7. They do not consider cash flow. Cash flow is the flow of cash in and out of your business. You have to consider if you have enough cash to cover all your expenses and fund your projects. When you are deciding how and when to spend money you must consider your cash flow. With marketing you want to figure out where you will get the biggest bang for your buck. For instance if you spend $10,000 on marketing and it brings in 2 deals a year, then logically that was worth it. But you also have to look at where else you could have spent that $10,000. Maybe $10,000 on one type of marketing brought in two deals, but perhaps you could have spent that $10,000 somewhere else and brought in 10 deals. The other thing to consider is when the profit from those deals will come in. That is cash flow. You may not be able to afford to spend the whole $10,000 upfront and wait on the profit from the deals to come in. You have to look at when your money will come in.

Another place that money can get tied up is in rehabs. You may have enough money at the beginning of the project, but what if it takes longer than anticipated or goes over budget? Repair escrows, which is where the lenders holds the funds until the repairs are complete, often cause problems for rehabbers. Many times the rehabber forgets that they need other funds to cover the rehab cost until they can complete the work and get reimbursed by the lender.

Another place cash flow plays a major role is when you are thinking about a rental and lease option portfolio. Lease options are really just hybrid rentals because most tenant buyers don’t execute their option to purchase. They are long term hold properties and belong in your rental portfolio. You need to consider how many rentals you have and think through the vacancy rates you might have on these properties and the maintenance and repair that are going to be needed. This is where many investors get themselves in trouble. They buy up a bunch of lease option and rental properties and then maybe 12 months later they have a whole bunch of vacancies or they have a whole bunch of major repairs that need to be done to these properties and suddenly they are out of cash. I recommend that investors do not get into the buy and hold until they have significant cash flow coming into their business.

Another place where cash flow can get tied up is in buying higher priced homes. Let’s say you are able to pick up a million dollar house for $700,000 and it needs $100,000 in rehab so you should profit $200,000. Sounds great, but you have to also consider what it is going to take to hold onto that house and how many buyers you will have in that price range. It will probably be fewer than what you would have in a lower price range which means you will have to hold the house for a longer amount of time. Not a problem as long as your cash flow permits you to hold the property. You just need to make sure you plan ahead.

Page 4 of 5 :: First | Last :: Prev | 1 2 3 4 5 | Next