought properties without being there because I have a partner there or an agent, theyre my
eyes on the scene. When my partner or I see that property, I want to look at everything in the neighbor-
hood. Im looking at the stores nearby. Im looking for any rent sign and Im going to write it down, call
it then, call it later. Im going to look in the newspaper, and Im going to call other rentals in a particular
zip code. Or Ill jump on Realtor.com or something like that, and Ill look for rents. And Ill pull up that
zip code and Ill look at things that are offered for rent in that neighborhood. I will look at whats adver-
tised, and I will call.
Calling is valuable because sometimes in the market, the asking prices are inflated. They might ask
$1,000, but theyre really renting at $900. You want to know that. With a few phone calls, youll see pro-
spective landlords and how flexible they are. Visit communities. Visit mom-and-pop rental properties as
well, call them. And this will allow you to put together your comparables and your general assessment of
where you want to price your own rents.
Brian Hunt: It sounds like your company is going to achieve better long-term returns by attracting
better tenants. A lot of landlords dont treat their tenants in the way you are suggesting. Theyre sort of
dismissive and see the tenants as pests, where you are seeing them as your customer.
Justin Ford: Absolutely. The tenant is the single most important player in the whole picture. Hes the

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single most important one because the tenant is the one whos going to pay all your expenses. Hes going
to pay off your mortgage. Hes going to take care of your property. Hes going to come back and do busi-
ness with you, and hes going to refer you to other people.
And you, in exchange, are going to provide him a home thats clean, safe, and functional. Youre going to
be responsible, and youre going to be responsive. If something happens and he calls you and big deal,
youre on your weekend getaway, whatever someones answering that phone. Someones calling him.
Someones letting him know, even if the plumber cant get there for a day or two, theyre in contact with
him. Theyre letting him know that they havent been forgotten and that everythings going to be taken
care of.
Brian Hunt: Over the long term, over-delivering a little bit and undercharging a little bit might cost you
$50 a month. But over the very long term, youre going to attract long-term, excellent people.
Justin Ford: Yes... and I dont think you even necessarily need to undercharge. I have undercharged a
little bit now and then when I was a little scared of vacancy. And thats OK. If you want to fill up right
away, boom, its great, because you know, 12 months at $1,000 is better than 10 months at $1,100, lets
say for the sake of argument.
But the undercharging depends on the market. And you can always decide where you want to be in it.
Sometimes youll be right in the middle. Sometimes you may be high because youre positioning yourself
better than the others.
I happen to have properties now by the beach. I just got off the phone with someone who called me be-
cause hes not happy with how his current landlord is taking care of the place. Hes seen our places, and
hes really motivated. Right now, were basically full. But hes going to send us his information, and hes
going to be on our wait list. Were acquiring another property that might be right for him.
So this is what we do, too. Over-delivery is the key thing. Heres the way I look at it. We all have compa-
nies we patronize in our lives. Some of them we love; and some of them we hate, right?
For instance, Ive always hated my cell phone companies. Ive had no allegiance to my cell phone com-
panies because they always bait-and-switch me. They treat me so great when they first get my business.
Afterwards when I have any questions or problems, I cant get them on the phone. And they treat me
like a nuisance, and so I hate them. The only reason I used to stay with them was because I was afraid to
move my phone number. Now that its easy to move my phone number, Ill just move all the time. I dont
care about them. I have zero allegiance to them.
On the other hand, I love American Express. Ive been with American Express for 20 years. They have
the best customer service. They always help me out, wherever I am in the world, whatever question I
have. They always provide great service, and I use my points. I tend to use my AmEx first and pay it off.
And I always want to use it because of how well they treat me.
I want to be the equivalent of AmEx in peoples lives. I mean, we have a business relationship. They
dont need to love me personally. Obviously, Id like a good, human relationship with everyone I work
with. But as a business I want them to say, Wow, I love Pax Properties. Pax Properties does great busi-
ness by us. We like doing business by them. Thats what I strive for. And so there are a bunch of things
we do that most of them have never experienced with another landlord.
For instance, whenever anyone moves in, well have a gift waiting for them. Itll typically be a bottle
of wine and welcome card. And itll tell them, Please call us if theres any issues and itll have the

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property managers information. And itll give them little things like the Internet login and password,
the laundry details, the parking situation, different things like that. But mostly, its a welcome gift: Heres
a bottle of wine. If they have kids, we include a little toy as well. Its no great expense, but its something
that shows them that, hey, we appreciate you and we dont take your business for granted.
Then at Thanksgiving, well send them a gift card, maybe $10 or $20. We thank them for their business.
I can tell you, it surprises people so much. It doesnt cost us much, but it generates such good will. Were
not buying their loyalty. I dont think thats it. What were doing is were making our genuine feelings
manifest. Were saying, Look, we understand that you have choices, and we really appreciate that youre
doing business with us. Here. Thank you. Go to Starbucks or go to Target. And then during the Christ-
mas holiday, we send a nondenominational greetings card.
When the time comes to renew, we send them a letter two months in advance. So if youre renewing,
well say, Dear Brian. Your lease is up two months from today. Please let us know in 15 days if you
intend to renew or not. Enclosed is your lease. Its the same as the one you had last year. The only differ-
ence is your rent is going up by $50, and the reason is because taxes went up, or insurance or whatever.
So even if Im raising your rent, I will put it in plain terms in the letter.
First of all, Thank you for your business, and then Ill indicate, Heres the lease. We hope youll stay
with us. We hope youll see that its still a very competitive rate.
And then, Ill offer the explanation for the rental increase because, whether its taxes or insurance or the
market is just moving up or something like that, I think its an important acknowledgement. Its not like,
Here, buddy. Pay up and take it or leave it. And these things are working fairly well for us.
Brian Hunt: Once you find the ideal tenant, is there a website or book that would give me a model lease
contract? For someone with no experience, where could I access a good contract to at least serve as an
inspiration on how to do it?
Justin Ford: Well, leases are basically state-specific. For the most part you want to be specific in your
contract about whats expected from both parties. I dont know what state your readers might be in or
even what area theyre at, so its hard to provide a specific answer.
For instance, as I said, all my properties by the beach have whats called transient apartment licenses.
Thats very good for us because, in some instances, we can get a tenant out quickly if hes truly a prob-
lem tenant. We really havent had to exercise that power yet, but its nice to have in our back pocket.
But with standard leases you have to go through the courts for an eviction, of course. And that can be a
longer process.
I have a different agreement for my transient rental versus my lease. It depends on the area, and then it
depends on the state, what you can or cannot do in the state. The best thing is to talk to other landlords
whove been there for a while, and if you have a lawyer, too, talk to them. Of course, landlords are more
valuable than a lawyer you dont know, because they may not necessarily think it through for you. They
may just want to give you some boilerplate template. But I would get it from a landlord you know.
Brian Hunt: Is there anything else we should discuss about the C of your CAPA acronym?
Justin Ford: I think weve pretty much covered it. We understand that cash flow means a property
provides the income that pays all of your expenses and a comfortable margin of safety, and then delivers
some profit to you to make it worth your while.

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Next we have the A of CAPA, which stands for amortization. Amortization is basically the gradual,
steady reduction of the loan balance. Thats all it is.
It comes from the Latin mors, meaning death. So basically, I think about killing off the debt. If you
borrow $100,000 at 6%, your monthly payments going to be $600.
At the very beginning of the loan, $500 and change of that will be interest and the rest will be principal,
slightly reducing it. Because youre only charged interest on the principal, as the principal goes down the
interest on your next payment is less. But the payment is always $600. So in the beginning of the loan,
maybe $540 or so is interest and $60 is principal. Ten years later, maybe $450 is interest, $150 is prin-
cipal. Ten years after that it might be half and half. And then, the last five years or so the thing might be
80% principal and 20% interest.
This leads to some very powerful ideas, like the fact and this is very important in this current market
that the right low fixed-rate loan becomes an asset in itself. Today if you can buy a property with cash
or with a loan, which would you choose? Especially if youre a long-term investor, buying with a loan
makes it the deal much more valuable, even if we dont have great inflation.
Even if we just have the same, moderate 2%-3% inflation theyve been claiming weve been having for
years, a low fixed-rate loan can be an extremely valuable asset. But if we do have great inflation, it makes
it all the more valuable.
It seems like few people really understand the power of amortization. Of the people flipping real estate
and so forth, most of them arent even familiar with what the term means. And its a shame because its
the slowest but surest form of wealth growth.
If you buy a $100,000 property with $20,000 down and you put an amortizing loan on it for 30 years...
30 years later the balance will be zero. Your tenants will have paid it off. And in effect, you will have
turned $20,000 into $100,000 in 30 years time, basically guaranteed assuming youre just operating
as you expect it to operate.
And thats not assuming any zero appreciation. With zero appreciation you turn $20,000 into
$100,000. Lets say you use a little more leverage and just put $10,000 down. Now youre turning
$10,000 into $100,000, with zero appreciation. How powerful is that?
I mean, look at your retirement plan. Youre young. 30 years from now, any property you bought for 20%
down is going to be worth 100%, assuming zero appreciation.
And if you do have appreciation, you turn $20,000 into $200,000 or $300,000. So thats the power
of amortization, reducing the loan balance as you go along. Whenever you have that opportunity, you
should take advantage of it.
And in todays market if you are a qualified buyer or if a partner of yours can be a qualified buyer, get-
ting an amortizing low-rate loan for as long term as you can tends to be a very strong thing to do.
Brian Hunt: Lets say I find that perfect property. Should I go to a big money-center bank, like Wells
Fargo or Bank of America? Or would you recommend I talk to a local banker first? Whats the right way
to go about that?
Justin Ford: I never used to believe in mortgage brokers. But now I have a license myself, and I do un-
derstand that brokers can provide a good service.

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First of all, he shouldnt cost you more than typical because hes getting wholesale, so his fee should be
roughly what you would get with retail, more or less. But if its a little more, hopefully hes worth it be-
cause hes doing a lot of the work for you. If you want to do the work yourself, do the work yourself.
But your goal is to get the best rate possible. And to get the best rate possible, I would talk to a mortgage
broker. And then I would talk to a few lenders directly. I would talk to the local bank. I would talk to a
few of the larger institutions and so forth, depending on the property youre buying.
Some of the mortgage brokers will have lenders that youll never find. Theyll be talking to basically
pools of investors... who are not typical banking institutions. Theyre just pools of investors for lending
money on property. And they may give you access to certain funds at certain rates that you wouldnt
necessarily find yourself.
The long and the short of it is, like anything else, get at least three quotes. Talk to your local guy, talk to
one or two national lenders in that niche category, and then talk to a broker or two.
Brian Hunt: Ok, is there anything else we should touch on with amortization?
Justin Ford: Just that the gains that come from amortization are essentially tax-free. You get the tax-free
benefit of having someone else pay off your loan. Now do you want to move on to positive leverage?
Brian Hunt: Please...
Justin Ford: The P in the CAPA acronym stands for positive leverage. This is basically where the cost
of your borrowing money is less than your cash flow and its going to stay that way because you fix your
interest rate. Put simply, the cost of your debt is less than your cash flow.
So lets go back to that $100,000 property. It generates $20,000 per year in revenue and theres $10,000
in expenses, so you have $10,000 in net operating income. So if youre an all-cash buyer, meaning youre
making 10% annually, thats your cash yield.
Now if you put a loan on it, youre going to increase your total expenses because youre going to have an
interest expense, but youre going to decrease the amount of capital you outlay, the borrowing money.
And that return, when using positive leverage, is going to go up. So instead of 10% you might end up
with 22% in yield per year.
So lets see how it works. Lets say youre borrowing $80,000 at 5.5% percent. Well, your payments every
year, including principal and interest are going to be roughly around $5,600. And thats going to be paid
from that $10,000 cash flow that we talked about, right?
So now, youre left over with $4,400. Instead of having $10,000, youre left over with $4,400. But instead
of putting $100,000 in, you only put in $20,000. So $4,400 divided by $20,000 is 22%. So your cash on
cash yield went up from 10% to 22%.
Now, lets imagine you get lucky and the property goes up 10% in the first two years you own it not far
from the long-term average. In the first case, where you were an all-cash buyer, that 10% rise was a 10%
return on your capital.
With no positive leverage, you put $100,000 in, and you made an extra 10%. In the second case sce-
nario, you made an extra 50%, right, because its $10,000 on the $20,000 that you put down? Thats the
power positive leverage. In this case, you made 22% two years in a row. And then you made 50% on
your amortization. You made 94% gross were not doing taxes or anything else right now; were just

16
talking gross numbers 94% because you had positive leverage working that property. If you were an
all-cash buyer, you wouldve made 30%. You still wouldve made a decent return, but not a great return.
Thats positive leverage.
Whats negative leverage? Negative leverage is when you borrow money and you have $10,000 in net op-
erating income the same example but your cost of money is $15,000. In this case, you have to come
out of pocket just to pay it.
Back in the boom years, no one cared about negative leverage because they knew that they would be
able to flip for a higher price. The moment that stopped being true, they were stuck with the negative
leverage. And then when they tried to sell the property, the property was worth less than before. So not
only did they have negative cash flow, they had negative equity. And eventually, they lose their credit
and everything else.
So one of the takeaways here: Fix your interest rate so you have positive leverage for as long as you can.
I have loans from 2003/2004 that were 6% loans that are fixed for 30 years, and theyre just working
away. Theyre chipping away at their payoff date. A lot of these properties still have good, positive equity,
and some are a little less than that. But theyre all chipping away. Theyre all chipping away. Theyre all
fixed. And thats the conservative route.
Brian Hunt: Once someone determines a propertys net operating income, is there a rough rule of
thumb for determining how much to pay for the property? For example, should I buy a property for
eight times net operating income? Or should I be stingy and just pay six?
Justin Ford: You know, I consider real estate to be art and a science both. The science is the crunching
of the numbers: Know what your real expenses are likely to be... know what your income is likely to
be... know what your positive cash flow is likely to be, within reason. This is all the science of numbers.
And then the art is figuring out a bunch of other things Where you want to be. And let me talk about
that for a moment...
So lets say I find a property that generates a 10% cash yield. In our same example, even without the
debt, theres a 10% yield. Its a $100,000 property; $20,000 in income, $10,000 in expenses leaves you
with $10,000 yield. Thats a pretty good deal in todays market, especially when banks are paying 1%
and the dividends are still fairly low on stocks. So if you want yield, thats a fairly good deal.
So should I go ahead and buy that property? Well, there are a few other considerations. With cash flow,
you can consider comp values. You consider that C is almost a double C, standing for two things, cash
flow plus comp value. Heres what I mean by that.
If youre buying this $100,000 lets say its a duplex, for the sake of argument youre getting your
$10,000. Youre happy about it, but you dont realize that in the neighborhood theres 10 other duplexes
also, that theyve all sold for $90,000. So theyre actually yielding the same $10,000 in operating income.
But theyre producing close to an 11% return, something like that.
Well, what youve done is youve created a longer time for you to get your money back. For you to actual-
ly sell at $100,000 to get your money back, you need to wait until all the other $90,000 properties come
up to $100,000. Youre basically paying above the market. So you do want to look at your comps its
not just about yield.
Now, you dont want to be greedy and always think youre going to get the lowest deal. Youre not always
going to get the lowest deal. But if youre trying to be a good buyer, you really want to know your target

17
area every property thats sold in the last year or two and every property thats for sale currently, every
single one.
Its not that much to know. It seems like a lot to know, but we all know guys who dont necessarily have
formal degrees, but they can tell you the batting averages of 150 baseball players, where theyre all born,
and where they went to school and everything else. The human mind is capable of that easily, easily.
Theres no reason you cant find a target area and after a little bit of study it might be a few weeks as
youre looking for properties youll know every single property thats sold, know the values, and know
every single property thats for sale. So when you go in and you buy that 10% cap rate or 11% cap
rate... you know that its a competitive cap rate for that area.
Cap rate is basically the cash yield the net operating income divided by your purchase price, OK? I
could get more technical. There are what I call adjusted cap rates the net operating income divided
by your total deal cost which are more important because sometimes your purchase price might only
be half your deal cost if youre renovating.
Regardless your true cap rate, your net operating income divided by your total deal cost, is competitive
with everything else thats out there.
If Im acquiring a property for $100,000 if Im buying for $50,000, fixing up to $100,000, and it gives
me 10% net operating income, then Ive got that 10% yield. If I can buy a property over here thats brand
new, ready to go, and I dont have to do all that work for $100,000, Im going to buy that one. Why do all
that if Im doing that work, I want to add value. I want extra return to take that risk and do that work.
And then heres the one other thing that Ill tell you. If I go into a really rough neighborhood I can get a
higher yield. I can get 14%, 15%, 16%, 18%. But I dont necessarily want to operate that way. I only want
tenants who are responsible and respectful and everything else. And youll find that in rough neighbor-
hoods, too. But it may be harder, especially if youre buying a big property.
The point is in a rough neighborhood you may find higher yields... and then working-class, a little lower,
but still good yields. And then when you go to luxury the yield may go down.
Right now, I am buying in what I call A areas, near the beach A, A-minus, B-plus areas. Typically, I
would always buy around B areas, sometimes C-plus to B areas. That was good cash flow, working with
a good tenant base. But because prices are so cheap right now, Im taking advantage to buy prime areas:
downtown areas, beach areas, that type of thing, because you can actually get respectable yields there.
And so where I might get 10% in this perfectly good working-class area that Im happy owning, I might
opt for the 8.5% yield in something thats close to the beach. Im going to take the lower yield to get that
location. Theres one thing I learned about location in the boom and the bust... the working-class and
the marginal areas, they suffer much more in the downturns.
With my best-located properties, we had almost no turnover in the downturn. Or when we had turnover
it filled like this [snaps fingers]. In the roughest part of the recession, with our most marginal proper-
ties, we had the toughest time getting good tenants when we lost one because they lost their job or they
moved away or whatever else. They were the most challenging.
Brian Hunt: As a general guideline, someone should be comfortable paying a little bit higher of a mul-
tiple of operating income to get a better property.

18
Justin Ford: Correct... and a B and A location as well. So theres two different things.
The property itself could be B and A or A, B, C, D, lets say and the location itself could
be A, B, C, D. So what I tend to do is I buy... what Im doing right now is, Im buying a lot of C
properties in A areas. Then, Im turning them into B properties, B-plus properties. Thats a really nice
strategy because you cant replace the location, across from the beach, on the dock... this kind of thing.
You cant replicate that. But you can take these old buildings and you can make them real nice, if you
buy them at a great price.
Brian Hunt: Could you give us a band of what we should be comfortable paying for a rental property?
Should I shoot for paying eight to 12 times net operating income? Is that a reasonable?
Justin Ford: It really depends on two things. It depends on where youre operating. If you go to Wash-
ington, D.C., I believe the markets still fairly strong there. Its been a while since I looked at it in detail,
but youre probably going to be paying higher multiples there.
But in places like Las Vegas, my impression is youll still find tremendous bottomed-out values there. So
youll get different yields there. If youre buying... in downtown Phoenix, you might still get a 10% yield
there and a property in decent condition, in small multifamily, for instance. But if you go to New York
if youre on Long Island it may be very hard to find a 10% yield. You have to look at your comparables
where you are and figure it out.
But where you are located is going to determine whether you even invest there. People used to ask me
how to find good deals in California. I would say, Move. They really werent there in San Francisco. In
L.A., it was crazy. The multiples there were just ridiculous numbers. It made no sense at all. Even if you
paid all cash you couldnt [generate] cash flow. You couldnt even pay your bills on a cash basis.
Now, just looking at a property, its hard to figure the yield, the net operating income divided by your
total deal cost. The one real useful gauge of value is the gross rent multiplier.
Anytime someone calls me and they go, Justin, Ive got this property at Jensen Beach [Florida]. Its 45
units and its a great deal. I say, OK, what are the gross rents? And they tell me theyre $50,000 a
month. I go, OK, great. And what are they asking? He goes, 2.4. OK, so do the math real quick. 50
times 12 is $600,000. Theyre asking 2.4. Theyre asking a multiple of four times rent. Thats a pretty
good deal, and its within view of the beach.
Theres got to be a rat in there somewhere. Four times rent is very strong. Four times rent would trans-
late probably into a cap rate of around 12%, 13%, 14%.
To know your cap rates in detail, you have to look at the building and get some of the details. You have
to find out what the taxes are. You have to find out how its metered. Do the tenants pay the electric? Do
you pay the electric, the water? What are the utilities like up there? Is it very expensive?
There are some towns where the utilities are ridiculously high. You obviously need more info to know
if the deal works for real. But the GRM gross rent multiple will tell you immediately if you have
something thats worth looking into. A GRM of four is crazy good. As a rule of thumb, a GRM of 10 is a
breakeven.
Thats a totally rule of thumb. So depending on where you are, things may be different. But its kind of
helpful. If youre paying more than 10, chances are every year youre going to be taking some money out
of your pocket to support that property.

19
If youre paying 10, youre just right on the edge. If youre paying eight, youll have a miniscule yield,
a couple percent, maybe. Well... I wouldnt say a miniscule yield, [but] maybe 3%, 4%, 5%. If youre
paying 6%, then you get a respectable yield. Then, you might have anywhere from 7%, 8% to 10%
yield. And if youre paying a multiple of five or less, youre probably looking at a double-digit yield,
you know, 10% and in the last couple years Ive bought a fair amount of properties that are... the
GRMs are five or less.
Brian Hunt: So again... going back to the $100,000 example, something that generates $25,000 in gross
annual rent gives you a multiple of four?
Justin Ford: Correct. Thats a very strong deal. If thats a decent area and everything else clicks, thats a
strong potential deal.
And Ive bought deals like that in the last few years.
Brian Hunt: Terrific. And now we should move on to...
Justin Ford: Appreciation.
Brian Hunt: Yes, the last A of your CAPA acronym. I have a feeling this will be the shortest discussion,
because the other three are the most important, correct?
Justin Ford: Thats correct. Appreciation is what can make you the richest, combined with positive le-
verage. But its the one that you have no control over, and so its the one that you should not focus on.
But its the one that most people focus on. And thats a shame because they neglected all the things they
can control. They shoot for the thing they cant, and then they get hammered. But if you get apprecia-
tion in addition to those three things we talked about cash flow, amortization, positive leverage you
should do well.
If you get appreciation to boot, you could do extremely well in investor terms, you could do 20%,
30%, 40%, 50% annual returns in many cases when youre getting appreciation combined with those
other factors we talked about. Long term, youre not going to get that. But long term, you could certainly
get 20% returns per year compounded, if youre getting appreciation combined with everything else.
But dont hang your hat on appreciation. Go into everything you buy, whereas if it never appreciated by a
dollar youd still be OK. There are many properties I buy today where I have every reason to believe that
they will probably appreciate. For instance, theyre selling it less than the cost of replacement value.
If they gave you the land for free, you still couldnt build it for the cost youre buying it for. The cost to
own is now much cheaper than the cost to rent. So eventually that will create buying pressure because
people will stop renting and theyll move to buying and theyre create demand for the actual property.
And then of course, there is the whole inflationary scenario. When you talk about the prospect of infla-
tion, housing is one of the most sensitive inflation indicators in the economy. Much of what the inflation
index is made of is in housing concrete and lumber and steel and labor and tar and petroleum prod-
ucts. And if those things go up... its almost impossible to imagine those things going up without housing
going up.
If we do have appreciation, well do extremely well. But if for some reason, those go nowhere and we
stay flat, you can still do well. If by some reason, we go nowhere and we go into some great depression
of demand and our prices continue to fall and stay low for a long time, you could still do well with these.

20
You could still make a positive cash flow and have your loan paid off. Obviously, its not the best scenar-
io you want. But that to me is smart investing, focusing on those three things.
Brian Hunt: A few final things, Justin... What are some areas that are overrated and underrated when it
comes to renovating rental properties?
Justin Ford: Thats a good question. Your biggest bang for your buck is always going to be cleaning,
painting, and landscaping. But beyond that, kitchens and bathrooms and floors make a big difference.
You can do a lot with flooring. You can put wood laminate flooring down, and everyone wants it. Every-
one even though its laminate, and it can be a very inexpensive laminate. But the trouble with laminate
is that you can damage it easily and tenants can ruin it. I recently discovered this one floor that is a tile
thats designed to look like wood. It doesnt completely look like wood because there are grout lines. But
it actually does look like wood.
If people walk in and ask me, Is this wood? I go, No, its tile. But they love it, and I like it. It looks
great. And from a landlords point of view, I love this. Ive had different types of floors Ive experimented
with, but I really like this one. Its laid in whats called subway style where the planks sort of take
turns; theyre not butted together.
But in any case, when you put good flooring down, especially if you had ugly flooring beforehand, it helps
sell. And I dont like carpet. I almost never use carpet for all sorts of reasons. I prefer to go with a durable,
nice floor and sometimes even laminate. Its so cheap, sometimes you can get away with laminate...
A lot of people tell you not to do laminate because, one flood and youve got to replace it all its very
sensible. And tenants can be rough because theyre not necessarily going to take care of it. I can respect
all those things. Occasionally, Ill still break the rule and Ill do it because I just know I can get away
with it, and Ill end up with a tenant whos in that house for years. But I like new flooring for ways to
add value.
Obviously, you also have to do something with your kitchen and bath. Sometimes I may have old bath-
rooms that are perfectly fine. The tubs fine, the sinks fine, the tiles fine, but it looks old. It looks worn.
I have used companies that go in there, and theyll do an epoxy paint job and they paint it all, and its
astounding. And Im down probably depending on the size of the bathroom $250-$300 and we just
paint it all white. We have a lot of this old 1960s Pink Pelican tub, pink and green. Its from back in the
day when Sammy Davis was singing on that strip over there... Thats what these bathrooms look like.
We go in and, boom, we make it all white including the tub and everything else. It looks brand new. It
looks awesome.
Brian Hunt: So white epoxy paint...
Justin Ford: But you need a professional to do it... You need someone on your staff who really knows
what hes doing. Its toxic. They put masks on when they do it.
Its a serious job... do it with a company that will stand behind it. If they dont do it right, its going to
peel off from the tub. Theyve got to go back and treat it. But if you do it right, it should be fine. It should
last you a few years, and it just helps you renovate. The tub was fine, no need to tear it out. You just need
to sort of retreat it.
There are other things you can do. For instance, sometimes well buy a property with old kitchen cabi-
nets and countertops. The buildings older, but its cute. And were not doing an entire remodel. The

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cabinetry is fine, except its a little bit ugly. You might have an old Formica top on it, and youve got
these plastic handles. Youve got whatever else thats not current.

Sometimes well just go in there, and well sand down the faces. Well paint it brand new; well change
the hinges and the hardware to nice, shiny metal with some nice steel. Well inexpensively well tile over
that Formica. Maybe well do like black and white with a little bit of design, and put a new sink and
faucet in there. If the sink is fine, just clean it up and put a new faucet in there. I tell you, it looks brand
new. And for like $400-$500 instead of maybe $2,500, depending on the size of the kitchen, you just
make it shine and its really cute. It still looks traditional, but it just looks nice. It looks very charming.

Of course, paint is like your No. 1 thing, paint and cleanliness and sometimes well do the same thing
with the bath. If for some reason we dont want to do a whole vanity, if everythings good, we retile the
countertop and change the faucets. If theyre ugly, get those new. Get the tile looking new, get the wood
looking clean, and get your hardware good, your handles and so forth. Put down some good floor. Make
sure those windows are spotless. Make sure the place is really clean. Make sure it smells good.

Now theres one other thing I like to do. Depending on the size of your portfolio, it may or may not be
feasible for you. But if youre going to own a few properties, Ive taken to staging units all the time.

Sometimes, we stage units, and we will offer them furnished or unfurnished. If you take them unfur-
nished, fine. We either move the furniture into another unit, or if you didnt take that particular unit we
just leave that and we keep showing the staged units. And it makes a huge difference, because guys walk
in and can picture living there.

I had a guy the other day who rented from us. He gave paid six months in advance, seven months in
advance... $7,000 or $8,000... on this luxury little studio because he walked in the studio and he goes,
Oh, yeah, this makes sense. Over here will be my bed, therell be this yeah, this is exactly what I
need. The guy works in North Carolina and he comes down here and stays at the beach, so he could see
whats to expect living there.

I spent a couple grand furnishing a little studio. I get about $100 more, so my payback period is around
20 months to furnish it. But then I own it, and typically furniture will last around five years. Its a mini-
profit center in itself.

If you have extra furniture, stage it. If you have friends who are moving to another house and they dont
want something, say Hey, Ill take it. Use their furniture and stage it. And you can offer it furnished if
you want and charge extra. You know, for a one-bedroom studio, Ill charge maybe $75 more for fur-
nished. For a one-bedroom, maybe $100. If I was doing a house, maybe an extra $200-$250 depending
on the size of the house, maybe more. Again were not talking luxury. Were talking clean, safe, func-
tional, cute, nice stuff. I do a lot of Ikea, stuff like that.

But make sure everythings clean. Pay attention to your kitchens and your bathrooms, your flooring, and
your paint. Thats it.

Brian Hunt: Lets say I have $100,000 Id like to invest, but Im 70 years old. I dont want to be walking
around neighborhoods doing all the work with comps. How could I go about partnering with someone
who is a property manager? Could I go talk with a real estate agent and just say, Look, Ive got some
money to invest and I would like to partner up with like a young, upstart manager? How can I go about
finding people with the knowledge and the energy that are lacking money?

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Justin Ford: One way to go is to go to your local real estate investment clubs and meet people. And
take your time. Dont let them know necessarily what youre looking to do. Just meet people and get a
feel for them.

If youre going to do it like that, you want to be very careful. And if youre going to be an active investor,
working with someone new again, I prefer references.

Or if you put a deal together, make sure you have control. Otherwise be a passive investor in an estab-
lished group that offers a guaranteed yield. And any guarantee is only as good as the guarantor. They
can guarantee you a yield, but any guarantee can still fall through as well. So you have to do your due
diligence. We have investors who invest with us. But there are also people who can form their own thing
through their local real estate investment club. If you form your own through a real estate investment
club, maintain control.

Brian Hunt: And probably people would want to focus on character, a proven track record of creating
value, and doing right by people.

Justin Ford: Right.

Brian Hunt: So do most mid-sized to larger-sized towns have real estate investment clubs?

Justin Ford: Just about every moderately sized town should have one.

Brian Hunt: Someone could just Google South Florida real estate club.

Justin Ford: Right. And if theres more than one, it pays to go to as many as you can. Some may be bet-
ter than others, but you will certainly learn from them all.

Brian Hunt: And at the same time, if Im a young, energetic person who is looking for financing I could
go attend that as well.

Justin Ford: Absolutely. Thats very sensible. If a persons really got youth and energy, which are two
very good traits, but he doesnt have experience yet, thats a case where you need to maintain control.
Because even if he has the best intentions, he may make certain errors in judgment that he wouldnt
make otherwise, if he had more experience. So just tread lightly there.

Brian Hunt: Thank you for your time Justin... youve given us plenty of great things to think about when
considering real estate investment.

Justin Ford: My pleasure.

Editors note: Justin Ford is the President of Pax Properties, LLC a diversified real estate company of-
fering brokerage, mortgage, property management and investment services in South Florida. With
investors, Pax also owns and operates more than 100 rental units for its own portfolio. Mr. Ford counts
several Stansberry & Associates investment advisors among his investors. Hes happy to speak with
qualified investors on how they can take advantage of low-risk/high-yield investment opportunities
available in U.S. real estate. He can be reached at justin@pax-properties.com. Please, only send serious
inquires. (And note, we receive no compensation for mentioning him or his business.)

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