A fundamental of buying Real Estate as an Investment is CASH FLOW.  

Despite the profitable years of “Buy and Flip“, during our current Real Estate Economy, “Buy and Hold” is what investors need to be prepared for… which means that somehow these properties need to pay for themselves while the Investor holds onto them.

Whether you are a Foreign National buying with the weakness of the dollar working in your favor or a rookie buying up short sales and foreclosures… the property needs to be able to pay for itself.

Now you’re thinking - do I read on? I know this already… just think of it this way - lenders ARE using this information to qualify buyers so it is probably worth reading!

The basic calculation to find out whether or not a property will cash flow and be profitable for an investment is as follows:

• Market Rent minus
  • Mortgage Payment plus
  • Taxes plus
  • Insurance plus
  • Homeowners / Condo Association (if any) plus
  • Vacancy Rate* (5-10%) plus
  • Property Maintenance** (10%)
• equal Net Cash Flows before Taxes

As Investors are looking at more and more “low priced” deals and Lenders are looking at loan files more and more closely, it is important to realize that any Net LOSS on a property will be counted against you on your Debt to Income Ratios.

The other thing to keep in mind in this market is the potential for appreciation.  In 2003-2005, some investors could stand to lose a few dollars a month because of the rapid appreciation. 

Today, appreciation is not something that can be factored as readily because more of Florida is DEPRECIATING than appreciating.

It is imperative to consider that if a property is costing you money out of pocket every month, it is a LOSS and there is no such thing as a “Good Loss”…

Foreign National Real Estate Investors have the potential (not guarantee) for appreciation based on the currency exchange that US Buyers do not have.  Since the Dollar is so weak, the Foreign National Investor’s conversion of their Euros to the Dollar at current exchanges leaves the door open for profit on their money when they sell and exchange back to their Euros.

But is it still savvy for a Foreign Investor to buy a property that costs them out of pocket every month??

The Fundamentals of  Real Estate Investment Theory say NO.

So when you are looking at a property to purchase as an investment, the first analysis you should perform as a Real Estate Investor is to sit down with your Realtor and Mortgage Broker and break down the numbers and how they relate to Market Rent.

If you would like to analyze a property that you are interested in today, call or email me today for a free consultation!

For more information on real esate investments, follow this link to the Investment Archive on TheMortgageGoToGuy.com`.

 * Vacancy - you have to factor that you will have some time without a tenant while you market the property for rent. After a tenant leaves, it will take some time to rent it again plus clean up.

** Maintenance - besides typical painting, carpet cleaning, grass mowing etc, a condo owner should prepare for routine assessments for property maintenance and a single family homeowner will have to factor in the costs of repairing a roof every so often and other normal and unexpected issues when they arise.

More Florida Real Estate Industry News You Can Use from
David A. Podgursky, MBA
TheMortgageGoToGuy!!
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