Make the deal

Prepare A Cash Budget?

How much cash do you have to work with? Prepare a list of all your resources so that you know what you can and cannot do when you find a deal. You do not need any cash, but you do need to know where you can get cash when you need it. List all the places that you can get cash, credit cards, credit union lines of credit, home equity credit line, relatives, IRA's, savings, cash value of insurance policies, and possible investment partners. Try to increase your credit card limits wherever you can.

Do not borrow any money until you have a deal (just keep $500 earnest money on hand). Money tends to disappear if you have it readily available. Borrowing money to make money is good business; borrowing money to spend, is wasted interest expense.

What Is A Good Deal?

The price of a property is not important by itself. The numbers have to work. By that, I mean that the monthly rent cash income generated by the property must be sufficient to cover the mortgage payments, expenses, taxes, and insurance and still provide a reasonable return on the cash invested.

As you are out looking at homes for sale, take notes. What is the asking price, taxes, insurance, utility cost and estimate any repair cost needed to get the house ready to rent.

With this information you can determine how much monthly cash flow you would have if you purchased a particular property with different down payments, different purchase prices, and rented it at different rental rates. Do this exercise for the different sides of town and the different types of rentals, such as apartments, two bedroom units, and three bedroom units. What you want to get a feel for, is if a three-bedroom house rents for $750 per month what is the most you can pay for a property that produces that amount of rental income, and still have for a positive cash flow.

When you find a property that will provide a positive cash flow with a down payment that you can afford, you have found a good deal. The rest of your profits will come from tax savings, equity build up as the mortgage is paid down, appreciation, and any increase in value you can add by sprucing up the place, as well as from future rent increases.
* When selling to cash out, I usually use a real estate agent. The reason is that the agent will help the buyer find financing to cash me out.

* When selling on an owner carry mortgage or contract for deed, I usually do the selling myself. As I am providing the financing with a low down payment, buyers are very easy to find and I can get a little more than appraised value with no commissions to pay.

Make The Deal.

If you are doing the things outlined on this web site, a deal will come along. When it does, do not talk it to death. Do not procrastinate. Do not play the "what ifs" game until the deal goes away. ACT! and act now. You have to just-do it. Get that first deal under your belt. Get rid of the fear. Just do it!

The truth is, you have very little to lose and lots to gain. If you have been doing all I suggest, you will know the market, the rental rates, the bad areas of town - (even they can be good) - and you have the numbers fairly well worked out. That makes the risk a calculated one, and that is the best you can expect. Even if you pay too much, time will fix it as the rental rates increase over time and as the mortgage gets paid down. A negative cash flow will turn in to a positive cash flow.

The main thing is make that first deal. Even if it does not do very well it gets you started. My first deal was sold a year after I bought it just about a break even. But I got started and that was the scary part.

"you can't hit home runs unless you step up to the plate" Unknown