BY: JAY BRIJPAUL
Robert Kiyosaki said that real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.
In 1990, I sold a bungalow for $193,000 to an investor. He invested fifty thousand dollars and took a mortgage of $143,000. The monthly mortgage and taxes were $1,100.00 The home brought in a gross income of $1,450 per month and hence a positive cash flow of $350.00 per month which is 8.4% cash flow.
The property would sell for $750,000 today, a price growth of $557,000. The investor used the equity on this property to buy three more properties, each with a market rent of $2,000 per month or $96,000 per year. Real estate out performs many other investments. However, it must be a long-term strategy.
Stories about tenants from hell send fear up our spine and make us hesitant to invest in real estate. Screening tenants is the most important step. A realtor who is also an investor will have the knowledge to assist you. A landlord and tenant should have a long-term relationship. Meet with the prospective tenant because first impressions are important.
Let the prospective tenant complete a rental application. The application gives an over view of the tenant. A tenant with a secure job and clean credit is ok but tenants with bad credit and a secure job will stay longer in the property.
In my opinion, a working family will actively use the home for only six hours after subtracting for work, travel, and sleep. Small families mean less use. Once I rented a property to a self-employed individual who baked banana bread for his business. With the oven on all day and moisture in the air, mold began to grow. The eviction process took a while and since he was self-employed I could not garnish his wage because he did not show an income.
Properties that are clean and well-kept in a good location will attract great tenants. Homes that are run down will attract compromising tenants. I prefer to buy small single family properties and have one family per home. Two family homes can increase your cash flow but will not attract the best tenants.
A good practice is to change the locks whenever a new tenant moves in. Go the extra mile and clean the air ducts and replaces the filter. Empower your tenants to think like owners. Include in your lease that the tenant agrees to shovel the snow and cut the grass. I prepare a lovely welcome basket for all my new tenants and that’s a real hit. I find that this builds a stronger relationship.
Proper bookkeeping is essential to growing your business. Open a separate account for the rental portfolio and keep a log of your income and expense. If you are planning on investing in only a few rentals, then, there is no harm to keep them in your name.
Many of us have our home paid off but all that wealth is hidden. If we take some of that wealth and invest it, we will create a cash flow and build wealth. People like money so they work hard for it but they really love money when money works for them. Put your money to work.