Real Estate Genius Investment Software Blog

By James Orr

When investing in real estate, you might encounter negative cash flow in your market. Why?

When the mortgage payments you have on a property for the amount you are putting down are higher than what you could collect for rent on the property, you have negative cash flow.

Some people include taxes, insurance, management, maintenance and other expenses for their property when calculating their cash flow, but for the sake of this discussion we will use a comparison of rent and mortgage payment.

So, what can you do when you find yourself in a real estate market, like the one we have here in Colorado, where the rents are not nearly enough to cover the mortgage payment on a reasonably low sized down payment?

Well, one solution is to offer the house on a rent-to-own.

By finding someone who is willing to purchase the house and not rent it, you can have them pay you an amount that is more like a mortgage payment and less like a rent amount.

They would also be responsible for taxes, insurance, maintenance and any other housing related costs like HOA.

This, combined with purchasing the property below market, can give you a positive cash flow where you would have a negative cash flow in that market with a straight rental.

For example, you may buy a house for $180,000 (at a $20,000 discount) with an interest rate of 6.5% and sell the house to a tenant-buyer on a rent-to-own for $200,000 (its actual full market value) with a payment that is the equivalent of a 7.5% interest rate.

You now are collecting payments on $200,000 at 7.5% when you are only paying payments on $180,000 at 6.5%.

Is charging someone who can not get a traditional loan one percentage point higher than the rate someone like you with good credit can get unfair? No, I think one percent is actually a good difference for them. Check the rates for good credit and poor credit at your lender to see what a fair difference would be in the current credit market.

Take a few minutes, on your own, to calculate out what the payments would be for buying a median priced home in your market at a 10% discount and selling it for full price on a rent-to-own with a 1% difference in interest rate and see how that changes the cash flow on that property.

James Orr is a professional real estate investor, marketing expert and founder of the LearnToBeRich.com on-line investment game.

You can get a free real estate course and fully analyzed real estate deals and his blog by e-mailing him at freerecourse@learntoberich.com or visit the Learn To Be Rich Blog for more great articles and information.

Article Source: http://EzineArticles.com/?expert=James_Orr
http://EzineArticles.com/?How-To-Eliminate-Negative-Cash-Flow&id=1015112

If you’re not absolutely sure of the answer, it’s time to spend a few minutes and learn. You’ll be glad you did!

What is the difference between cash flow and profit?

 Interesting article from Saturday’s Wall St Journal, and incredibly on-topic for the Real Estate Genius site! In Learning To Be a Landlord, Jeff Opdyke covers the pros and cons of getting into the landlording business by talking to a number of novice property investors. Some of the challenges faced by the investors he spoke with included:

• repairs taking much longer than expected, leaving properties unrentable in the meantime
• overpaying for the property, meaning the landlord could never get to positive cash flow
• the problem tenant, full of daily complaints
• underbudgeting for repairs
• the dreaded Christmas Eve “my toilet is broken” phone call

Opdyke speaks with an expert who points out that “You’re buying an income stream, not a pretty house”. And that pretty much nails it right there– it’s all about the cash flow!!!

You’ve got to have a good sense that the cash flow will work in your favor right upfront. That’s why you should always run the numbers with a real estate cash flow analyzer. It might only take a few minutes and cost you a few bucks, but it could save you from getting into a bad deal.

By James Orr

You have looked at 6 (maybe 12 deals) and you are finding it near impossible to make them cash flow based on collecting a reasonable rent and getting 30 year fixed rate financing.

Take a deep breath. This is one of the most common problems for real estate investors and what I believe to be one of the things that discourage many people away from starting a lucrative real estate investing business. There is hope though.

First, unless you happen to be lucky enough to live in or near a city that has a low income area where you can still buy “rental houses” where the values are about 100 times the monthly rent, you need to realize that finding these deals is like the Easter Egg hunts you had as a kid. You got to look at a lot of deals to find that special one that will work.

How many will you need to look at? It can vary, but I do not think that looking at 100 is out of the range of possibility.

What?! So, I need to look at 100 houses to find one that will work? Yes, you might need to look at 100 houses, making better distinctions about what might work and what will not work to find a good deal.

You may also find that putting out marketing to find motivated sellers makes finding these types of houses easier rather than just looking at houses that are for sale by owner or listed with a real estate agent.

Buying houses at a discount and/or with good terms can significantly improve your ability to make a house cash flow, especially if the interest rate on the terms you can get from a seller is much better than the current rate you could get from a bank or lender.

What if you have some houses that are very close, but none that will have positive cash flow? First, keep looking. Second, there are some ways to ethically increase the amount a tenant pays you in rent which could make a negative cash flow house a positive cash flow house.

For example, if instead of just renting the house, you sell the house on a rent-to-own, you can get payments that are on par with what your actual mortgage, taxes and insurance expenses are because they need to be able to pay your actual mortgage, taxes and insurance payments to afford that house.

When you interview your potential buyer, you explain that market rent is $1,000 (or whatever it is), but that if they have $10,000 to put down toward purchasing the house their mortgage payment with taxes and insurance would be $1,400 (or whatever it is).

You tell them they need to pay the $1,400 but that you will credit the $400 above market rent toward the purchase of the house when they do go out and get their own loan and buy the house from you. In the meantime, they rent with the payment that resembles your mortgage payment.

James Orr is a professional real estate investor and marketing expert.

You can subscribe to his real estate e-newsletter and access audio downloads, articles, marketing materials and educational real estate videos at his Real Estate Investing blog.

Article Source: http://EzineArticles.com/?expert=James_Orr
http://EzineArticles.com/?Finding-Real-Estate-Deals-That-Cash-Flow:-Positive-Cash-Flow-In-Tough-Markets&id=426562

You’ve been on the hunt for an investment property, and have finally found the right now. It looks right, and the deal ’smells’ right to you. The location seems like a sure bet.

So why bother spending all that time crunching the numbers? There are a few reasons, actually:

1. The analysis process forces you to think things through, and reduces the risks that you’ll overlook some key factors. It forces you to remove yourself from the emotional ‘heat of the deal,’ where you just might rush into something that ’seemed like a good idea at the time.’
2. Discount cash flow analysis gives you a number projecting how much you can expect to pull out of an investment. You can quantify ‘great deal’ in dollars and cents.
3. Detailed financial projections are the hallmark of a professional, and my aid you in attracting loans and financing for your deal.
4. Forcing yourself to generate best- and worst-case scenarios will create a range of projected results. The one thing that you know for sure is– you can’t foresee the future. However, you can attempt to determine the maximum and minimum amounts you stand to gain or lose, as well as the most-likely amounts. This is critical, since you should never pursue an investment where you aren’t comfortable with the risks. Nor should you pursue investments where the best-case scenario doesn’t meet your minimum return.

Best of all, financial analysis doesn’t even need to take up much of your time. The Real Estate Genius investment property calculator runs the numbers instantly– you just need to gather the facts, and plug in your assumptions.

Don’t leap before you look. Run the numbers and be prepared.