Posted by J.P. Vaughan on May 20, 1999 at 10:13:41:
This is a reprint of part of Terry Vaughan’s article “The
Winner’s Edge.” I hope you find it helpful.
Make your profit going into the deal, or don’t do the deal!
When you make your profit going into the deal, you are
playing the game when the odds are in your favor to win.
It’s possible to structure many real estate transactions so
a profit is assured before you enter the transaction. Profit
from any real estate investment should take one of these
three forms, or a combination of them:
Cash–at the completion of the deal.
Positive Cash Flow–as a result of the transaction.
Equity–in the piece of property.
Cash at the completion of the deal is the result of any “buy
low, sell high” strategy. Any time you can buy a property
for less than its current market value, and re-sell it for
more than you paid for it, you will make money. Investors
who want to make quick profits, use this approach.
Positive cash flow occurs whenever the mortgage payment and
all expenses on a property are less than the income
generated by the property. Investors who would rather invest
in real estate for the long term use this approach. They
prefer to earn a monthly income from their properties.
Equity can occur in either of two ways. First, at the time
of purchase, whenever the purchase price is lower than the
true market value of the house, there is existing equity in
the property. Second, when the value of a property can be
greatly increased by relatively minor or inexpensive fix-up
or repair, you are creating equity.
Make your profit going IN to the deal, or don’t do the deal!