Think Of It As The Job You Don’t Have To Go To
Here’s the second way to make money in real estate . The first was through building equity by way of the Equity Play.
This one, I call:
The Cashflow Play
You buy a property where you can generate more monthly income than the mortgage payment. The pure Cashflow Play would be to buy a property for cash and bank the entire rent.
When you have a mortgage, you are always simutaneously enjoying the Equity Play since your tenant is buying the property for you again. This is an example where using Other People’s Money works nicely.
If you pay cash you can only build more equity with appreciation. Still, it is a nice place to park money, especially for retirees. It’s such a safe bet, since once again, having a roof over our heads is our basic need right after food. The worst thing that can happen is they don’t pay rent so you don’t get income – if you had a mortgage, when they don’t pay rent, you still pay. Do you suffer from Tenantphobia? Don’t worry, we’ll deal with that later.
If you go with a mortgage, my favorite long term, conservative plan, is to put a third down. You can’t get in a lot of trouble with a house when you have a third down. The other part of my conservative plan is to buy two or three and then you are further protected when there is a vacancy, since the cashflow on the rented ones will cover the vacancy keeping you from being drained.
I have a less conservative plan too. If you are still working and don’t need the cashflow, you can use it to either pay down the mortgage or build for the next down payment. Add some regular monthly savings and you can make huge progress to a secure future. If you don’t understand the magic of compounded interest, you have to read about it.
I have a hair-on-fire plan too, but it only works when the market is moving briskly. It’s a lot of fun and fast when it goes well. Unfortunately when it doesn’t go well it’s an experience you don’t want. So we’ll talk about that next time the market is brisk.
I think because of the volality in the market, a lot of people think real estate isn’t a good investment right now. An attitude like that blinds a person to some incredible opportunities. When society gets nervous like it is now, it’s difficult not to get caught up in it. Opportunities are for the people that can step back a little and get some perspective. We are certainly at a low so remember the addage Buy Low, Sell High? We are at the Buy Low part.