Some basics on investing in rental properties

I stumbled across an interesting blog today and thought I'd share an article the author posted on Investing in real estate for cash flow .

"Creating cash flow through real estate is my favorite method for making money. Simply put, this form of investing involves buying a property (an apartment, a house, etc.) and renting it out. The rent payments cover the mortgage, insurance, and tax payments. What is left over after you subtract the mortgage, insurance, and tax payments is passive income. That is the kind of cash flow that liberates people from jobs.

"This is not “flipping” properties or buying foreclosed properties. This type of investment involves buying and holding a property. There are various details, including incredible benefits such as tax-free rental income and 1031 exchanges, associated with investing in real estate for cash flow..."

For the rest of the article, go here

A few things to consider is that of course your numbers will differ depending on market conditions where you invest, your credit, and other factors.

For one, investor loans are typically anywhere from 0.5%-1.5% higher than mortgages for people buying a personal residence. This will impact your cash flow.

Also, once you get more than just a few properties, you’ll likely want to hire a property management company to handle the tasks involved with running your properties. This will help you avoid the “landlord trap” where landlords spend all their time managing their properties and have no time left to go out and acquire more properties, thus placing a ceiling on their income and nearly eliminating one of the most common reasons why people invest in real estate: time freedom.

Property managers’ fees vary, and in real estate nearly EVERYTHING is negotiable, but you can expect to pay up to the amount of one month’s rent for them to find you a tenant, and an ongoing monthly management fee which varies widely. As you acquire more and more properties, economies of scale start to work in your favor here, too

Additionally, the author states in the beginning of the article that this strategy is not buying foreclosures. I'd suggest that buying foreclosures is merely one more tactic that can be part of your overall property acquisition strategy. The more different strategies and tactics you can use, the better your chances of making a profit from a property.

Many landlords do make the "mistake" of buying at full retail, then renting it out. While this can provide cash flow and appreciation in value over the long term, buying properties at a discount can substantially increase your profits.

I put "mistake" in quotes above for emphasis - if they are investing in properties, they are at least doing SOMETHING that many people don't, in order to escape the rat race. That's a definite plus. But paying retail for a property is essentially leaving money on the table. In real estate, you make your money when you buy.

To your success,

Dave
Creating Real Estate Investors