Friday, September 25, 2009

Keep your cash in your pocket.

Cashflow. Cashflow. Cashflow. What happens when it stops? As Rich Dad Kiyosaki says the minute an asset starts taking money out of your pockets it's no longer an asset. It's an alligator that will eat you.

Not literally. But cash draining out of your pockets, bank accounts and piggy banks every month is every investor's nightmare. Chris Davies' - Two Ways to Stop Bleeding Cash helps you determine how serious the bleeding is and possible ways to staunch it. It's excellent advice.

One thing I've learned and forgot and then learned again is to buy positive cash flow properties. The constant flow of income is crucial to the health of your investment's bankbook and can be used to purchase more assets in the future or improve the assets you have.

If you have negative cash flow on an otherwise good property MAKE SURE your cash reserves are big. You'd be surprised how one big repair or a few months vacancy can eat through your cash reserves.

This is SECOND to trying to make the property cashflow by:

1. Extending amortization - this will lower you monthly mortgage payments
2. Increasing rents
3. Adding value - i.e. rent out the garage or put coin laundry in
4. Convert a garage to rental space - extreme, lots of permits

Whatever tactic you use make sure the cash starts flowing back in and not out of your investment.

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