For over twenty-five years, I’ve been taking the surplus money I’ve earned from my many businesses and has been shopping and studying real estate. In fact, I’ve shopped hundreds of thousands of apartments in that time.
I have over 5,000 units under management and am going on 10,000.
Since I’ve been doing my podcast and weekly webcast Real Estate show, I would say one of the most misunderstood things that people fail to fully grasp is cash flow. I get questions about it all the time.
Cash flow is how you should determine if you buy a property or not. If it doesn’t’ produce cash flow, DON’T BUY IT.
This includes your home.
Cash flow is what will get your property through the tough times, and it will pay you and your investors.
For example, Cardone Capital selects properties that produce at least five to six percent positive cash flow on current operations when starting to search for investment properties.
Then if we like the cash flow, we look at location, value add, any other possibilities and the future – looking at the five and ten-year horizon.
Another question I hear all the time is about how big of property I should look at to invest in.
I have to say that along with cash flow being the most misunderstood topic, the number of units is the most important number in real estate and the most overlooked.
The number of units will determine the cash flow, give you protection with vacancies, determine your exit and allow you to leverage debt on property.
And it’s amazing the amount of people that believe that all debt is bad. All debt is NOT bad. But, only have debt on properties that have positive cash flow.
When discussing debt, there are many, many factors and terms you’ll need to know.
- You need to know LTV – Loan to value
- You’ll need to know LTP – Loan to purchase price
- Or DCR – Debt Cover Ratio
These terms are just the tip of the iceberg. You’ll also need to do research on the financials, the environment of the property, debt, exit strategy and on and on.
The underwriter of the debt will do a lot of research for you and will really be a partner with you on the deal so make sure that you choose your bank or finance institution wisely.
Along with using debt to your advantage, you must have an exit in mind when selecting property. People ask me all the time what I mean by having an exit in mind when I look at a property.
If you plan your exit strategy thoughtfully you’ll make money. We don’t sell our portfolio to people who don’t have money, we are selling to large corporations that have all the money, these big institutions, with half a trillion dollars – they need to buy property. They will be buying real estate no matter if market is down, stays the same or goes up.
So what do I look for when I walk a property? A property, for me to be interested in it, has to have the following:
– I have to love it. It has to feel good at first sight.
– The “logics” need to make sense. Can people see it from the road? Does it have curb appeal? Is it in a convenient location? If people can’t see it, that means I’ll need to spend money on advertising and I need to factor that in to my operating costs.
– And, the money needs to work!
So once I walk a property, I make my selection based on the answers to these questions:
– Do I Love it?
– Does it cash flow?
– Can I get debt on it?
– How do I exit?
There are so many questions in real estate and starting out can be hard. I’ve been doing it for over twenty-five years. I’ve made my share of mistakes but now I know and am doing the big deals. I can help you with how to buy, how to shop, how to find it, following up on the owner about it, selling it, how to negotiate it, how to get debt, how to improve value, get enforced appreciation, determine cash flow, increase cash flow and how to refinance. If you don’t have the time, or don’t want to do it on your own. Invest with me at Cardone Capital. To learn more about real estate, check out my real estate program here.
The bottom line is: find a great partner to do big deals with.
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