Real Estate Investing Is Like a New Business

As an investor, it’s easy to get blinded by the fancy window dressing that a particular agent or seller is putting on when presenting a property. I want to encourage you to evaluate each property on a standalone basis much like you would if you were buying a business...because you ARE. Whether you own one property or one hundred, the recipe for its success is virtually the same. You will need to create a business plan complete with earnings/expense pro-formas while projecting rates of return and contingencies for cost overruns. 

There are many different ways to approach this plan and Trump U offers courses and mini-courses on the subject. Fundamentally it all boils down to cash flow. After you have carefully diagrammed the expenses associated with owning the property such as maintenance, utilities, taxes, interest carry, advertising/signage to market, commissions to procuring brokers (if any), vacancy period etc., you will need to figure out the ongoing demand and projected hold time before either leasing out the property or selling it. These days, figuring out the projected hold time can be tricky  due to the cycle we are in, so always be conservative and make sure you have deep enough pockets to carry the debt service twice as long as you think you might need. If you succeed sooner, then that is just a bonus. Use your conservative cash flow estimates versus your total cash infusion to get a rate of return on your money. If you think you can make more on a 12 month CD at your local bank, then you should probably pass on the deal and wait for the next one to come along. Your time is too valuable to waste by just breaking even.

What was the best deal you have ever gotten done or heard of someone getting done in terms of cash flow?