Good afternoon,
I am recently become intrigued with the world of real estate investing and have read a few books and articles on the subject. I am interested in investing in my first income property using the equity in my own home as part of the downpayment.
It seems to me that the most important aspect when looking at a property is CASH FLOW. If the difference between the rental income vs. the mortgage payment w/ principal and interest is too great than one will have to use one’s personal income to foot the rest of the expenses. I guess this is common sense.
My question: If one didn’t have the excessive cash to put down to lower the payments, are there any other financing options that one could use w/ little cash down that would bring the cash flow to a break even point?
thank you
If you’re looking at real estate as a business then cashflow is your lifeblood, and getting to a breakeven standpoint is nothing. What you want is CASH flow, ie where cash is flowing into your pocket, not out of it. The only way to do that is to rent the property for more than your monthly costs on the property. Personally, I prefer to have a minimum of $200/month positive cashflow.
There are several financing options available that generate more cashflow. However, these only help for awhile and putting more cash down doesn’t help cashflow as you should be including that cost into your monthly figures. The best way to make sure that you have cashflow is to buy properties with that in mind and make sure that you buy them at enough of a discount to get the cashflow that you want.
Raj
Thanks Roger,
I guess I was misinformed…people always say that one doesn’t need money to start investing in property.
I live in a part of the country where real estate is so expensive (Massachusetts) that the income on the property does not offset expenses. At least i haven’t found any properties that give me this luxury.
Thats the reason i was asking. If one can’t get a huge discount on a property doesn’t one have to put down a huge amount of cash so that the payments will be lower therefore creating positive cash flow?
Part of learning how to invest in real estate is learning HOW to buy properties with that huge discount. Haven’t you heard the saying, “you make your money when you buy, not when you sell.”
If you put down a large downpayment to make the property cashflow, then you are only cheating yourself. To properly gauge cashflow, you would have to include that chunk of downpayment cash into the equation. If that was the only thing making it cashflow, then when you do include it, it won’t have a positive cashflow.
I’d suggest that you read up on various methods of buying properties at a discount in order to get the best possible deal. If, as you say, your market is over-inflated, and properties don’t cashflow, then it wouldn’t be a wise time to get into the buy and hold strategy. Those markets do, however, offer other ways to profit from real estate. Again, it’s just a matter of learning when and how to do it.
hope it helps,
Raj
Raj,
Thanks for your response.
I understand now that putting a lot of money down (if any) defeats the purpose of cashflow.
I will do my research.
You mentioned that maybe I am looking in an inflated area of the country right now…do you believe the prices will actually go down?
JC,
I truly don’t know anything about your market, so I couldn’t give an opinion of value either way. However, you did mention that properties are so expensive that the normal rent payment doesn’t cover the mortgage costs. If this is the case, then it usually means that the market is over-inflated. If it is, then I’d be very careful about doing buy and holds. It can still be done, but you have to get a BIG discount on what is currently considered FMV since you would be expecting a price correction.
Before you jump in, you need to learn your market and where it is at at the moment.
Raj