Why You Must Have a Cash Flow When You’re Investing in a Low-Income Property

As a landlord of a long-term rental property, whether in a low-income property area or not, you are pretty aware that it isn’t for everyone, especially if you aren’t going to be managing the property (or properties) by yourself. There’re a lot of things that you need to know when you’re going in. Some of these include contractual law, negotiation skills, local ordinances, and landlord/tenant laws according to the state that you live.

If you’ve decided that you’d like to try your hand at being a landlord, either by doing it yourself or handing the property over to a professional property manager to handle it for you, you have to invest in properties that generate income before taxes.

The first step is making sure that the price of rent will be more than the total cost of the principal, interest, taxes, and the insurance at the minimum. You can adjust your rental fee by including a percentage for maintenance, management fees, and vacancy as well, but that depends on you. We do recommend that you charge at least a few hundred dollars more than your mortgage payment.

Low-Income Property Areas

The previous bit of information works great for communities that are thriving, and the income generation isn’t an issue. However, when you venture into low-income property territories, you may experience a few setbacks that could make it tougher to generate income. With factors like higher crime rates, fewer jobs, and poor schools, it doesn’t make for an appealing place to live.

This is why you might want to look for an area that is in need of change. You can do this by scoping out the surrounding counties that fit within your budget and have an all-in (this will include the purchase price of the home, closing costs, the cost of repairs, and the total cost of capital) goal of 65% after the repair value.

After all of this and your tenant has moved in, you’re goal should be to create a cash flow of a few hundred bucks a month after the capital was back in your pocket, thanks to refinancing.

Repeating the Process

When you’ve gotten the capital back, you can repay the money to your lender and find another property to buy, fix up, and sell. It’s a rinse and repeat the process. This process is great for low-income property areas because the value of the properties hasn’t dropped, but the overall perception of the location isn’t the greatest. In theory, you are scoping out the place, and you’re finding the good properties at really good prices. You’ll fix it up with nice upgrades and make it pretty, then when you get a good appraisal on your refi, you’ll have a cash flow that will usher you into becoming wealthier.

Appreciation

When it comes to appreciation, you are going to have your ups and downs, as you would expect in a rolling market like real estate. It takes some planning, smart decision making, and paying attention to how the market is going in your given are to determine when you should buy and sell. Deciding to take that leap and becoming a landlord can be a tricky business, but if you play your cards right, it can be quite lucrative.

Leave a Reply

Your email address will not be published. Required fields are marked *