There are lemons in real estate investing just as sure as there are lemons in new cars. Knowing exactly how to have the right cash flow investment will not only aid the pocketbook, but it will aid the investor’s future real estate investment portfolio.
To understand cash flow investing, the investor must know how to make and scrutinize all real estate net sheets. Hopefully when purchasing real estate investments, the agent is ethical and using due diligence for the client. Just in case the agent is unethical, it is imperative when looking for cash flow investing properties to know how to read and interpret a proper balance sheet (net sheet).
What to Look For in Cash Flow Investing Balance Sheets
There have been many new investors who lost “their shirts” in purchasing real estate, due to the fact that the net sheet was not accurate and correct. Net sheets are meant to show every single penny that the investor has to spend on the proposed real estate property.
Many investors in rental properties scams have lost their entire investments due to agents caring more about the commission than the client and their right to know. Due diligence means a complete and thorough investigation of the property. The net sheet should show more than the mortgage payment and the rent schedule. The net sheet should include:
- Lawn maintenance
- Mortgage payment
- Management expenses
- Major repairs needed
- Personnel and Real Estate commissions
- Vacancy allowance
- Maintenance crews
Apartment Investing and Searching for Cash Flow Investments
Cash flow investing can include many types of properties including the purchase of restaurants and shopping malls. Looking for a cash flow investment is not as easy as it may seem and a good quality real estate investment could take months. It is important first of all to have many sources when searching for a cash flow investment.
Most investors will be looking for a 10% return on their investment per year. So if the total investment was $50,000, a net profit of $5000 per year is desired. This means that each month the investment must bring in $417.
Another way to look at this equation is to take the balance sheet and subtract all the costs of the real estate investment and add in the rents. Take the total amount received against the amount lost and see if the difference is at least 20% or more. It may be advisable in some cases to buy real estate investment property with less than 20% cash flow, as rents will rise yearly in most areas.
Best Source for Cash Flow Investing
The same rule has applied since the beginning of time. People have to eat and they have to have a place to live. Sticking with these two scenarios will almost guarantee success. It should be noted that due diligence is important in no matter which of the two that is invested in. Many restaurants will fail and many apartments will remain empty due to poor rental property management, too high of interest paid on the loan and failure to investigate neighborhood conditions.