Cashflow keeps you in the game
02/02/10 23:38 Filed in: Real Estate
This past Saturday I presented at an all day seminar
organized by Property Investor News, a trade
publication for the residential property investor in
the UK. The over arching topic was lease options with
the broader subject of seller financing being touched
on. We also reviewed various tax issues and how best
to organize one’s business when investing in
property. Yes, the Brits do tend to use the term
property when many other places seem to use the
phrase real estate. Granted Britain is fond of
calling things by a shorten name so real property
(term from English law) has been reduced to property.
What is amazing is the background concept that investing in real estate is no different from running a business so you need to make a profit from day to day operations if you want to keep the business humming along. The UK residential real estate investment sector was kicked off in 1996 when lenders entered the market with investor financing for the first time in modern memory. After a period of rapidly increasing prices the prevailing attitude until the crash was losing money every month from day to day operations was fine as you could make it up through buying more deals. You would use the deals and the rising value of the prior purchases to pull out equity and feed the alligator called negative cash flow.
A long time ago I learned that an alligator will one day eat you alive. It is not wise to take on alligators and negative cash flow properties are very much an alligator.
As the US residential real estate market is now tying together its first property cycle with prices stabilizing or turning up those left standing might have learned a hard lesson. Cash flow is critical to staying in the game.
-John Corey
What is amazing is the background concept that investing in real estate is no different from running a business so you need to make a profit from day to day operations if you want to keep the business humming along. The UK residential real estate investment sector was kicked off in 1996 when lenders entered the market with investor financing for the first time in modern memory. After a period of rapidly increasing prices the prevailing attitude until the crash was losing money every month from day to day operations was fine as you could make it up through buying more deals. You would use the deals and the rising value of the prior purchases to pull out equity and feed the alligator called negative cash flow.
A long time ago I learned that an alligator will one day eat you alive. It is not wise to take on alligators and negative cash flow properties are very much an alligator.
As the US residential real estate market is now tying together its first property cycle with prices stabilizing or turning up those left standing might have learned a hard lesson. Cash flow is critical to staying in the game.
-John Corey
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