Posted by Ed Garcia on July 30, 2003 at 10:44:33:
In my opinion if I were to start a new REI company here are the basic fundamentals I would follow.
By the title of your post, know how to properly use leverage, and not just borrow from one property to purchase another. Good leverage would be a WLOC, using OPM (Other Peoples Money) as well as seller carry-backs.
You make your money on the buy. Being a prudent buyer builds in a protective measure that will be an insurance policy in a market change.
CASH FLOW: If we make our money on the buy then that should induce our Cash Flow. Even if we don?t buy to hold, the property must cash flow in the event you get caught in a market change and can?t sell without a loss to get out of it. If you can?t sell with out loss, you can hold with a positive cash flow. That?s a nice way to wither a storm isn?t it.
Many investor feel comfortable to buy and hold, thinking that the houses will build equity over a period of time and enjoy cash-flow, write off, and appreciation. However as an investor that?s old thinking. Today we feel that a fast nickel is better than a slow dime. Having the capability to turn properties, will increase profits 10 fold compared to holding. Bare in mind, that properties will maximize so wouldn?t it be better to sell a property, pull profit to do it again, and again, and again, rather then to hold the property and hope that it will appreciate 5 to 7% next year.
KP, real-estate can be forgiving. You can buy it and hold it and do nothing and still make money. However the key is like playing poker, you have to know when to hold them and know when to fold them. As said before, property values can vary, however commercial properties make money by design, they are different then just buying a house. So if do wish to hold then I would buy Apartments, a commercial building, Strip Center, Shopping Center, Office building etc. When you purchase a commercial property, our buying an income stream and the value of the property will be cased on income. In a workshop I do with Terry Vaughan this is what we call ?Think Bigger? it?s important that we have goals, and direction in our investing. We need to understand not only where we?re at and we?re we want to go, but how we?re to get there as well. If you don?t know how you?re going to get there, then it just conversation.
KP, I hope that this little piece has given you some food for thought, have a nice day,