Here is a typical rental scenario:

Mortgage payment going out: $1,100 per month. Rent coming in: $1,200 per month. This gives you $100 a month in positive cash flow. Or does it? On paper it looks good, but if you analyze the big picture and take into account your entire cost to own that rental property, you are losing money in a big way. Let’s analyze those costs over a year:

Holding costs. Let’s say it takes three months to find a tenant for your property – $3,300
Spend marketing dollars to attract a tenant: $500.
Termite treatment: $150.
Landlord’s Insurance: $350.
Cleaning the property after the last tenant moved out: $350.
The water heater went out in February and you had to replace it: $400. Total mortgage payments for the year: $13,200. Other costs: $1,750. Total cost of ownership: $14,950

Rental income of 9 months: $10,800. Net loss for the year: $4,150. Now the picture looks very different. Even after your tax deduction of mortgage interest and depreciation, you still lost money.

How do you fix the problem?

The simplest answer of course is to buy right. This could mean putting down 20% so that your mortgage is much lower than the market rent, or it could mean that you need to buy your rental properties at steep discounts. Putting down 20% every time you buy a rental property will obviously limit how many properties you can buy, so the simplest answer here is the second option of paying less for the property.

The 4 Biggest Reasons For Negative Cash Flow Investment Properties

1. You paid too much for the property. If your mortgage is not significantly less than the rent coming in, (and I mean several hundred dollars a month less), then you paid too much for the property.
2. You overestimated the rents you can get for your area.
3. The price you paid for the property was too high
4. You should have paid less for the property

If your problem is that you paid too much for the property, then the rents in your area of course will not be high enough, and if you overestimated the rents on top of paying too much, you better have deep pockets or you are going to face foreclosure. Short of selling the property immediately, you can:

Increase Your Rental Income Without Increasing Your Rents

I am going to give you a financing strategy here that can let you cash flow hundreds of dollars per month. But. Like everything else that sounds too good to be true, it has a downside. There is a relatively new mortgage product on the market (Been around for about 6 years), called an Option ARM. It gives you 4 different ways you can pay it every month:

Pick a payment similar to a 15 year mortgage (build equity fast)
Pick a payment similar to a 30 year mortgage (build equity slow)
Pick a interest only payment (build no equity) OR
Pick the minimum payment (accrue negative equity)

The minimum payment in option 4 can be as low as 1.5% (calculated like a fully amortized 30 year fixed payment). If you choose to pay the minimum payment, your payment in the scenario of this discussion will be $520 per month instead of $1,100 per month (I’m assuming that taxes and insurance are escrowed). Now if your rent is $1,200 per month, you have a positive cash flow of $680 a month on the same property with the same tenant and you never increased the rent. Well, that feels a little better doesn’t it?

That may feel good, but here is the gotcha: Your minimum payment is less than your interest only payment. Since banks are not in the business of losing money, they will still calculate the full interest only payment for that month, they will just be happy to accept your minimum payment. So happy in fact, that they will take the difference between your minimum payment and the interest only payment, and add it to the outstanding loan balance. So now you owe them more than last month. Ouch.

But wait, that may not be so bad. Why?

You can still pay it like a 30 year or 15 year mortgage and only use the minimum payment when you have a vacancy. It will reduce the pain in your wallet when you have to spend money for marketing in addition to making the payment on that vacant property.

This is an okay reason for getting an option ARM. But not a great reason. Why? Because the rate (not the minimum payment which is fixed for a year), will typically adjust monthly based on the index it is tied to. If rates are trending down, this mortgage is unbelievable. Every month you have to pay less since the interest only payment is going down, and you have the choice of the minimum payment in addition to that. If rates are trending up, then every month your interest only payment will be going up (while your minimum payment is fixed for a year). When this happens, this is no fun. By the way, as of May 2006 the market is trending up.

Since this mortgage can make me cash flow very well every month, but also has a downside, in which particular situation should I use it?

Great question. This is the question you should ask on every mortgage you ever get on an investment property. I would recommend this loan very strongly under the following scenario: Your goal is to sell the property in the next two years or less, and you will owe no more than 80% of the appraised value of the property on this loan (90% is okay if you are going to sell in one year or less). This is the perfect fit for this loan program. Here is why:

You can make the minimum payment every month and enjoy the maximum cash flow right now. You will incur negative equity, but since your loan to value is fairly low, it will not make much of a difference over a one or two year period. You will have roughly $460 per month of negative equity for a total of $5,520 after one year, or $11,040 in two years (Not totally accurate, as your minimum payment will go up by 7.5% of the PAYMENT, not interest rate, once a year. But close enough for our illustration here.)

That may sound high, but here is the hidden benefit: that negative equity is deferred interest. When you sell the property after one or two years, you can take that accumulated deferred interest as a tax write off in the year that you sell the property (check with your CPA on this since I am not a tax expert and I do not give tax advice). Since you can time this sale to a certain degree, you can use this deferred interest deduction to reduce your total tax bill should you have a windfall profit on another transaction in the same year. In other words, use the deferred interest deduction to offset the gain in another area.

Remember also that you always have the choice of making the full interest only payment – you don’t have to incur the negative equity if you do not want to. The beauty of this mortgage is that it gives you options. Cash flow when you need it most, but still reducing your balance if you want to.

The absolutely perfect fit is if you have a high equity situation and are selling on a lease purchase. That way you can enjoy the positive cash flow now, and still get a good profit on the sale. Many investors don’t make money on a lease purchase during the lease period. They only make money when the sale happens.

In the time between you still have to put gas in your tank and provide for the family though, and you need cash to do that. Let’s see how the math works:

You bought a rehab with hard money, fixed it up, and refinanced into an Option ARM. You choose to sell on lease purchase so that the sale will take place at least a year since when you bought the property, so that you will reduce your capital gains tax by half, and so the property will season for mortgage purposes. Since you have to feed your family in the meantime, you get $680 cash a month in your pocket while you wait for the big paycheck.

Now multiply this by 5 properties using the above scenario. Five times $680 is $3,400 a month of positive cash flow. Can you do with a little extra cash while you wait on the big paycheck when you sell?

Copyright 2006 John Visser

Step 1 Be an on-site manager

There are three main levels of job titles for property managers. The first is an on-site manager, which is entry level and requires little to no experience. It is a good place to start if you want to get your feet wet. THe second level is that of an assistant property manager, which requires 3-4 years of experience. Assistant property managers look after several apartment buildings or a few commercial buildings. The last tier of a property manager’s career is that of senior property manager, which generally requires certification, a college degree, and seven years experience in the business. It is better to start small as an on-site manager for a commerical property fo small apartment building and remain in the position for at least three years to building credibility.

Step 2 Check your education

Although many smaller business may not require a formal bachelor’s degree for on-site property manager level positions, if you wish to advance to senior property manager orwork for a property management firm, then a bachelor’s degree will be necessary. Usually property manager do degrees in either business, property management, real estate, or construction management.

Step 3 Take some classes

The best way to prepapre while you are gaining experience is to take some primer classes through your local community college or online in property management. By engaging in the practicum of the subject, you will be more effective and more employable even in one year.

Step 4 Get certified

The Insititute of Real Estate Management offers the Certified Property Manager designation for any property manager interested in furthering their career. The rigorous program involves passing a series of examinations along with meeting education and experience requirements. If you successfully obtain the certification, your career prospects in the field blossom as you can qualify to be a senior property manager.

Step 5 Join an organization

Boost your credibility by joining a professional membership organization such as the Insitute of Real Estate Management (IREM.org) or the National Association of Property Managers.

Remember, everything requires some hard work. Please visit stepsto.com for more great business advice.

Step 1 Increase the value of the retail property

By investing in a reliable property manager, you can increase the value of your retail real estate. Property managers oversee and organize the general operation of the property to prevent decay or dereliction. Over time, this can not only save you money, but also can increase property value as the retail real estate is worth more to another investor should you want to sell at a later date.

Step 2 Increase your income

Remember in addition to your basic retail store, your property generates income for you also. Suppose you have several vendors who also sell on your property. Then these vendors pay you rent. If your property is not maintained, then vendors will not want to do business on your property. Your customers will not want to buy good from you if they believe the property is in disarray.

Step 3 Get your bills paid

Property managers also ensure that all maintenance bills are paid on time and they also can handle your rent or mortgage payments and even insurance premium payments. If you are busy running your retail business, then you may not have the time to address these issues, which are vital.

Step 4 Get a vendor on your site quickly

Suppose you have retail rental property that houses several stores on site. If for some reason one of these vendors vacates, the property manager is responsible for advertising and finding new vendors for the empty space. This saves you time and money.

Step 5 Know the value of your property

Finally, the property manager usually gets an appraisal on a regular annual basis and provides appraisal information to you.

Remember retail real estate is a long-term investment that requires constant upkeep.

A huge chunk of the upscale properties being developed are built with foreign buyers in mind, as exchange rates look more favorable in Europe and elsewhere, and buyers are considering that since prices are rising, they see investing in Miami Beach real estate a prospectively profitable one.

Step 1: A City Flowing With Diversity

The city of Miami Beach, located on the eastern coast of the southernmost tip of Florida, is a diverse and complete vacation destination for tourists who enjoy year-round sunshine, wonderful Art Deco designs, glittering and vibrant night life, famous dance clubs, and a wide expanse of beautiful beaches. It also makes a perfect home for potential residents who want to savor living in a city flowing with diverse cultures and traditions, sunny skies, and a wide array of employment opportunities as well as good housing choices.

Miami Beach is considered as one of the most appealing cities in the world due to the many cultural amenities they offer to prospective home-buyers. The city proudly boasts a sensational hotel strip, elegant estates, and a wide variety of recreational conveniences. Its beaches have been on many occasions voted as one of the top 10 beaches in the world. The lure of owning property in Miami Beach has not only mesmerized locals, but has also been a magnet for out-of-towners and overseas investors.

Step 2: Real Estate Options Are Diverse As Well

Miami Beach’s environs contain an expanse of nine miles of sandy oceanfront beaches lined with palm trees, and along that coastline lies a thriving community of condominiums, apartments, and family homes, as well as an assortment of clubs, restaurants, shops, hotels, and businesses.

A prospective home-buyer can decide between owning stylish apartments, 1, 2, 3 or 4-bedroom condominium units, or acquire a large beachfront estate. The healthy mix of housing options here offers a collection of wonderful styles, sizes and price range choices, and nearly all housing or upscale property units here offer a fabulous ocean or Intra-coastal waterway views.

For the real estate and property business, location is key. This also holds true for Miami Beach as well. The city is one sunny beach vacation resort, as well as being a cosmopolitan city famous for having one of the nation’s largest historic districts. One of its districts, South Beach, is well-known for its Art deco district and its vibrant night-life. North Beach is a new, trendy area identified for its unique architecture, “chic” cafes and its stress-free environment. With the diversity the city affords, owning a Miami Beach property offers future home-buyers the luxury, comfort and elegance that the area is famous for, as well as in providing a healthy and rewarding real estate invest