The Low-Down-Payment Empire
By Carleen Hawn

(Business 2.0) – In a little less than four years, John and Lauren Visconsi have purchased--and kept--four houses. As a result, the Portland, Ore., couple has amassed a real estate portfolio worth $1.4 million. Not bad, considering that their combined annual income is just $225,000 and that they'd never even owned a home until 2002. Their secret? It all boils down to the amazing powers of rental income.

In any kind of market, rental income makes property investments a better, if not surefire, bet. The incoming checks may not pad your bank account, since the cash goes to paying off debt, but the increased capital means that with each subsequent home you buy, you should be able to get more favorable terms from your lender. "The more homes we have, the better," says John Visconsi, 36. "In 20 years they'll be almost paid off and producing income, potentially letting us retire earlier."

The Visconsis currently lease three homes and live with their two children in the fourth. Lauren owns a retail boutique; John is a real estate lawyer with a Los Angeles-based firm. In March 2002, they bought their first home, a three-bedroom 1912 Craftsman, for $220,000. Soon John was trolling the neighborhood, checking out other houses for sale. "He'd always say he was just looking," says Lauren, 34. Two years later he found one too good to pass up: a house about the size of theirs, priced at just $215,000. John reasoned that buying it would be like snatching up the first house all over again, but for $5,000 less.

The couple didn't have $43,000 for the standard 20 percent down payment, so John got creative. Most real estate experts will steer you away from mortgages greater than 80 percent of the purchase price because such loans require mortgage insurance, but the Visconsis avoided that by finding a broker willing to negotiate two loans instead of one. The first loan financed 80 percent of the purchase price, and the second covered another 15 percent, which meant the couple would need just $10,750 for a down payment.

Since the Visconsis planned to lease the second house, the mortgage broker included future rent of about $11,000 in their annual income. The couple's loans came with high interest rates--7.5 percent on the first loan, 9 percent on the second--but the rental income convinced a bank that they could cover the monthly payments, which with property taxes totaled $1,450. The Visconsis rented the house for $1,275 a month, so they started out $175 in the red. But factor in the depreciation at tax time, John explains, and "we're positive cash flow again in terms of taxes we don't pay on other income." From an initial investment of just $10,750, the Visconsis got a $215,000 house that's now worth about $310,000.

Since then, the Visconsis have repeated this process twice and plan to continue, each time using dual loans to keep their down payments low and rental income to cover the mortgages. John's job recently scored him a hard-to-get broker's license so he can represent himself in transactions--now he typically gets paid a commission of 2.5 or 3 percent of the purchase price every time he buys a property. Still, he's not getting cocky just yet. "If there's a downturn and we sell, it'll be harder to pay off the loans," he explains. "But that's only if we sell. In a downturn, people stop buying and start renting. That's good for me as a landlord." -- C.H.

WHERE--AND WHERE NOT--TO BUY RIGHT NOW

As chief economist for the National Association of Realtors, David Lereah has followed the housing market since 1980, and he's still bullish, predicting that home prices will continue to rise for another decade. Accounting for median home price inflation, employment, and net immigration, among other factors, Lereah gave us his picks for the cities where buying to rent is a good idea right now, and a few where it's not.

Source: National Association of Realtors

[*] BUY [**] PROCEED WITH CAUTION [#] AVOID