What is Leverage

Leverage is a really cool concept to use with your investments, and it’s an important concept that can be used to help change your business. Understanding where your cash flow comes in is quite important, so understanding this is definitely a big part of leverage.

There are three key pieces of data to consider here. First, you’ve got the cap rate of investment, which is 10% generally.  Then, you want to look at the loan constant, which is the ratio in finance to signify the relationship between the loan and loan payments. Before calculators and computers, this was a constant that was used to determine the monthly payments for loadns.it was used to take the total loan payments and dividing it by the principal balance on there.  You should from here use this to determine leverage.

Leverage is used to indicate the return that you’re getting or losing out on on the capital that you’re borrowing for the loan. Leverage is defined as your cap rate minus the loan constant.

With this, you can essentially determine the cash flow of any situation, and if you need this for learning about any property or loan, this is something that you should consider learning.

So let’s take for example that you want to get a property with no loan, and you can use the cap rate to determine the NOI, which is the same as the cash flow if there is no loan. Which is essentially the price times the cap rate.so, if you’re getting a property for say 900,000 dollars, and the cap rate is 10$, then the NOI is going to be 90 grand essentially.

But what if you don’t realize that the cap rate applies to any cash you contribute, even if it’s not the full, the same rules apply.  Essentially, what this means is that if you put down say 500 grand on a property, not the full 900, and you then use the cap rate, then you’ll get the 50,000 on that as the cash flow.

Leverage also applies to borrowed funds, and they are either working for you or against you. When borrowed, it’s called positive leverage if it generates extra cash. With positive, borrowing money increases returns, whereas when it doesn’t create cash flow, it’s negative leverage, and decreases returns. So how do you know? Well, you can calculate the leverage value at this point. =if the value is positive, you’ll get positive leverage, if it’s negative, you’ve got leverage.

The cap rate tells you how much it’s earning, the loan constant tells you how much borrowed funds are, and how much it’s generating for the lender.  If the cap rate is higher than the loan constant, the lender isn’t taking all the returns, and essentially, the extra is what you get from this.  you’ll notice this, so you want to make sure that you look at the leverage of this before you begin. it’s important and can determine a lot of loan values.

Dumb mistakes Buy and hold Investors Make

Professional long-term investors do tend to make the occasional mistake, but there are some errors that are bigger than others, and you should learn from your mistakes. You may have never made mistakes so far, but here are the three dumbest mistakes you can make as a buy and hold investor.

First, you’ve got overpaying, which is essentially a big emphasis on this. You flip or wholesale, or are successful, you’ll want to get great deals that make a lot of profit.

But, even if you’re a long term investor, you shouldn’t pay more than you should, since it means paying high mortgage rates, and it can cause serious danger to the cash flow. Do take the time to learn the best ways to buy low, and get the best deals, and by imitating the clever tactics, you’ll find yourself creating some equity on the investment.

Next, one of the biggest mistakes to make is purchasing a rental property with minimal or negative cash flow based on their hopes that the property will appreciate. This is a very risky move, since the market tends to fluctuate quickly, and it’s impossible to predict, so you shouldn’t purchase a property without any profit to it.  You should get something below market value to add to the value, and you should get a property that has a positive cash flow since it allows you to improve and bring in income since you can see it grow as well. You should make sure that if you are investing for cash flow you don’t worry about the value of the home, but instead, you should look at the cash flow and see whether the property is selling or not. Real estate investing happens over a long period of time, so you shouldn’t immediately take losses if you notice them.

The final, and biggest one is not treating landlording as a business.

This may seem like a surprise to some, but it is a business, and in order to keep your assets performing at the highest level, you need to maintain the upkeep of the property, the tenant relations, and the finances, so while a majority think that it is totally passive, it’s not.  You may think that it’s just handshakes, emotion choices, and loose regulations, you need to remember that this is indeed a business, and you should treat it as such if you want to get some great results from this.

So what this means for you, is that if you don’t want to make mistakes, keep all of these in mind. Now, you’ve got to remember that nobody is perfect. Not a single soul can sit here and say that they are perfect in this, but the thing is, you’re not going to really get anywhere with this if you’re just treating it passive, and instead, you need to be smart with your decisions and make fitting ones that you can utilize and create for a brighter, better future.

How to Prepare for Rental Property closings

Real estate investors don’t talk enough about what you need to do in order to be prepared for closings on rentals. Some go smoothly, others awfully. There are a few things that you’ll want to be prepared for, and here, we’ll discuss that.

First, you should have the titles and legal instances of this all put together. If you know that there is a lien that hasn’t been touched on or talked about, this can be a huge issue for you. There are times when people don’t look at title companies, and instead, they just continue, find an old lien, and then they’re hit, and if you don’t have insurance, this is a problem. So get all of your legal eggs into a basket, and you’ll be much better off.

Then there are tenants.  Tenants are a big part of this, for they can make or break the situation. If you have good tenants, you should be fine, but if you have no tenants, you may end up bringing any old person, in, and in turn, that can end up creating a big issue for you in the future. If you’re looking to fix that mess, then you should definitely have it done before you close.

Know your loans. If you’re not ready for this, you’ll be in hot water. You should look at the mortgage payment, what it entails, and anything regarding that. Having an idea on your loans will allow for you to have a better, more rewarding instance.

Finally, look at your insurance.  Insurance is another big part, and if you don’t have insurance on the home, you don’t have renter’s insurance for tenants or the like, this is a huge issue.  You should have this all in place, because not having that there can mean curtains for your business. This is how people get into legal trouble when getting into closing, and it’s how you’ll end up having to pay a lot out of pocket.

So, if you’re someone who is trying their best to ensure that they get everything sorted out before you close, then it’s best that you sit down, and you make a checklist on this, especially before you buy your rentals. By doing this, you’ll be able to easily create a better atmosphere for renting out your properties, and in turn, you’ll be able to sort this out quite easily. it’s quite easy, and you’ll be much better off.

Working on this is integral, and you need to, with every step of the way, ensure that you have this in place. There are far too many times people have done this, and you’ll be able to, with this, create a better, more rewarding scenario for your business, and in turn, create a wonderful result from it as well. Do this, and you’ll be able to create a better and happier rental situation for yourself, and for others that you have as well for you too.

How to Reduce Your housing Expense

House hacking is a concept we try to go for, but it can help you buy a single family home with a low downpayment, live, and then rent out the rest of it. The goal is to reduce or eliminate the housing cost, and by doing this, you can increase the money you’re saving, creating a solid financial foundation to tackle new investment chances. So, now that you have an idea of it, there are three levels. Level 1 entails having the tenants cover the portion of your rent, having it cover all of your monthly, and then the third generating cash flow.

So how can you achieve the first? Well, a mortgage payment is kind of a way of life, since many stay in a house for a short period of time.  Every month you’re writing checks period. But, if you were shelling out half of what you normally would, you can reduce your housing expense a lot.  Sometimes, moving some weights and such out of your guest room can bring another in, and then from there, you’re essentially a house hacker. Even if it’s only a little bit of money, it pays off.

Then there is level 2, which involves more planning and intent, and really this can be bringing in a home that has an extra bedroom, and you can, for example, rent out a couple of extra bedrooms. Having a finished basement that you rent out can completely cover your housing costs. Adding the third period to the unfinished basement, along with renting out the extra bedroom, you can completely cover the costs of housing payment.  You can theoretically do this anywhere, you’re just going to have to make a few sacrifices here and there.

Finally, there is generating cash flow on top of it, paying for your payment and that.  It is possible.  You can use low downpayment conventional loans for a duplex, triplex, or quadplex, and from there, you live in one unit, rent out the rest, and from there, you can cover the entirety of your mortgage.  You can literally cover everything, and have a few hundred dollars every single month.

You can do that with roommates, and then renting out houses and rent out a part of the rooms that are in this.

Now reaching level 3 is quite hard. it’s not for everyone either. If you’re cool with roommates, then this might work, but if you like your privacy, this may not be idea. It does create a different life, and you will need to sacrifice a few things. House hacking is powerful, and everyone should try it since it can ultimately impact the financial situation that you have, even if you didn’t even realize that you can do this.

House hacking is pretty important for the success and ability of your business, and for those who are looking to truly master this, it does take some time and effort, but you’ll be able to easily.