All too often, investors who are just getting started in the real estate market tend to focus so much on the techniques for investment that they lose sight of the most important issues – recognizing a great deal. Being able to recognize a great deal when you see it takes education, research and especially experience.
Getting The Cash To Flow
The first thing you need to consider before you invest in a property is whether or not the property will provide the desired cash flow. It depends on a number of different factors like local rental market strength, financing interest rates as well as the size of the down payment. Cash flow also depends on whether you invest in a multi-unit structure or a single-family home. All of these points must be considered as you determine if you will be able to earn an income from your investment.
All About Leverage
Leverage is crucial when it comes to becoming a successful investor in the real estate market. This is because the lower the amount of money that you put down initially on each investment property, the more money you will have to invest in additional properties. As the properties increase in value, the rate of return on your investment will also increase. On the other hand, if the property decreases in value and there is a lot of debt involved with the property, then your cash flow is certain to be negative.
Keep in mind that the real estate market works in cycles. Therefore, properties that bring in a negative cash flow will only do so for a short time, and you will be able to manage if you have a cash reserve or other income. Investing with no money down is appealing to high-leverage investors; however, it is advisable that you proceed with caution. As a long-term player, leverage tends to work for you if the markets appreciate over time.
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I am really trying to understand why more people do not invest in property. What holds them back and why do they procrastinate? How do we as property investment bloggers move people from owner occupiers to investors? Do they not like the risk of having to research and select a property? Do they not like leverage?
Can the first time property investors let us know what they are thinking.
Thanks
Greg Brierley
Hi Sean,
I think that before you can see the deals; you have to learn everything you can. I think that by educating yourself you will start to recognise a good thing when you see it. And you’ll get better at it the more experience you get.
Also, I’m pretty sure that this is an area that it would be great to have a mentor to run the numbers past.
Great article Sean. It does all come down to cash flow when you are targeting the rental market. Why should you pay for someone else to live in your house? Because of the capital growth potential perhaps. Finding positive cash flow properties may be the answer. Cash flow and capital growth.