Investment properties! A risk to take or run from?

[Tamika Mays]

I am seriously considering buying my first investment property in W.Babylon, NY. Everyone around me says I am out of mind to ever consider renters when, as a cop for 14 yrs I do know the horrors of them. However I think with the right tenants it would a business decision I would not regret....or would I? Just a little advise please!

[Jon Holdman]

Well, you have a good background for reading people and for dealing with conflict. But you need to be careful not to treat tenants like perps. Screen as best you can and realize that stuff happens and you can't always get it right.

The numbers are really important. The number one thing, IMHO, is cash flow. Often new investors are told "cash flow = rent - PITI". Not even close. You have a lot more expenses than just taxes and insurance. That's probably the number one error. Second is that you need cash to be in this business. Cash for down payments, cash reserves for after you own the property. A text message from a tenant can turn into a $6000 bill, like it did for me last summer. That's infrequent, but it still happens. More commonly such a message means a $300 bill or no rent next month or other more minor issues. Cash is the cushion that gets you through these bumps.

So, give us the numbers on your prospective purchase.