The Magic of Income Producing Property
Many new investors are overwhelmed with the amount of information presented in introductory seminars and training sessions. There are many choices at the real estate smorgasbord table. Some instructors say, “Buy, fix, and sell—it’s the easiest way to payday.” Others say, “Buy, rent, and never sell—it’s the only way to long-term wealth.” Who is right, and who is wrong? Well, there is no right or wrong answer…if you know what you are doing.
As an investor, you must choose which strategies to use to build your wealth. You must decide what your short and long-term goals are, and then establish a plan to meet those goals. It is more than likely that such a plan will include both “buy, fix, and sell” and “buy, hold, and rent.”
Each time you look at a property, you must determine your exit strategy before moving to buy the property. If your exit strategy is to buy, fix, and sell the property for quick cash, you need to buy a property that will be easy to sell. You must also analyze that property with a buy, fix, and sell analysis formula to make sure you are buying at a price that will allow a quick sale, which will usually involve offering a substantial discount to the new buyer. Buy, fix, and sell strategies are great for generating quick profits, but unless those profits are invested in an income-producing asset, they generally will not provide you with long-term wealth and financial freedom. “Buy, fix, and sell” is a great strategy, but if you stop buying, fixing and selling, your income also stops.
If your exit strategy on a particular property is to keep the property as a rental, buy a property that will be easy to rent. You must analyze the property using a rental analysis formula, rather than a buy, fix, and sell formula. The rental-analysis formula will ensure that the price you pay for the property will allow you to have a positive cash flow right from the start. This is a key ingredient to being able to keep the property for the long haul. Buying a property and keeping it for several years, only to lose it because you can no longer afford the negative cash flow, does not make sense. Only keep rental properties that provide you a healthy cash flow right from the start!
Many people are afraid of rental properties because of all the landlord horror stories they have heard over the years. Most of those stories are probably true, but they don’t have to be your horror stories. If you “buy right” to start with, a lot of potential problems are already eliminated, and you will have enough cash flow to hire a management company to manage the property. Then you will not be faced with conducting day-to-day interactions with your tenants.
However, even if you hire a management company, you do need to know enough about the rental business that you could manage the properties yourself should it become necessary. Here are a few tips about buying and managing rental properties that can help you get rid of your fear of buy-and-hold properties.
Advantages of Owning Income-Producing Rental Properties
• Generate real-time cash flow you can spend now. You can use this cash flow to live on, and/or invest in additional properties.
• Create long-term wealth. Your tenants pay off your mortgage over time, leaving you with a free-and-clear (no mortgage) property. If you had 10 free-and-clear properties, each bringing in $1,000 per month, could you have financial freedom?
• You get the additional benefit of long-term property-value appreciation. This factor alone can create millionaires. Yes, property values do go up and down with real estate cycles, but the overall trend of property values is always up.
• The property you own is always working for you, no matter what you are doing. Your property doesn’t go on vacation with you; it keeps right on working twenty-four hours per day, seven days per week.
• Provide you with some tax shelter for your rental income. You can depreciate the property over time, creating a paper loss to offset other rental income.
Types of Income-Producing Real Estate
* Residential Rental Property
* Single Family Homes/Condos
* Duplex
* Tri-plex
* Four-plex
* Commercial Rental Property
* Larger multi-unit apartments
* Office buildings
* Retail buildings and strip malls
* Warehouses
* Industrial buildings
* Mixed-use properties
Back to INCOME GENERATING
Many new investors are overwhelmed with the amount of information presented in introductory seminars and training sessions. There are many choices at the real estate smorgasbord table. Some instructors say, “Buy, fix, and sell—it’s the easiest way to payday.” Others say, “Buy, rent, and never sell—it’s the only way to long-term wealth.” Who is right, and who is wrong? Well, there is no right or wrong answer…if you know what you are doing.
As an investor, you must choose which strategies to use to build your wealth. You must decide what your short and long-term goals are, and then establish a plan to meet those goals. It is more than likely that such a plan will include both “buy, fix, and sell” and “buy, hold, and rent.”
Each time you look at a property, you must determine your exit strategy before moving to buy the property. If your exit strategy is to buy, fix, and sell the property for quick cash, you need to buy a property that will be easy to sell. You must also analyze that property with a buy, fix, and sell analysis formula to make sure you are buying at a price that will allow a quick sale, which will usually involve offering a substantial discount to the new buyer. Buy, fix, and sell strategies are great for generating quick profits, but unless those profits are invested in an income-producing asset, they generally will not provide you with long-term wealth and financial freedom. “Buy, fix, and sell” is a great strategy, but if you stop buying, fixing and selling, your income also stops.
If your exit strategy on a particular property is to keep the property as a rental, buy a property that will be easy to rent. You must analyze the property using a rental analysis formula, rather than a buy, fix, and sell formula. The rental-analysis formula will ensure that the price you pay for the property will allow you to have a positive cash flow right from the start. This is a key ingredient to being able to keep the property for the long haul. Buying a property and keeping it for several years, only to lose it because you can no longer afford the negative cash flow, does not make sense. Only keep rental properties that provide you a healthy cash flow right from the start!
Many people are afraid of rental properties because of all the landlord horror stories they have heard over the years. Most of those stories are probably true, but they don’t have to be your horror stories. If you “buy right” to start with, a lot of potential problems are already eliminated, and you will have enough cash flow to hire a management company to manage the property. Then you will not be faced with conducting day-to-day interactions with your tenants.
However, even if you hire a management company, you do need to know enough about the rental business that you could manage the properties yourself should it become necessary. Here are a few tips about buying and managing rental properties that can help you get rid of your fear of buy-and-hold properties.
Advantages of Owning Income-Producing Rental Properties
• Generate real-time cash flow you can spend now. You can use this cash flow to live on, and/or invest in additional properties.
• Create long-term wealth. Your tenants pay off your mortgage over time, leaving you with a free-and-clear (no mortgage) property. If you had 10 free-and-clear properties, each bringing in $1,000 per month, could you have financial freedom?
• You get the additional benefit of long-term property-value appreciation. This factor alone can create millionaires. Yes, property values do go up and down with real estate cycles, but the overall trend of property values is always up.
• The property you own is always working for you, no matter what you are doing. Your property doesn’t go on vacation with you; it keeps right on working twenty-four hours per day, seven days per week.
• Provide you with some tax shelter for your rental income. You can depreciate the property over time, creating a paper loss to offset other rental income.
Types of Income-Producing Real Estate
* Residential Rental Property
* Single Family Homes/Condos
* Duplex
* Tri-plex
* Four-plex
* Commercial Rental Property
* Larger multi-unit apartments
* Office buildings
* Retail buildings and strip malls
* Warehouses
* Industrial buildings
* Mixed-use properties
Back to INCOME GENERATING