What’s Your Investing Strategy: Sunday Morning Thoughts 19 August 2012

strategy (Photo credit: Sean MacEntee)

What strategy do you use to put your money to work for you?

Some people may say they invest in a mutual fund, have a 401k with a fund manager they have never spoken to directly.  Or some people having a distrust of banks and the banking system may actually put their money in a mattress.

Putting money to use to make money is a strategy as old as time.  Some people believe that working for money is the best way to make more money, but near the end of the week, they always seem to be waiting for the next paycheck.  In essence living from pay check to pay check, but never seeming to save enough money.

Then there are those that invest in the stock market.  They buy stocks based on a tip someone gave them, or they invest based on someone else’s opinion of how a stock will perform.  From day trading, expiration trading, buying stock, dabbling in options, etc.  But if you are a novice then you may not know the land mines which await you when you enter the battle field of the stock market.

Isn’t that what the banks were doing with the money you placed in the bank before the system took a down turn, they even charged you fees for the privilege of leaving your money with the bank.  Well, they do keep it safe, don’t they?

Why is real estate investing a great investment option even for a novice?

Most people can look at an area and decide if the area is good or otherwise.

There are many strategies in real estate investing but one of the best strategies, is do you feel the investment is sound?

The other questions you can ask yourself:

• What can you do with the property to improve it?

• If you need to sell it how much and how fast do you want to sell it?

•  Can the investment sustain itself and give you cash flow?

With real estate investing one golden rule, never attach yourself to a property.   You will come across many good deals in real estate investing but never hold on to an alligator just because you love it.

Related articles

• Residential and Comercial Real Estate Investing: Sunday Morning Thoughts 5 August 2012 (backedbyrealestate.com)
• The A, B, C’s of Real Estate Investing: Sunday Morning Thoughts 22July 2012 (backedbyrealestate.com)
• Some of These Real Estate Stocks Pay More Than 12% (fool.com)
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Separating a Winning Deal from the Alligator: Sunday Morning Thoughts 30 July 2012

Alligator eating Money Sculpture 14th Street – New York Subway (Photo credit: Annie Mole)

With so many great deals out there and even more on the horizon, how do you pick a winner?

Analyze.

For each type of invest there are hard and fast rules of analysis to apply.

For instance you would not analyze a residential deal the same as you would analyze a multi–family deal.  Even within residential evaluations, a two bedroom one bath is not analyzed the same as a five bedroom 4 bath.

But there are similarities of analysis for all properties. The A, B, C’s of evaluating properties.

So how do you tell the difference between an alligator and a profitable investment?

An alligator is an investment which someone tries to sell you on with the promise of making a profit somewhere down the line, somewhere in the future.  The typical time period is five years.

So while you are waiting for the profit period to finally happen, the investment costs you money out-of-pocket to hold on to.  This is also negative leverage with a negative return on initial investment.

It may be better to not make that investment.

In real estate if the cash flow of the investment does not cover the maintenance costs and debt service, then it is classified as an alligator;  A losing money investment.  Which means it would no longer be an investment but a liability.

When investing in real estate you can make an investment positive by having a positive return on investment, also known as a positive cash flow property.

If your deal does not bring you a positive cash flow from you take over the property then you may want to reconsider or restructure the investment.

Related articles

• The A, B, C’s of Real Estate Investing: Sunday Morning Thoughts 22July 2012 (backedbyrealestate.com)
• Invest in Cash Flow Properties (foxnews.com)
• How to avoid a Ponzi Scheme: Sunday Morning Thoughts 15 July 2012 (backedbyrealestate.com)

Negative Arbitrage and the Effect on ROR: Sunday Morning Thoughts 12 December 2010

Different risk and return of investment for the different investors (Photo credit: Wikipedia)

Negative arbitrage does not mean you will lose on the investment, negative arbitrage is when your investment return decreases with debt financing.  This is not to say that you are losing in your investment.  It means that you could have had a higher return with cheaper money.

Although the term negative arbitrage conjures images and feelings of loss, but that does not have to be the case.  With lending practices being tougher and the cost of money being higher, negative arbitrage will become more and more of a factor with investors.

What this means, the investment needs to have greater cash flow and/or appreciation to make up for the loss in arbitrage.

Related articles

• Millionaire Calculator (creditloan.com)
• http://backedbyrealestate.com/2010/11/14/arbitrage-and-real-estate-sunday-morning-thoughts-14-november-2010/

Buy Low and Hold: Sunday Morning Thoughts 03 October 2010

Image via Wikipedia

If you were offered an apartment property with a few issues, such as high vacancy, deferred maintenance, and lousy management, would you buy or pass?

Many people would pass stating it would be too much trouble to fix the errors, and there is so much on the market with fewer issues.  Others would ask, “What is the lowest price you would accept for this property?”

Both answers are legitimate depending on your investment desires.  Maybe you would like something that has stable cash flow, and has been kept up.  This type of property will cost more to purchase and the rate of return would be lower than if you considered something else.

The something else property, the “problem” property could potentially yield higher rate of return than the property without flaws.

With the “problem” property you could negotiate a much lower price due to the high vacancy and deferred maintenance.  This lowering of purchase price could give the advantage of a higher rate of return when making the improvements and leasing to new tenants, netting more cash flow.

But remember when picking a “problem” property, the area is the key to success.  If you pick a “problem” property in an area which is also a problem, you may want to reconsider the purchase, only because it would take more time to straighten out an area versus straightening a “problem” property in a descent area.

Once the problems are corrected in your flawed property, the rate of return could potentially sky-rocket past the property without flaws.

Many people find that being a private lender erases most of all the risks, and yields high rate of return for minimal effort.  If you need more information please visit our website or call 323 988 7205 x 106