CHAPTER SIX:
Step Three
Let us go look for an investment! Now that you have your team in place, you can begin your search. Remember, time is on your side so be patient. Let us go over the different methods.
1. Working with an agent (MLS Properties)
a. Have the agent send you properties by email in your target area.
b. Look at as many properties as you can.
c. Work your numbers
d. Place an offer
e. Negotiate, negotiate, and negotiate.
I personally use a Software program that I developed from information available on the internet. I also recently purchased a software program that is more investor intensive from the internet for about $100.00. For the below example I will use the more user-friendly version.
Example:
This is my farm area where I will begin purchasing condominiums again when the price is right. The price became right the other day when they hit my target of $140,000.00. However, by the time I called to inquire about the price, the agent told me that she had five offers and two were over the asking price.
Remember you are investing on your timeline and acquiring property at below market prices. I know, and now you as well that the real estate "buying window" for homeowners is between May – September of each year. This is when the folks who wish to buy a home are looking and making their purchases. An investor looks for their buying window to be September – February and especially holiday periods at the end of the calendar year. This is where you will find your best buys.
As you can see from the chart below, at a purchase price of $140,000 with 10% down and the expense information inputted I could make some money each month. The second chart demonstrates that I can "cash flow" with over $300.00 per month, while my tenant makes my payment, reduces my loan balance each month, and provides me with a positive cash flow situation. If you feel comfortable and can manage your first purchase like this, then what if you multiply this by ten? Does $3000.00 a month sound like a good way to make money? However, there is always a give and take situation and when you get to $3K a month your really working hard to keep these investments earning money.
What are your numbers? Make sure you know. Mine are bare bones because I do my own repairs and manage my own investments. Your numbers may be different.
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| CASH FLOW ANALYSIS | ||||
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| CASH FLOW (BEFORE TAXES) | Yr. 1 | Yr. 2 | Yr. 3 | Yr. 4 | Yr. 5 | Yr. 6 | ||
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| Net Operating Income | $14,038 | $14,273 | $14,511 | $14,752 | $14,997 | $15,246 | ||
| -Yrly. P & I |
| $10,059 | $10,059 | $10,059 | $10,059 | $10,059 | $10,059 | |
| CASH FLOW YEARLY (B/TAXES) | $3,978 | $4,213 | $4,452 | $4,693 | $4,938 | $5,186 | ||
| CASH FLOW MONTHLY (B/TAXES) | $332 | $351 | $371 | $391 | $411 | $432 | ||
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| TAX BENEFIT |
| Yr. 1 | Yr. 2 | Yr. 3 | Yr. 4 | Yr. 5 | Yr. 6 | |
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| Net Operating Income | $14,038 | $14,273 | $14,511 | $14,752 | $14,997 | $15,246 | ||
| -Annual Interest |
| $8,779 | $8,687 | $8,588 | $8,481 | $8,367 | $8,245 | |
| -Annual Depreciation | $3,327 | $3,327 | $3,327 | $3,327 | $3,327 | $3,327 | ||
| Taxable Income |
| $1,931 | $2,258 | $2,596 | $2,944 | $3,303 | $3,673 | |
| x Investor's Tax Bracket | 33.00% | 33.00% | 33.00% | 33.00% | 33.00% | 33.00% | 33.00% | |
| TAX BENEFIT |
| ($637) | ($745) | ($857) | ($971) | ($1,090) | ($1,212) | |
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| MORTGAGE PRINCIPAL REDUCTION | Yr. 1 | Yr. 2 | Yr. 3 | Yr. 4 | Yr. 5 | Yr. 6 | ||
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| Start of Yr. Balance |
| $126,000 | $124,720 | $123,348 | $121,876 | $120,298 | $118,606 | |
| (Internal mathematical | $135,109 | $144,876 | $155,349 | $166,579 | $178,621 | $191,533 | ||
| calculations - Ignore | $0 | $0 | $0 | $0 | $0 | $1 | ||
| these three rows) | $10,388 | $21,528 | $33,473 | $46,281 | $60,015 | $74,742 | ||
| -End of Yr. Balance | $124,720 | $123,348 | $121,876 | $120,298 | $118,606 | $116,791 | ||
| TOTAL PRINCIPAL REDUCTION | $1,280 | $1,372 | $1,472 | $1,578 | $1,692 | $1,814 | ||
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| PROPERTY APPRECIATION | Yr. 1 | Yr. 2 | Yr. 3 | Yr. 4 | Yr. 5 | Yr. 6 | ||
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| (Increase) | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | |
| Start of Year Value |
| $140,000 | $147,000 | $154,350 | $162,068 | $170,171 | $178,679 | |
| End of Year Value |
| $147,000 | $154,350 | $162,068 | $170,171 | $178,679 | $187,613 | |
| TOTAL ANNUAL APPRECIATION | $7,000 | $7,350 | $7,718 | $8,103 | $8,509 | $8,934 | ||
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