Take Advice From Do’ers Not Wind Talkers
If you read about successful people, as I like to do, you’ll find that downturns in the economy or rough times at the bank have very little to do with their success. In fact, most don’t even mention the economy or banks when they discuss what’s needed to be successful. Reading autobiographies of successful entrepreneurs will give you an inside look about what it really takes to make it. I would strongly suggest you read success stories because they help you to mentally rise above the “ho-hum” of everyday problems.
There’s a popular myth we’ve all heard — “It takes money to make money”. William Nickerson, author of the most widely read do-it-yourself real estate book: “HOW I TURNED $1000 INTO A MILLION DOLLARS”, Simon and Schuster (1959), started investing with only $1000 saved from his telephone sales job. Nickerson calculated back in 1980, using an inflation adjustment formula, it would take about $2500 to start out like he did.
Today, 25 years later, Nickerson’s calculation may need to be doubled or tripled again; however, Nickerson was always quick to tell anyone who would listen: It doesn’t have to be your money, nor does it even need to be cash! Knowing what to do - and how to invest wisely is far more important than having the money to invest.
A PLAN FOR CASH FLOW IS FIRST PRIORITY
When I began buying investment properties, there was no question in my mind whatsoever about where I might find some extra money if my properties didn’t provide enough cash flow. The answer was clear to me the day I started — I couldn’t! Even though my cash down payments were quite small, it was all the money I had. I knew very well there was nothing left in my bank account to make up for monthly cash flow shortages. The only funds I would have to pay my mortgages and expenses would be the money I took in each month from my renters. Obviously, buying properties this close to the belt is both challenging and exciting. There is little room for buying errors as you might well imagine. You definitely need your cash flow plan worked out before you sign the deal!
What I’m suggesting here — For most of us, it makes more sense to buy cash flow properties with uncertain futures than to acquire high potential properties without enough cash flow to operate them today. Future potential is great — Don’t get me wrong, but it’s still “Pie in the Sky”! In my view, the top three reasons for owning and operating income properties are INCOME, INCOME and INCOME — Everything else must fall in behind.
ACQUIRE AS MANY UNITS AS YOUR DOWN PAYMENT WILL BUY
Almost every investor I know has paid too much for income property. It happens more frequently when we first start out. There is almost no defense against paying “too much” at least once or twice. I’ve done it more times than I care to admit. However, in my case, buying multiple unit fix-up properties allowed me to add value and improve the income stream more quickly than if I had overpaid for non-fixer type properties. By fixing up properties I was able to recover from my buying errors much faster because I could raise rents. The best education in the world for understanding real values and what the true expenses are - is learned very quickly buying and operating you own properties. I’m not talking about a single house here. That’s not quite enough action for me. I’ve found that multiple fixer-uppers often don’t require any higher down payments than a single house - yet the cash flow potential is many times greater. Often they come with seller financing to boot!
INEXPENSIVE RENTALS PROVIDE GREATER CASH FLOWS
One of the major parts of my personal investment strategy, which has paid big dividends over the years, has been to acquire lower end (affordable) rental units. These properties provide me with “eating money” or cash flow. They are my biggest source of income today. Inexpensive rental units provide a much bigger (return) or “bang for the investor’s buck”. They’ve always been my number one cash flow providers. Obviously, these properties won’t normally sell as rapidly as higher grade rentals or single-family houses. However, I’m a firm believer in first things first!
