Financing Investment PropertiesA Tip For Improving Your Cash Flow And Reducing Your Down PaymentHere is a little tip or "strategy" if you will, for improving cash flow when financing investment properties. On the surface it may seem straight forward (and it is) but it is a powerful little strategy for improving the monthly cash flow from your rental properties. Remember, in the real estate investment business, cash flow is king.
Why would you do that you ask? Here are a couple of reasons why. Sometimes tenants don't pay the rent on the 1st of the month like they should (yes, I know, a shocking revelation). And sometimes rent checks bounce. And sometimes other "stuff" happens. But guess what? I can almost guarantee you that the mortgage payment will not come out of your bank account late. If it's due on the first of the month that's when it will come out, like clockwork. Solution? By bumping the mortgage payments to the 10th of the month you in effect give yourself a few extra days "breathing room" each month to make sure the rents are collected and there is sufficient cash in your account to pay the mortgage. Now here is the second reason you should apply this strategy when financing investment properties. It can reduce the amount of cash you need to run your investment property. Here's how. Let's say you purchase an investment property and you close on the deal September 1st. You, as the new owner, are now entitled to the September rents that your tenants will be paying. As part of the adjustments on closing, the seller will credit you for those rents. If the rents are $30,000, that $30,000 will be deducted from what you have to come up with at closing. Now remember, when financing investment properties (or any real estate) the interest on the mortgage is paid in arrears. In our example above, that means that your first mortgage payment isn't due until October. So "in theory" you can use October's rents to make your first mortgage payment, allowing you to "keep" September's rents for yourself. But before you go and spend that $30,000, remember the first reason for paying the mortgage on the tenth of the month. If you arrange to have the mortgage payment on the first of the month you are going to have to keep a good chunk of the September rents in your bank account come October 1st. If you push the payments to the 10th, now you can use October's rents to make the payment.
This strategy for financing investment properties won't add any value to your property, but it will help with your cash flow and perhaps, when done properly, reduce the amount of cash you have to bring to closing. Return from Financing Investment Properties to Real Estate Investment Business |
