Real Estate Investment
Only invest in real estate that cash flows. You need to understand the importance of investing for cash flow and how to use it to your advantage. Cash flow is one of the most important things to understand in real estate. By understanding cash flow, you can calculate the value of a property, know what debt it can hold, the CAP rate and more. All this will help you determine if you should do the deal or not. Cash Flow Definition: Total amount of money being transferred into and out of a business – especially affecting liquidity. Cash flow Calculation: Gross Income Less Expenses Equals NOI (Net Operating Income) less Debt Equals Cash Flow. Cash flow is the holy grail of any investment transaction. And, remember when investing look for the following and keep these three things in mind: 1. DLM. Don’t Lose Money! 2. Cash Flow. Invest for cash flow. 3. Long Term. Be in the investment for the long term. And when you are ready to invest you need to do your homework. You need to know your market. You need to know the property and location – and the difference between markets. What is good in one market, is not necessarily good in another. Austin, Texas is a very different market than say Orlando. Pay attention to this. Never invest in a house, duplex or small property. A house traps your equity. In fact, during the market crash of 2008, over ten trillion dollars of equity was wiped out overnight.. A small property cannot generate enough cash flow to cover the debt, your time or generate any kind of cash flow. Do your background on your debt partner – your bank. Besides knowing the terms and what they will do in the deal, you should know what that particular strength of that lending institution is – what’s their specialty? You wouldn’t hire someone without seeing a resume, why would it be any different with your bank? You gotta think long-term. How much will the investment pay you with cash flow? How much will it appreciate? And this is something that you shouldn’t look at in the mindset of months, but in years… Remember to plan your exit. What do you want and need when you sell. Who are you selling to? What do they look like? When you know these answers, it helps you plan the length of investment and how to market your investment for maximum return. These points are general categories. Each one has a tremendous amount of information you need to know and be knowledgeable about so you can make the best investment. Investing in real estate is the single most important financial investment you’ll make in your lifetime after investing in yourself. Cash is continually going down in value. Cash is not KING. Cash sitting in the bank does nothing. Use that cash to own an asset that appreciates in value and produces cash flow.