Cash Flow Properties Secrets - Partner your way to Cash Flow
Can you profit in real estate investing with cash flow? Many of the students I have coached over the years perceive that in order to profit in real estate they have to find deals in the same cities or towns in which they live to maintain control. The reality is, that in order to build a sustainable real estate investment business, you need to be in a market with enough investment opportunities and a strong rental market. Unfortunately many of us live in markets that have appreciated past the point of investment cash flow potential.
How to capitalize on a cash flow investment market
So how do you capitalize on a market with opportunities if you are 2,000 miles away? You find a partner and build a team!
Say I live in California and want to invest in houses in Alabama where the potential for cash flow is much greater. Most investors we have coached start online looking at properties then look for a realtor. The problem with this approach is that many realtors sell properties to people who own and occupy the property, and they have little or no experience with investment property.
Also, most great investment properties never make it to the MLS. So how does an out of state investor get started in a remote market? By finding a partner.
A cash flow property partner could be a local investor, property manager, realtor, or all of the above. Once I identify a partner we set up a Joint Venture agreement outlining the responsibilities of each party.
As an example, I like to rehab properties - fix and flip. I increase the property value (the ARV - adjusted resale value) with improvements, then refinance and hold the property long term for cash flow.
So I may find a partner who's responsible for finding a certain type of property that meets an agreed upon criteria and then they manage the rehab. I am responsible for funding the cash flow investment project and refinancing. Then according to our joint venture we split the equity 60% me / 40% my new partner (as the money partner I take more of the risk so the split is favored).
This way my new partner has an incentive to find and manage profitable properties, and I still end up with a great real estate investment deal. Here is how a typical project might look like for a 3 bedroom 1 bath ranch house, that will rent for $700 per month when we are done:
|
Purchase Price |
$21,500 | |
Rehab Cost |
$13,000 | |
Misc Expenses |
$5,000 | |
Total Costs |
$39,500 | |
New Appraisal |
$60,000 |
That's $20,500 in equity!
I can get a loan for 80% of the new appraised value which is $48,000. Remember that I have $39,500 into the project, and I owe my new partner 40% of the equity which is $8,200.
So I refinance and pull out $48,000, pay my partner $8,200 then take my capital back of $39,000 and there is $300 profit for me and I own a $60,000 property. Or, you can sell the property for $60,000 to an investor, pay your partner their $8,200 split and pocket $12,300.
Taking advantage of Real Estate Markets across the county can be very profitable, but having the right team in place is critical to success. When you are looking at new markets in real estate investing and cash flow properties, start by looking for experienced investors as partners. Check out local real estate investment clubs, local newspapers, investor / realtors, and property managers. Once you have the right team, great deals will find you!
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