Achieving
Positive Cash Flow from Your Real Estate
Investments
by Jeanette Joy Fisher
and Robert S. Kramarz
Even if you’re counting
on rising property values to eventually make a profit on an
investment property, it’s far more desirable to have a positive cash
flow each month. If you’re losing money on a property every month,
it may not take long until your future profits will have been lost.
Owning investment property is much more enjoyable if you’re making
money along the way.
Here are a couple of
ideas for keeping your investment property cash flow in the
black:
If you don’t already own
your own home, your first goal should be to live in your first
"investment" property. Interest rates and down payments are
considerably lower for a primary residence, and you won’t have to
deal with finding and managing tenants or absorbing the cost of an
occasional vacancy.
Once you begin looking
for your first "official" investment property, you’ll want to
concentrate your search for less expensive homes, because they’re
generally easier to rent for a profit than higher cost houses. You
can also purchase two or three smaller homes for about the same cost
as one larger one, thus giving you an even greater cash
flow.
One of the easiest ways
to achieve a positive cash flow is by obtaining a loan with a very
low interest rate for the first several years. One example is known
as a “payment option” loan, although these types of loans may not be
available in all states.
These loans allow you to
set up an optional minimum payment, which can result in low monthly
payments, often for the first five years. During that period, your
minimum payment will increase by a small amount every year, although
it’s usually no more than a factor of 1.075. During the minimum
payment period, your interest will still continue to accrue at
whatever rate you’ve agreed on (such as 4.5%), but the interest that
your payments don’t cover will be deferred. At the end of the first
five years, that deferred interest is then added on to the loan, and
the loan becomes a standard variable rate loan. Normally, that’s not
a problem, however, because the property’s value probably will have
increased enough to cover the deferred interest.
Another way to minimize
monthly interest payments is through an interest-only loan. The
period of most such loans is usually 5-10 years, during which time,
you’ll be paying only the interest on the loan. To make this type of
loan work most effectively, it’s best to sell or refinance the
property by the end of loan period.
There are many other ways
to realize a positive cash flow on your investment properties,
depending upon the financing options available in your area of the
country. But regardless of where you live, it’s always desirable to
have your investment properties pay for themselves, and can move you
a long way toward your goal of financial success as a real estate
investor.
(c) Copyright 2005,
Jeanette J. Fisher and Robert S. Kramarz. All rights
reserved.
Jeanette Fisher,
Design Psychology Professor, is the author of "Doghouse to
Dollhouse for Dollars: Using Design Psychology to Increase Real
Estate Profits," the only book to reveal interior design
secrets on how to make top dollar investing in real estate. For real
estate and interior design psychology books, articles, tips, and
newsletters: http://www.doghousetodollhousefordollars.com.
Robert S. Kramarz
is a loan officer for a major loan brokerage. He has over 20
years experience in finance and business management and comes from a
family a long background in real estate investing and banking.
He specializes in providing financing for purchase of investment
real estate. He can be reached by email at MrFunding@22cv.com. Further information is
available at the website http://www.sweetloan.info.
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