Wednesday, October 21, 2009

Keep investment real estate cash flow positive.

In a recession it's easy to see that buying for cash flow is the only way to go. In a hot market everyone banks on equity. Which can be a very tenuous thing.

The most important thing is how much cash flow you are getting at different rates. We are seeing the lowest interest rates in history but when they rise how will your investment perform. Will it still cash flow at 6% interest? How about when vacancy rates increase and you get a drop in rents?

This is called stress testing your property. Although many people see cash flow at one point only - today's rates and today's rents the income will fluctuate leading to some unfortunate surprises.

What to do:

1. Do your property's income and expense numbers at a range of rates and of rents
2. Know the scenario your property will and won't cash flow
3. Have a good reserve fund to cover the skinny times.

You don't retire or get rich by owning property that takes money out of your pocket every month.

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