Real estate investors have become a cliché during the past 3-4 years. It seems like everyone you talk to is a real estate investor or knows someone who is. What makes real estate investing so popular? In the past few years you could do no wrong with real estate. With profits in the five and six figure ranges, one profitable real estate deal would exceed most people’s yearly pay.

On Risk and Effort
However with great reward comes great risk. That risk can be mitigated and controlled if you are investing correctly. Unlike paper assets, buying real estate is not a simple process. You cannot just log into your brokerage account and point and click. It also requires additional work, sweat equity or even more money.

How You Make Money
You make money in two ways, cashflow or capital gains. This is the same as buying high yield stocks or buy low and sell high. When it comes down to the math, real estate investing is pretty easy.

For cashflow, buy property in which the rent will cover all your monthly expenses (mortgage, taxes, insurance, management, HOA, maintenance and repairs). For capital gains, buy low enough to resell at a price that covers all your expenses (holding costs, realtor commissions, closing costs and repairs). Purchased correctly you can get both cashflow and capital gains with your investment property.

Welcome aboard, Ken.

I’ve read the The Real Estate Coach (need to get that review up). They use a wheel to describe their REI approach. The spokes of the wheel are cash-flow generating properties, like rental homes and quick flips. The center of the wheel is a “negatively-geared” property bought for appreciation. The analogy is decent and gets home the idea of using cash-flow-generating deals to fund larger real estate deals.

If you’re not flush with cash, you’re going to have to raise money somehow: through other work, by flipping homes, or by buying “positively-geared” rental properties. Let me focus on this third one for now.

The three biggest concerns I hear from people worried about investing in rental properties is:
1) It will take too much of my time to manage the property.
2) The repairs I’ll need to make to the home (from unruly renters) will overshadow any profit I could make.
3) Okay, Jason. So I could hire a property manager and get renters insurance to cover 1&2, but then will I still be able to make a profit on the rental?

So that’s my question I guess. Is it possible to still have positive cash-flow on a property after hiring a manager and getting renters’ insurance? I’m sure a good answer is “maybe”. One has to find the deals in their market.

Books and REI pundits make it sound easy as cakes. I’m interested to here from the real guys like yourself how easy or difficult it is to find these deals.

Jason,
First, you can have positive cashflow on any property. All it takes to make a property cashflow is make a bigger downpayment. If you pay all cash for the whole property, it will cashflow. The question is, how much downpayment are you willing to pay to get the postive cashflow? Some people will consider 20% and positive cashflow good. Others want positive cashflow with 0% down.

You can find positive cashflow with 0% down in many many areas of the US. The trade off may be that there is no or little appreciation.

I’ll put some real examples in the coming days on my next articles.

Ken, welcome to the team. What do you think about going the Tenant in Common approach and fractional ownership of large properties? I am looking at a Class A office space TIC in Atlanta.

“All it takes to make a property cashflow positive is to make a bigger downpayment. ”

That is like saying “All it takes to become an olympic weightlifter is to ignore the first 500lbs”.

If you have to put a big downpayment on a house to make it cash flow positive, it is not the right house to buy for cash flow. Especially when that same money could be in a CD earning 5% with almost no risk of capital loss.

Phil, I here people always say “you can’t cashflow here or there”. These people need to define what they mean. Just saying that you can’t cashflow is never true because you can always cashflow. The question is what are your parameters?

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[…] Today, my first article was published on Investorgeeks.com.  It’s basically an introduction article which just sets up future articles that I’m going to write for them.  Investorgeeks.com has been weighted towards the stocks and paper asset side so I hope my real estate articles will help them become more balanced. […]