As A Real Estate Investor Ya Gotta Pick — How Ya Gonna Roll?
Posted @ 10:27 pm - Filed under Real Estate Investing, Purposeful Planning, Cash Flow, Buying Income Property, Depreciation, Capital Growth, BawldGuy Axiom
Warning: The pictures used in this post have no connection whatsoever to the topic at hand. Any connection therefore is either accidental, or more likely, a result of your incredibly fertile imagination.
You have $100,000 to invest in income property. You aren’t bound by geography, and are currently interested in growth, not cash flow. For the next 10 years you have one goal: Capital growth. How should you approach this? What strategy will you employ? Are you comfortable with low down payments? What is a low down payment to you? Are you willing to sacrifice some growth for a perception of increased safety? The price range in the area on which you’ve settled is $200-300,000. Let’s take a look at your options.
- You can put 20-25% down and play it relatively safely. This results in a maximum of two purchases.
- You can put $0 down, creating negative cash flow, but having a massive cash reserve. Think NO.
- You can put 10% down, break-evenish, buy three properties, and have $25,000 in reserves.
If you stick to the lowest price of the range, (Say $210,000) 20% down plus closing costs will get you two deals with about $8,000 left over. With that much down you should have no problem with negative cash flow, though it’s certainly no guarantee. You’ll own props worth $420,000. Good job.
If you put $0 down, and you’re my client, you have such a large ordinary income with such humungous cash reserves that any monthly operating loss would go almost unnoticed by you - until your wife came storming in with the bank statement. You could win big with this strategy, very big. Or a one year blip on the radar could send you back to the “No Money Down” course you bought to see just where you went wrong. In my world only professionals use this and only with much thought, and in specially designed circumstances.
BawldGuy Axiom: The next client who invests with 0% down, with my blessing, will be the first. And there won’t be a first, ‘cuz that’s the way I roll.
If you opt for the 10% down scenario and stick to the lower prices (Again $210,000) you end up with three properties, and about $25,000 in the bank as cash reserve. Your props will not cash flow, but they will for the most part pay for themselves. Once the $6-9k in tax savings from well over $20,000 of depreciation is factored in the cash flow is positive indeed. You’ll own properties worth $630,000. Way good job. 
Though the above was taken directly from BawldGuy files, the size of cash reserves (Sominex Account) is different for each client. The common denominator of course, is our policy, which is to error on the side of too generous. Works a lot mo betta that way. Purposeful Planning is just that. Planning with a Purpose is one of the most powerful forces available to us. One of the pleasures accorded me in this business is seeing Plans come together under all kinds of circumstances — both personal and market related.
I’d be honored if you’d allow me to talk with you about your circumstances. Let’s map out what your retirement should look like. All it takes is a phone call or the use of the Contact BawldGuy thingy. Before ya know it, you’ll be hearin’, “This is Jeff”. You’ll know what to say next.
This entry was posted on Tuesday, August 5th, 2008 at 10:27 pm and is filed under Real Estate Investing, Purposeful Planning, Cash Flow, Buying Income Property, Depreciation, Capital Growth, BawldGuy Axiom. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.