Happiness is Positive Cash Flow!

By
Real Estate Broker/Owner with Atlas Realty Service, LLC Ga Re lic. 266576

Happiness is a positive cash flow :-)

A long time ago, back before late night infomercials and before cable TV, people still invested in real estate.  The  thought of a highly leveraged real estate investment didn't even occur to them. They looked at one thing.  If I invest this much cash, how much cash will I get in return.  The fact that there were some tax advantages and the house might even go up in value were just icing on the cake.

Happiness is a positive cash flow :-)

2011 may be the year to look back and make something old new again. Here in Powder Springs, Marietta,Kennesaw, Acworth and other parts of Cobb County, Ga.  there are many homes for sale under $100,000.  Granted, many of them are real dogs.  But also in the mix are some pretty nice 3 bedroom, 2 bath homes that are in good condition.  Some might need just minor repairs.  Maybe you buy a house for $75,000 and end up spending $10,000 in repairs.  You still only have $85,000 in the house.

Let's look at a purely hypothetical example.

Purchase a $90,000 house or an $80,000 house with $10,000 repairs.  Rent that house for $1000 per month for the next 20 years.  You'll still need to factor in future repairs and vacancy and you hate the thought of dealing with tenants so you hire a management company.  Once you factor in those costs your real return is about $700 per month.  If you never raise the rent (unlikely) and if the house does not go up in value one dime (unlikely) you still have approximately a 7% return on your cash. Throw in a few tax advantages, some small rent increases, and even just a little appreciation and you've got a pretty nice deal.  

In 10-11 years you have collected all your money back.  It will be sooner that that if you raise the rent.  What if the house goes down in value?  Even went values drop, the rent almost never goes down.  You are still netting $700+ per month on your investment!  Remember ...
Happiness is a positive cash flow :-)

What if you don't have $90,000 cash? No problem since most folks don't.  A 20% down payment is $19,000.  If you use the rest of the same numbers the tenants pay the payment for you and the cash flow will still return your down payment in about the same length of time.

In about 10 years or so you take the money that you have collected from the first house and buy another one just like it.  You know have two house working for you and since you have twice as many houses you only need to wait about 5-6 years to buy another one.  Then at year 20 you buy a fourth house.  Remember, after your initial investment the entire process is self funding!  Your initial investment and the tenants rent payments fund the rest.

After 20 years you retire, clip coupons, play golf, and invite your friendly Realtor that helped you get those good deals over for an ice cold beverage and happy times!

 
Happiness is a positive cash flow :-)

Does it make sense for you?
 Here is your shopping list!

Cobb County Homes priced $70-90,000
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Rainer
29,266
Trustworthy Responsive-Personal-Banking
HOMEPATH, USDA, VHDA, FHA, VA, CONV & JUMBO MORTGAGES - McLean, VA
Younullre not just a client-your a FRIEND!

Happy New Year Bob,

You are spot on in your thinking with consistently taking the profits and reinvesting until the properties are running and paying for themselves. The conservative approach of not taking into account the appreciation of the property and raising the rent really made it effective that it is certainly a smart financial endeavor.

Dec 31, 2010 04:27 AM #1
Rainer
103,110
Tom Robinson
Keller Williams Realty Kingstowne/Alexandria, VA Office - Fairfax, VA
Experienced Real Estate, Professional Serving No. VA and DC

Bob, I came across some cash recently and it was earning at best 1.1% in the bank. It is now earning 12% and 14% respectively on rental properties, Five more of these and I can retire now! Real estate is responsible for the wealth of over 76% of the nations millionaires and billionaires. It is relatively low risk. If the investor doesn't like dealing with tenants, hire a property management company (cost about 8-10% of gross rent). I rarely ever get calls and the rent gets paid on time. Five more and I hit the retirement door!

Dec 31, 2010 04:32 AM #2
Rainmaker
236,859
Bob Southard
Atlas Realty Service, LLC - Kennesaw, GA
e-Pro - Cobb, Cherokee, North Fulton

Steve- Thanks.  I wanted to keep the illustration very simple and still realistic.

Tom- Great job!   It doesn't take too many and it sounds like you are on the right path!

Dec 31, 2010 04:46 AM #3
Rainmaker
1,291,544
Li Read
Sea to Sky Premier Properties (Salt Spring) - Salt Spring Island, BC
Caring expertise...knowledge for you!

A very good reminder to all of us.    Charles Dickens, in his novel David Copperfield, had a character called Mr. Micawber...he spelled this out, very well!

Dec 31, 2010 04:48 AM #4
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Rainmaker
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Bob Southard

e-Pro - Cobb, Cherokee, North Fulton
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