A Tip For Improving Your
Cash Flow And Reducing Your Down Payment
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.
Ever since I
developed this strategy over 15 years ago, I automatically apply it
when setting up the financing on a new property investment. So here it
is. Instead of making your mortgage
payments on the 1st of the month,
ask your lender if you can make them on the 10th of the month.
Why would you do that you ask? Here are a couple of reasons why.
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
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.
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.
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.
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.
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