The number one rule in investing or business is obtain positive cash flow. Everyone knows that, don’t they? But many beginning investors forget a rule that may rank ABOVE that one, especially if you’re planning to invest in real estate over the long haul, and that is the importance of maintaining a CASH RESERVE.

Even some of America’s largest businesses have forgotten about the importance of having a healthy cash reserve. And most of those businesses are either longer with us or have emerged from bankruptcy after having learned a painful lesson. (The most recent example of the latter took place when the once-venerable retail Goliath K-Mart almost disappeared.)

It goes without saying that no business or individual investor can go on indefinitely with a negative cash flow. But there are times when a particular piece of property only needs some time before the market will catch up to it, and when that happens, an investor will need to feed that property until the circumstances are right for changing that red ink to black - and that means calling on cash reserves.

Not having enough cash reserves also means that an investor can’t make the repairs that will be necessary to improve the overall value of the property, both now and in the future. The axiom is simple: if you have the cash reserves to weather the hard times at the beginning, you’ll eventually profit from your investment, and if you don’t, you won’t.

There are times when a property will need to be held for months (or even years, if you buy the wrong property!) before it will finally recoup its initial investment, and if you don’t have the cash reserves to ensure that you’ll be able to hang on to the piece of property, you’ll end up having to sell, or worse yet, having the property foreclosed upon. In either case, all the time, money, effort, and stress you’ve invested in that property will go up in smoke - all because you didn’t begin the venture with enough cash reserves to guarantee your success.

If it’s a rental property, having a strong cash reserve can allow you to make the property appealing to a better class of clientele. You can hold out for better qualified tenants, and you can withstand periods of vacancy without having to panic. You also won’t have to be held hostage by poor tenants who threaten to vacate, for fear that the property will sit vacant for some time. All those situations can be avoided by maintaining a strong cash reserve.

You ultimately need to make money on your investment, of course, but there will be a variety of situations that will arise from time to time that will make you glad you also followed the other top rule of real estate investment, which is to maintain a CASH RESERVE.

Copyright © Jeanette J. Fisher

Join our FREE Teleseminar “How to Get Started Investing in Real Estate“. Get expert advice for beginning real estate investors from Jeanette Fisher. More real estate investing tips http://doghousetodollhouse.com/

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Have you tried your luck at foreign exchange, bonds and stocks, but to no avail? Are you perplexed as to what to put your money on? Consider real estate investment, as several people have turned into millionaires through shrewd investments in real estate. By means of this article, we will elaborate four common real estate investing tips, which would help you realize significant profits via property investment. Be it a newbie or a seasoned investor, these tips are sure to be of help to one and all alike.

Real estate investing tip #1 - Perhaps the most lucrative investment technique is to buy a run down property, fix it up, and then sell at a significant profit. Since the property is shabby, you might be able to acquire it for a low price. However, you must ensure that the cost incurred in the repair is restricted to a minimum so as to guarantee a profit. You can do this by making sure that the basic amenities are in place, without going overboard with the renovation. Such a buy-fix-sell scenario demands excellent property valuation skills and a rather frugal attitude while renovating.

Real estate investing tip #2 - Purchase properties that are about to face a foreclosure. A property typically faces foreclosure when the homeowner is financially distressed and is unable to repay the loan. Another common reason for foreclosures is dissolution of marriage with the abandonment of the house by either of the couple. Such a distressed property can be bagged for a low price by an articulate investor, who can convince the homeowner to sell the property prior to the foreclosure sale. Then the investor may sell the newly bought property at a significant gain.

Real estate investing tip #3 - Locality is a paramount aspect in real estate investment. Two similarly built houses may have varying valuations if they are situated in different locations. So, you must be abreast of the hot locations in your concerned region. If you are just about to start you real estate venture, I suggest you look for places that offer high rentals. Purchasing a property in such a region would result in a healthy monthly source of income.

Real estate investing tip #4 - Ever heard of Warren Buffett? The acclaimed stock investor made billions through a contrarian’s approach to stock investment. You may take a contrarian’s view to real estate investment as well. For instance, you may buy a property when it is out of favor with the majority of investors. That is, acting in opposition to the majority opinion. A contrarian’s approach is not a sure shot path to real estate success. Moreover, it’s complicated and therefore beginners are advised against it.

All in all, there are several avenues that you could realize profit in real estate. However, it is imperative that you be prepared to put in extra work hours, especially at the beginning of your real estate career. Putting your shoulder to the wheel is what’s required to make substantial profits in real estate.

Copyright © 2006 Joel Teo. All rights reserved. (You may publish this article in its entirety with the following author’s information with live links only.)

Joel Teo writes about making money with
Property Investment. His site,
http://www.RealEstateInvestment101.info provides a wealth of informative articles & Tips.

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When investing in real estate, it is highly desirable to achieve positive cash flow on a month-to-month basis. This is true even if you are counting on property value appreciation to supply the bulk of your desired return on investment. If you are losing money month-to-month, you may find all of your eventual profits eaten up by the monthly drain on your income. This will be particularly true if there is a downturn in property values for a few years.

Worse yet, you may tire of the monthly outflow of cash, and you may give up on the property before you have a chance to achieve the desired appreciation. You will be much more comfortable waiting for your property to appreciate if you are making at least some money every month, or at least not losing money every month.

One exception to this rule is when you are purchasing a property to fix it up and flip it. While you are fixing it up, you may not be able to rent it out at all (depending on how extensive the work is) or you may have to rent it at reduced rates. The negative cash flow is just part of the expense of rehabilitating the property and will be quickly reversed by your profits upon sale of the property. This assumes that you have properly calculated all of your costs and you have purchased the right property.

In other cases, we think it is wise to achieve positive cash flow, Here are some tricks and ideas involving the financing of the property:

Lower cost properties are generally easier to rent at a profit than higher cost properties. It therefore makes sense to purchase two or three smaller homes than one larger one, if your intention is to rent them out.

If you don’t already own your own home, consider living in the first “investment” property you purchase. (This assumes it is convenient to live in the area where you want to invest.) Interest rates and down payments are lower for a primary residence. Also, you don’t have to deal with the problems of finding and managing tenants, paying for any damage they may cause, and absorbing the cost of an occasional vacancy. This will also give you very valuable experience in dealing with real estate.

If you live in a home for only two out of five years, it probably qualifies as a primary residence from the point of view of the IRS, and therefore appreciation of the property value is probably tax free up to a certain level (for federal income tax). Check with your tax advisor for the exact rules. So one strategy is to purchase a new investment property every couple of years, live in it for the first couple of years, then purchase and move into another property. Rent out the first one while it continues to appreciate. Since you live in each new house for the first few years, you can get a loan at primary residence rates, and you will also have the tax benefits of a primary residence, yet actually own several homes at the same time.

A “second home” (that is, a vacation home) also qualifies for preferential interest rates. You have to be able to state that you live there a portion of each year and you cannot claim rental of the property as income. There are other requirements such as location of the property. If this fits, consider making one of your investment properties a second home. Do check with your lender to be sure you know all the requirements for a home to be considered a second home before you go out and buy one. Note that with a second home, you cannot use any rents your charge as income. You will have to qualify for the loan based upon your income without considering any rental income from the second home.

The easiest and best way to achieve positive cash flow is to get a loan with a ridiculously low interest rate for the first several years. Nowadays, a number of lenders offer “payment option” loans. These loans offer an optional minimum payment that starts with a rate between 1% and 2%, which results in very low monthly payments. As a general rule, these low rates last for about 5 years. During this period, the minimum payment increases year-to-year by a very small amount, usually no more than a factor of 1.075 per year. If you take advantage of the minimum payment, you are actually charged a normal variable interest rate (such as about 4.5% today), but the interest you are not paying is deferred. At the end of the first five years, the interest you have not paid is added to the loan amount, increasing the loan amount by a relatively small amount. Ask your loan officer to calculate the exact amount. At that time, the loan then becomes a standard variable rate loan. This is not a problem because you can assume that property value appreciation will be far larger than the deferred interest. With this plan, you should plan to refinance or sell the property within 5 years, which is commonly not a problem. (Such loans may not be available in all states.)

Another way to minimize monthly interest payments is to obtain an interest-only loan. The interest-only period of most loans is usually 5 to 10 years. You should plan on selling or refinancing by the end of this period.

The interest rate you pay and your eligibility for special loans such as a “payment option” loan is subject to your credit rating, your employment status and the financial reserves (savings) you have on hand. Do everything you can to get your credit scores above average (above 640 and preferably above 680). Make sure you are steadily employed in one profession or engaged in your own business or profession for a period of at least one year steadily, and preferably two, and make sure you can prove it. Extended gaps in employment can make qualifying for a low interest loan much more difficult. Lastly, save up enough to make at least a 10% down payment. This will open the door to better rates.

Payment option loans as described above generally require 20% to 25% down payments. A down payment of 20% or more will also eliminate the need to pay for mortgage insurance. Mortgage insurance is charged by all lenders for loans with less than 20% down payment, even if it is not explicitly stated as such. The extra expense may be built into the rate (as is the case with so-called “sub-prime” or high risk loans), rather than stated separately, but it is there. Mortgage insurance covers the lender against the risk of a default, when there is not enough extra value in the property to pay off the loan and the expenses of foreclosure.

The above tips and ideas may get you started toward positive cash flow in your real estate investments. There are many other ideas that may apply to your particular circumstances or where you live or where you want to invest, and not all of the above ideas may apply to you. We are writing from the U.S. Outside of the U.S., laws and loan programs may be completely different than the above. In any case, please ask your loan officer or financial advisor for his or her opinion and ideas to verify and add to the above.

(c) Copyright 2004, Jeanette J. Fisher and Robert S. Kramarz. All rights reserved.

Jeanette Fisher, Design Psychology Professor, is the author of “Doghouse to Dollhouse for Dollars: Using Design Psychology to Increase Real Estate Profits,” the only book to reveal interior design secrets on how to make top dollar investing in real estate. For real estate and interior design psychology books, articles, tips, and newsletters: http://www.doghousetodollhousefordollars.com.

Robert S. Kramarz is a loan officer for a major loan brokerage. He has over 20 years experience in finance and business management and comes from a family a long background in real estate investing and banking. He specializes in providing financing for purchase of investment real estate. He can be reached by email at MrFunding@22cv.com. Further information is available at the website http://www.sweetloan.info.

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You’ve heard the stories about people making millions in real estate, so is it really any surprise why so many people view real estate as a serious investment vehicle? Real Estate investing offers more security than the stock market and provides returns of at least equal magnitude, coupled with attractive tax benefits. Apart from that it really does sounds cool to be ‘in real estate’. Let’s face it, anybody can trade stocks from their phone or home computer. Real estate investment, however, is a real head turner whenever it comes to tangible assets.

One of the greatest challenges in real estate investment is finding the money up front to acquire your first real estate investment property. Surprisingly, though, this is not your biggest obstacle. That’s right! Finding the cash upfront is NOT the greatest obstacle to real estate investment. Facts are, hardly anyone who buys real estate has the money in their personal account to pay for it. And that’s where your banker comes in. Let’s face it, do you know anyone who owns their own home? I mean really owns it? Of course you’ll know lots of people who have a property in their name they call their own. Take a look, however, into their personal finances and soon you’ll discover who really owns their property. It’s the bank, of course. Remember, your liability is your bank manager’s asset. So if these people can use the bank’s money to buy a property, then why can’t you?

I know ‘owning’ your own home may sound like the obvious way to go, but if you really want to get on the first rung of the real estate investment ladder, then this is the best way to get started in real estate investment. Why then is this first step completely overlooked by many people? Just take a look at how many are still renting instead of buying property. Now of course the relationship between rented and private housing prices varies from country to country and even from area to area. But wherever you go you will still find many people renting, simply because in their minds “they don’t have enough money to buy a house.” In reality, though, it would be much cheaper for them to buy!

When you rent, you are more or less throwing good money down the drain. Of course you have the pleasure of a home, but from the point of view of real estate investing, you are not actually building for the long term. Remember, every dollar you spend on rent is a dollar you will never see again. Whereas if you own your own home, instead of paying rent you are paying your mortgage. And even though there’s such a variance in terms of what mortgage deals are on offer across the market, the basics of mortgages are more or less the same. Every month you make a payment which consists of two parts: interest and principle. You might compare the interest part to rent. These dollars are gone once they’re paid, however, the part of the payment that goes to the principle is money you keep. Every dollar that is used to pay off the principal is a dollar in YOUR own pocket.

So if you’re thinking about getting started in real estate and you don’t yet ‘own’ your own home, now’s the time to take your first step towards building capital with your own real estate investment. Financially, it makes sense because the real estate investment vehicle also supplies greater opportunity for building your net worth. Simply put, when real estate prices go up, so does the value of property. Conversely, the money you owe at the bank — your mortgage — remains the same. Compare this to the financial reality of those people who continue paying rent. Their net worth remains the same. However, their landlord’s net worth is doing very nicely, thank you, and their landlord is happy for the status quo to continue. So if you would rather build your own capital, then consider buying your own home!

Many home owners accumulate more money through appreciation of their property assets than they do working a full time job. Be warned, though, this is not always the case. As you know, the price of real estate can go down as well as up. If for some reason you have to sell your home in a down market, it can be a costly venture. In fact, you wouldn’t be the first to end up with a house worth considerably less than the mortgage resting on it. So make sure you don’t overstretch yourself financially by taking on too much. In the long run real estate prices have risen, but in any cycle there are down periods. By staying within your limits and being patient, you’ll be able to sit tight through the hard times yet profit from the long term upwards trend in real estate investing.

One of the biggest challenges in Real Estate Investing is finding the money up front to acquire your first real estate investment property. Insightful article demonstrates how to get started.

Copyright © Andy Ballentine & Loanstarmtg.com. All Rights Reserved. Please note: This Resource Box MUST be included with article.

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REIT’s are real estate investment trusts. These trusts are similar to mutual funds but are restricted in their portfolio holdings to only the real estate market. The real estate holdings can include land, industrial buildings, shopping malls, commercial properties, office buildings, entertainment properties, healthcare facilities, financial properties, public storage facilities or residential housing. Investment gains occur when the real estate holdings appreciate in value and when the REIT collects rent or receives mortgage interest. Investors purchase shares of the REIT, thereby owning a portion of the real estate assets within the investment trust.

The “REIT” Legislation for the Investor

In 1960 Congress passed legislation that provided small investors the opportunity to invest in shares of large, income-producing real estate. This legislation provided for the development of real estate investment trusts. Federal regulations governing REIT’s favor investors in four key areas. First, REIT’s must pay at least 90 percent of their annual taxable income as dividends to their stockholders. Investors love dividends. Second, 75 percent of the REIT’s assets must be in real estate. Investors love tangible assets backing their investments. Third, REIT’s must derive at least 75 percent of their income from rent or mortgage interest. Investors adore companies with a steady, monthly cash flow. Lastly, some REIT’s qualify for the new 15 percent capital gains taxation rules. All investors want fewer taxes.

REIT Market Segment Strategy

With nearly 300 real estate investment trusts to choose from, investors may select the REIT that matches their investment strategy. REIT’s provide investment flexibility by allowing investors to select a REIT that focuses on a particular region or market sector. For example, an investor may chose a REIT that invests the majority of its holdings in a particular region where real estate prices may be increasing rapidly. Another investor may select a healthcare REIT, believing that rents for healthcare facilities will boom in the near future.

Types of REIT’s

Most REIT’s invest in the following market sectorslodging, resorts, industrial, office, health care, retail, public storage, entertainment, mortgage and residential. REIT’s are traded on the NYSE, NASDAQ, ASE, OTC and PSE. All of the current top ten REIT’s are traded on the NYSE. There are some private REIT’s that are not publicly traded.

Top Ten REIT’s

REIT Name REIT Symbol Market Sector
Apartment Investment AIV Apartments
Archstone Smith ASN Communities
Boston Properties BXP Office
Equity Office Properties EOP Office
Equity Residential EQR Apartments
Kimco Reality KIM Retail
Plum Creek Timber PCL Timber
ProLogis PLD Industrial
Public Storage PSA Public Storage
Simon Property Group SPG Retail

REIT Investment Advantages

Medium Liquidity A REIT is much more liquid than actual real estate. Similar to mutual fund investments, buying and selling REIT’s occurs at the end of the trading day at the last closing price. An investor may instruct their broker to buy the REIT in the morning, but must wait to see what the cost of each individual share is at the end of the trading day.
High DividendsExpect high dividends with a REIT. The average REIT provides a dividend of 6 to 8 percent. Most REIT’s pay their dividends quarterly. Dividends are not guaranteed.
Low RiskReal estate investments have an excellent track record for appreciating in value. Most investors consider real estate as a very safe long-term investment. REIT’s suffer less price reaction to corrections in the stock market than most stocks but are subject to rent and value depreciation. Since at least 75 percent of the investment is in tangible assetsland and buildingsinvestors in REIT’s enjoy more security. Many REIT’s have tenants with long-term lease contracts that continue to produce income when the economy suffers a downturn. Rent is one of the payments that most renters and lessors meet each month even during the most difficult times in order to avoid eviction.
Market SelectivityREIT’s allow investors the flexibility to choose a REIT by region or market sector. This enables investors to invest in a sector that may be experiencing sharp income growth from increasing rents or to invest in a region that may be experiencing dramatic appreciation of real estate values.
Tax EfficiencySince REIT’s must pass at least 90 percent of their income to the stockholders, they enjoy a huge tax break. The dividend income paid to investors of some REIT’s also qualify for the new, lower 15 percent capital gains tax.
DRIP OptionSome REIT’s offer a dividend reinvestment plan (DRIP) which eliminates or minimizes the transaction fees for reinvesting dividends.

REIT Investment Disadvantages

Cyclical Nature of Real EstateDownturns in the real estate market can decrease the value of a REIT investment. For the short-term investor this can have a significant impact.
Slow GrowthThe average REIT grows at a slow pace. Since government regulations require distribution of most of a REIT’s earnings to shareholders as dividends, the REIT is unable to reinvest earnings to spur growth. In fact, short-term annual earnings growth falls below the S&P 500 index. Long-term growth shows slightly higher returns than the S&P 500.

REIT Investment Summary-Risk vs. Reward

The risk associated with investing in a REIT is low. Real estate usually appreciates in value. However, real estate is highly subject to rent and value depreciation. The expected reward for a REIT investment is usually realized after the long-term. REIT’s offer stable attractive dividends and modest long-term capital appreciation. Over the past ten years, REIT’s averaged over 14 percent gains.

Copyright 2006 Barry Preusz

More information about REIT investing or real estate investments can be found at http://www.investing-trading-books.com/index.html.

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Real estate investing expertise can certainly accommodate the luxury home market. In some ways, the upper end of the housing marketplace produces easier success than the lower end. More skill, however, is required to sell the luxury home. But more important, supply and demand is critical in selling the luxury home. To get “stuck” with any home that does not sell easily can be treacherous, but sluggish sales for the luxury home can be disastrous.

“Cheap homes” are at the other end of the housing spectrum. “Cheap homes” abound everywhere. Every community in the country has cheap homes, because the predominance of the population lives in inexpensive housing. More people comprise the middle and low income bracket than the high income bracket.

“Cheap homes” is a very ambiguous term that is relative to an area. For example, “cheap homes” have lower value in a rural community than in a populous area like New York City. But even adjoining counties in any State may maintain different definitions of “cheap,” even though separated by only a few miles.

“Cheap homes” do not reference slums or ghettos necessarily. Real estate investing in these areas might embrace federal grants or HUD Section 8 housing.

My focus in this article is the use of “cheap homes” as a starting place for a real estate investing career. “Cheap homes” in this article is NOT the bank “red lined” crime area, or where drugs and prostitutes are rampant, or where housing has been severely abused or neglected by property-owners and/or tenants. And “cheap homes” in this article is not the burned-out or dilapidated building.

My definition of “cheap homes” for the beginning real estate investor is the less-expensive housing that accommodates the middle or middle-low class citizen. The demand for this housing is usually high and constant. The risk for real estate investing is usually low. And the effort needed to penetrate this marketplace is easiest.

I get occasional calls questioning the existence of “cheap homes” in certain parts of the country. These calls usually come from California and certain states in the northeast like Maryland. The caller has read my web site and challenges me, “You can’t find a cheap house here!” Now, we all recognize that the medium pricing index for housing varies all over the country. “Cheap” means a different price to everyone. But the outcry of these challengers is that Los Angeles has no “cheap” houses, with its average housing cost exceeding $600,000.

Here’s my response to these callers. Drive into downtown L.A. and locate the city’s tallest office building. Find the janitor. Ask him where he lives, or follow him home. He may drive out 25 or 50 miles from work. But he knows where the “cheap home” can be found. He has already done the research. He has done his homework. He has found decent housing for his family, and it’s not in a high crime area. Drug dealers, prostitutes and pimps are not roaming the streets. The houses are not beat-up and deteriorating. He has a good job and a decent salary, he is middle class, and he has found a “cheap house.” Chances are, his whole neighborhood is a good target area for searching out a “cheap house” for starting a real estate investing career. These properties can be found everywhere.

I live in Nashville, Tennessee and not in Los Angeles. Housing is a little cheaper in the South. I bought $1 million in “cheap houses” during each of my first two years when I started my real estate investing career. I had acquired $10 million of these “cheap houses” within 4 years. I’ll bet the ranch that I could duplicate that same success in L.A. or any area of the country. Real estate investing is real estate investing, wherever you live, and relatively speaking, “cheap houses” abound everywhere.

I contend that “cheap houses” are the lowest risk property for beginning a real estate investing career. And I argue that “cheap houses” can be found all over our country.

Phil Speer, Ph.D., started his real estate investing career 25 years ago. Without the availability of credit and using only a $10 bill, he purchased $1 million in properties in his first year, and had accumulated $10 million in properties by his fourth year. His net worth was $2 million in only his third year of investing. He was featured in a Wall St.Journal editorial as most successful investor in the Nothing Down Real Estate Movement, and was honored with a Caribbean cruise as top investor of the year. In his hometown of Nashville, Tennessee, he has been a businessman and Human Resources Consultant for 30 years. He is an author, speaker and seminar director. To learn how to profit in real estate investing, even without cash or credit, read his report at http://www.CashinHouses.com/.

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