Research and Leverage Resources
Your first purchase will always be your most sentimental. I purchased my first property as a teenager, an apartment for $152,200. In addition to all the cash flow I’ve received over the years, the same apartment is currently valued at over $1.1 million. More important, I’ve enjoyed positive cash flow from the property all these years. Since then I have acquired many property investments, including multi-family apartment buildings.
For your first deal, take your time and do your research. Leverage the knowledge, time, and resources of other people. Engage with realtors to help you find the deal. Join local investment groups and network with other investors. Spend time on the ground yourself looking for deals. Scour the classified section of your local newspaper. Search Craigslist or Loopnet. Drive a different way home from work every day to look for properties for sale.
The difference between an amateur investor and a professional is that the amateur is anxious to make a deal, while the professional is patient. Professionals wait for as long as it takes to find the right deal, then pounce.
I recommend multi-family units (duplexes, triplexes, fourplexes, and bigger). Interestingly, it’s often easier to acquire an apartment complex then your own single-family home. In those deals, banks are looking less at you than they are at the deal itself. If the numbers make sense, they’ll consider it.
Another reason I like multi-family investments is that you can live in one unit and rent out the others. The rents should outweigh all costs and you live rent-free. If you intend to occupy one of the units, you can also get a residential mortgage loan. Because the down payment requirement is usually less for residential mortgages, you can save money and increase your leverage.
Once you find a potential deal, do your research well. Make sure you can generate a positive cash flow on rent. Perform a home inspection to check for major structural issues. Get your funding in place. You’re going to be nervous when you write the check for the down payment, but few things are more exhilarating than closing a deal.
The best deals always come from people in distressed situations, such as people who need to move quickly or who are in a tight spot financially and don’t want to miss payments and get dings on their credit. If you’ve lined up your financing, you should be able to move quickly and snatch up these deals quickly.
Understand that you don’t have to purchase just in your local area. There are great markets all over the country and you want to find those markets where property values are low and rentals are in demand.
Find the Right Property with the Strongest Cash Flow
When making a purchase you want to pay the lowest price for a property that will generate the strongest return on your invested cash. As a guide, you want to buy properties at a minimum of 15% below market value.
Finding the right property is the single most important thing you can do to be successful in creating cash flow for your 5 Day Weekend. Do your homework and don’t purchase until you find a solid property below appraisal value with a strong return.
The more you pay for and finance for a property, the higher your monthly mortgage payments (and, most important, less cash flow). The better deal you get, the more equity you have and the more leverage you have to purchase more cash-producing properties. The more cash you need to fix up a property, the longer it will take you to break even on the deal.
In my next post, I’ll show you how to use what I call the “Cash Flow Filter” in order to find the best property deals.
In the meantime, have you had experience in acquiring real estate? What have you learned that has affected your investment strategy? Thank you for sharing.
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