Investment criteria for Passive Income

[Emily And Eric Erickson]

When I speak to successful investors, the number one rule for all of them, in fact, its paramount, is SAFETY. 

Everyone has either had a time when their own money wasn't safe or they know of someone who lost it all. I recently talked to some clients who told me of their dad who lost his entire savings because he didn't understand what he was investing in, he just blindly trusted the "neighborhood expert" who he had known for years. 

The most common response I get is that "my principal is protected" and "I won't LOSE money"

Would you agree that SAFETY is number 1? 

The next, which is a close number 2, is security. This has a different meaning for everyone but the overall idea is the same. Either the asset is secure, the investment is low risk and the likelihood of it blowing up is very small. 

Some even put security above safety. Which of these is number 2 for you? 

Where we start to see the separation of people interested in real estate and flashier, hip investments like Bitcoin or IPO's or Shark Tank opportunities is timing. A true, passive income investor is in it for the long haul and want to place their money once without having to check it's value everyday online. Therefore, requirement number 3 is LONG TERM. 

That is the power of real estate. It is a long term asset that demands to be respected. The longer you hold it, the higher the chance it will pay off. If 10 years seems like a long time, than maybe real estate isn't a good match. 

Rule number four is CASH FLOW. This is where the rehabbers, wholesalers, real estate agents and anyone working real estate as a job get off. Where we stop talking about deals and start talking about the numbers, the rents, the expenses, what can we clear EVERY month. When we start talking about how many houses do we have in portfolio and how many more can we add and even better, payoff. 

Positive cash flow makes that all happen and is where rules 1 and 2 come to fruition. Safety and security are created by a strong cash flowing property. For my clients and my partners, my first question is always, what do the numbers tell you? Sales price, interest rate, rent rates are all just variables that need to be accounted for but ultimately it is the cash flow that drives the investment. 

And bonus rule number five, is just that, a bonus. It is TAX BENEFITS. Many look to real estate first for the tax benefits but these ebb and flow by administration and should not be the basis to make a buy decision. But you can guarantee we will take every benefit that is allotted to us. 

Do these 5 rules resonate with you? Did you add any to your criteria? 

Happy Hunting!

[Mike Dymski]

I network with a lot of sophisticated limited partners and they first look for trust, track record, and qualifications.  Debt structure is next in line for many of them as most nonperforming assets historically have been caused by underfunded properties and untimely maturities.  Lastly, they look for intrinsic value and multiple exits.  There are a host of other criteria and months and years of diligence on sponsorship groups.