The Attraction of High Cash Flow and Cheap Financing

More than any other investment, real estate has created more wealth than any other vehicle. If you purchase the property at the right price and have your renters pay down the investment you will have a large nest egg one day.

It’s not that hard and yet it’s not that easy. Being in the real estate business for a long time, I seen many an investor purchase a bad property in the wrong location or take too much risk with their financing only to fall short and fail.

Many investors fail because they bought the wrong property in the wrong neighborhood because it was cheap. That led to them getting bad tenants who destroyed the house and then left in the mid of the night owing two months rent. I know this because my father owned lots of them when I was growing up.  

These properties usually lie in low income areas and the tenants are usually receiving rent subsidies or section 8 tenants. Many investors are drawn to the rental investments because the lure of the cash flow. You soon realize that “everything that shines is not gold” and every month it’s a different hole being poked in your cash flow like maintenance problems, high turnover. Finding a good tenant in a bad area is not easy and takes time. As a result, investors sometimes panic thinking about paying the mortgage, insurance, utilities and hoping the property doesn’t get broken into while it is vacant. As a result, they fill it as soon as they can placing a subpar renter in the property. This creates a never ending cycle of turnover in your property which is exhausting for a landlord.

When obtaining financing, some investors are lured to low variable interests rates to finance the deal. What was a good deal becomes disasters when interest rates starting rising and the investor can’t raise rent to cover the increased mortgage and can’t refinance the deal.

So where should an investor look to buy and investment property? Great investment areas are where the population is rising not shrinking.   Areas where jobs are being created and where young singles or couples are moving to purchase starter homes. The best opportunities are usually areas that on the brink of being revitalized. The growth and revitalization will create great opportunities for asset appreciation and rent increases over the next 10 years or so. Finding these investment opportunities is not always easy and takes patients to find the right opportunity. But the rewards and goals are well worth it. Obtaining great wealth in real estate doesn’t happen overnight it takes time.

Article originally posted on Cash2seller.com