On episode #327 of The Creating Wealth Show host Jason Hartman throws the floor open to listeners with questions regarding how to choose your first income property. Those standing on the sidelines with cash saved for a down payment should pay special attention. The answers Jason provides are the kind of good, solid, actionable information you could put to immediate use in buying your first income generating property. Later in the show, Jason invites, Dr. Jerome Corsi, infamous co-author of the New York Times bestseller, Unfit for Command: Swift Boat Veterans Speak Out Against John Kerry, to the show to discuss the possibility of a coming government grab of your 401k.
Financing the Fun Stuff
A few shows back Jason took Investment Counselor Sara ro task (in good humor) over her recent boat purchase, describing it as a hole in the water you throw money into. According to him, the two best days in a boat owner’s life are the day he buys it and the day he sells it. With some prodding from co-host Michael, Jason realized he might have come off sounding too harsh against successful income property investors who use their wealth to buy what well-known author, Robert Kiyosaki, calls doodads. After all, the whole point to growing wealth is to enjoy life, right?
Here’s one approach to the problem. Kiyosaki recounts the time he mentioned to his wife that he wanted to buy a new Ferrari. She told him he needed to buy a new apartment building first. The cash flow would cover the monthly cost of buying and driving the hot sports car. The lesson is a good one. Before delving into your nest egg to buy something that only gives the appearance of wealth, like a Ferrari, first buy something that creates wealth, like an apartment building, to pay for it.
What Should a Brand New Investor Do?
Jason’s been in the real estate game for decades. So long, in fact, that he had to think a minute when asked what he would do if he were starting out as a brand new investor right now. If you’re still waiting to buy your first property, pay attention! The next few paragraphs are real estate gold!
There are two things you should focus on simultaneously in the weeks, months, or years leading up to your first property purchase: capital accumulation and managing your credit score. No matter which way you look at it, you’re going to need about $20,000 in cash for a down payment on your first property. Some markets, Memphis and Indianapolis are two examples, might have cheap enough deals you could get in for half that. The bottom line is, in today’s market, you need 20% of the total purchase price as a down payment because you’re going to finance the rest. Which leads into the second point. Guard your credit score like precious diamonds. It’s THE critical component in convincing a lender to loan you the other 80% of the property price.
How to Choose Your First Income Property
Once you have your down payment in hand and credit score primped and ready for the big dance, it’s time to get down to the business of screening and selecting your first income property. Your overall guide to the process should be Jason Hartman’s 10 Commandments of Successful Investing. If you haven’t read through them in a while (or ever) visit www.JasonHartman.com, scroll about halfway down, and enter your information to receive a free ebook.
For our purposes here, the most important thing to remember is be a direct investor! That means you need to personally control your own portfolio and assets. One of Jason’s primary beefs with Wall Street is that you have to turn over control to a middleman. Bad idea! As regular listeners to the podcast know, you could be dealing with a crook or incompetent, and certainly will be paying a basket full of unnecessary fees that reduce your profit.
Find a Property That Makes Sense Today
Another admonition Jason provides to income property investors is not to buy a property unless it makes sense the day you buy it. Pay attention to the RV Ratio (it should be at least 1%), make sure you have a positive cash flow after ALL expenses are covered, and don’t waste your time trying to find lucrative properties in troubled areas. An example of a troubled area would be a place like southern California, where the sky high prices throw the RV Ratio out of whack. In general in such places, you can’t hope to make enough in rent to achieve proper cash flow. Lots of people buy and hold or flip houses, hoping to make a score with property value appreciation in SoCal, but don’t fool yourself. That’s gambling, not investing. You can get burnt bad.
Choosing Between Similar Properties
It’s a common scenario. You have two properties under consideration to buy and…just…can’t…make…up…your…mind. Stop agonizing! There’s no magic solution. Do what analysis you can then pull the trigger. It’s a philosophy called Ready, Fire, Aim, and it works for a great many investors to avoid the common malady of analysis paralysis.
This advice isn’t to encourage you to be flippant about the process but no one knows the future. At some point you simply must make a decision or risk standing on the sidelines forever with a fistful of cash, watching as inflation devalues it daily. It’s far better to put it to work in an income property.
The Bottom Line
If you need specific advice for real estate investing, or even a gentle but firm push to buy a property already, visit our website at www.JasonHartman.com . Our investment counselors are always happy to discuss any aspect of income property with you at no charge. You can also browse the list of current properties for sale in today’s profitable geographic markets.
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The Jason Hartman Team