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Will You Add? - How To Cash Flow Successfully - Backwards Engineering Your Offer Price
Each one of us has witnessed a law enforcement official maintaining peace and order in the streets. We see these officers wearing their uniforms, and we can easily identify them because they usually wear specialized law enforcement badges.A law enforcement badge is an insignia that identifies a certain individual as a member of the police force. It specifies the location of the officer’s jurisdiction and has a unique set of numbers that differentiates one officer from other officers in the same department. The badges also display the rank of the officer. Each department has a different badge design.You will notice that there are generally two common shapes in law enforcement badges: the star and the shield. It is not mandatory, but usually, county sheriffs wear badges that are shaped as a star. Some of the star badges have a crescent border surrounding them. Other badges are shaped like shields. But what really differentiates one badge from another is the city seal. Note t
Interest Rate 7.25%
Term in Months: 360 (30 year note)
Monthly Principal and interest $853.40
The calculation shown here is based on standard investment criteria which are generally 10% down, (or more) required for investment property. An interest rate of 7.25% is reasonable for an investor with better credit. (Your actual rate may vary, this is for example purposes only). I use a 360 month term simply because that is the longest possible time frame and therefore represents lowest possible full payment.
So what do we have here? Basically we have a property we can rent for $1,000 per month. And we see from our quick calculation that this property is going to cost us $853.40 per month for principal and interest. We still have not added taxes and insurance. Taxes and insurance should easily amount to $150 or more per month. (Much more in some areas). The Principal, Interest, Taxes A
Wyoming is a good place to incorporate.In fact, when you think ‘limited liability company’ you should take off your hat, pause a while and thank Wyoming. That is because in 1977, Wyoming became the first state to pass legislation authorizing the creation of a special kind of Wyoming Corporation: The limited liability company.This was the first LLC legislation in the entire country. It was not until 1982 that a further state authorized the LLC, and it took a further six years, until 1988 to be precise, for the IRS to issue a ruling that Wyoming LLCs would be taxed as partnerships instead of as corporations. This ruling encouraged other states to enact similar statutes, and in less than a decade after the ruling, all states had followed suit. Wyoming can be very innovative, all things considered.The state adopted the Wyoming Corporation Act providing a unique set of rules for people wanting to incorporate in this state. It may yet be another far-reaching initiative. A
By definition an income property means “a property that produces income”. This sounds incredibly basic and simple but it is ignored by the vast majority of new real estate investors. I am speaking here specifically of cash flow, when I use the term “income property”.
In order to be profitable you must purchase income properties at prices that allow you to generate a positive cash flow. One of the biggest problems among newer investors is the inability to accurately gauge cash flow potential.
Today's higher selling prices, when combined with taxes and insurance costs have rendered many so-called income properties worthless as investments. Paying too much for a property means you cannot generate an acceptable positive cash flow. Excited but ignorant investors are plunking down big bucks for real estate without checking to make sure the real income will cover the costs. This has led to a drastic increase in the number of foreclosures of investment-grade property.
When it comes to income property all you really need to know is what will a property cost you per month versus how much income can you expect from that property each month.
My anticipated monthly income should exceed my total monthly costs by at least $200 or more for a property to be a reasonably good deal. Most experienced investors would consider $200 to be the minimum amount of positive cash flow that they would accept. If you can’t get a reasonable cash flow - don’t buy. It’s that simple.
It doesn't matter what the seller is asking for an income property. From the standpoint of an investor who is considering buying a particular income property the asking price is irrelevant.
Income is the primary issue that drives my offer price. If there's not sufficient income I’ve either got to lower my buy price to a reasonable level or just walk away from the deal. The last thing I want to do is pay too much going in. Therefore the seller’s asking price is only valid to the extent that the property can generate enough income to justify the price.
When you evaluate an income property you need to know how much income you can reasonably expect from this property each month. NOT what the seller tells me, NOT what my friend at the office is telling me, but what I can reasonably expect based on my own research. This is an area where you do not want to take the seller or anyone else's word.
To protect yourself you must verify likely income for yourself. This is one of the most common mistakes new investors make. Making assumptions about income without verifying the real numbers can leave you with a negative cash flow and put you in foreclosure. So suffice to say it is critically important that potential income be verified before making any written offer. You do this simply by finding out what other similar size properties in the immediate area are renting for.
Once I know what the likely potential income is for a given property then I am ready to determine what I can actually offer for the property by “backwards engineering " based on the income.
Let's say for example that a particular property rents for $1,000 per month and the seller is asking $139,000 for the property. Is this a deal or not? The simplest way to answer the question is to take a mortgage calculator and run the numbers.
Sales Price $139,000
Down payment $13,900 (10% down)
Loan amount $125,100
Interest Rate 7.25%
Term in Months: 360 (30 year note)
Monthly Principal and interest $853.40
The calculation shown here is based on standard investment criteria which are generally 10% down, (or more) required for investment property. An interest rate of 7.25% is reasonable for an investor with better credit. (Your actual rate may vary, this is for example purposes only). I use a 360 month term simply because that is the longest possible time frame and therefore represents lowest possible full payment.
So what do we have here? Basically we have a property we can rent for $1,000 per month. And we see from our quick calculation that this property is going to cost us $853.40 per month for principal and interest. We still have not added taxes and insurance. Taxes and insurance should easily amount to $150 or more per month. (Much more in some areas). The Principal, Interest, Taxes An
Vision, Beginning with the End in MindThe underpinning of every successful planning process is a clear concise Vision of the future; an organizations vision statement is a description of what things will look like at some time in the future. It details what the business aspires to become, to create and to ultimately achieve. The vision is a statement of potential, it gives shape and direction to the organizations future; it is what success will look like. Most importantly, it must resonate with all members of the organization and help them to feel excited and proud to be part of something much bigger then themselves.Mission, Translating Vision into RealityA mission statement communicates the current direction and objectives of the organization; it is a description of what the organization wants to achieve during a specific time frame and provides direction to all, so that everyone knows and understands where the organization is goi
When it comes to income property all you really need to know is what will a property cost you per month versus how much income can you expect from that property each month.
My anticipated monthly income should exceed my total monthly costs by at least $200 or more for a property to be a reasonably good deal. Most experienced investors would consider $200 to be the minimum amount of positive cash flow that they would accept. If you can’t get a reasonable cash flow - don’t buy. It’s that simple.
It doesn't matter what the seller is asking for an income property. From the standpoint of an investor who is considering buying a particular income property the asking price is irrelevant.
Income is the primary issue that drives my offer price. If there's not sufficient income I’ve either got to lower my buy price to a reasonable level or just walk away from the deal. The last thing I want to do is pay too much going in. Therefore the seller’s asking price is only valid to the extent that the property can generate enough income to justify the price.
When you evaluate an income property you need to know how much income you can reasonably expect from this property each month. NOT what the seller tells me, NOT what my friend at the office is telling me, but what I can reasonably expect based on my own research. This is an area where you do not want to take the seller or anyone else's word.
To protect yourself you must verify likely income for yourself. This is one of the most common mistakes new investors make. Making assumptions about income without verifying the real numbers can leave you with a negative cash flow and put you in foreclosure. So suffice to say it is critically important that potential income be verified before making any written offer. You do this simply by finding out what other similar size properties in the immediate area are renting for.
Once I know what the likely potential income is for a given property then I am ready to determine what I can actually offer for the property by “backwards engineering " based on the income.
Let's say for example that a particular property rents for $1,000 per month and the seller is asking $139,000 for the property. Is this a deal or not? The simplest way to answer the question is to take a mortgage calculator and run the numbers.
Sales Price $139,000
Down payment $13,900 (10% down)
Loan amount $125,100
Interest Rate 7.25%
Term in Months: 360 (30 year note)
Monthly Principal and interest $853.40
The calculation shown here is based on standard investment criteria which are generally 10% down, (or more) required for investment property. An interest rate of 7.25% is reasonable for an investor with better credit. (Your actual rate may vary, this is for example purposes only). I use a 360 month term simply because that is the longest possible time frame and therefore represents lowest possible full payment.
So what do we have here? Basically we have a property we can rent for $1,000 per month. And we see from our quick calculation that this property is going to cost us $853.40 per month for principal and interest. We still have not added taxes and insurance. Taxes and insurance should easily amount to $150 or more per month. (Much more in some areas). The Principal, Interest, Taxes A
There are numerous reasons why employees would want to quit their job. It can be caused by a bad relationship with colleagues, mental or physical issues, career change decision or wanting a greener pasture. This is always a crucial stage for everyone because of the fear of not handling your resignation properly because you wouldn’t want to burn bridges while your struggling to start anew. Resigning gracefully is possible, below is the top ways on how to do it.1.It is a norm to resign in person, be professional and face your boss. Set an appointment to discuss this pressing matter and provide a written resignation that contains your intention of leaving, the date you are resigning, the date you would like to live and affix your signature.2.Do not be a coward and announce your resignation through email, fax or phone. You need to be polite even if your leaving. And don’t ditch your job without a warning, more so if you are planning to work in the same industry.3.While
Income is the primary issue that drives my offer price. If there's not sufficient income I’ve either got to lower my buy price to a reasonable level or just walk away from the deal. The last thing I want to do is pay too much going in. Therefore the seller’s asking price is only valid to the extent that the property can generate enough income to justify the price.
When you evaluate an income property you need to know how much income you can reasonably expect from this property each month. NOT what the seller tells me, NOT what my friend at the office is telling me, but what I can reasonably expect based on my own research. This is an area where you do not want to take the seller or anyone else's word.
To protect yourself you must verify likely income for yourself. This is one of the most common mistakes new investors make. Making assumptions about income without verifying the real numbers can leave you with a negative cash flow and put you in foreclosure. So suffice to say it is critically important that potential income be verified before making any written offer. You do this simply by finding out what other similar size properties in the immediate area are renting for.
Once I know what the likely potential income is for a given property then I am ready to determine what I can actually offer for the property by “backwards engineering " based on the income.
Let's say for example that a particular property rents for $1,000 per month and the seller is asking $139,000 for the property. Is this a deal or not? The simplest way to answer the question is to take a mortgage calculator and run the numbers.
Sales Price $139,000
Down payment $13,900 (10% down)
Loan amount $125,100
Interest Rate 7.25%
Term in Months: 360 (30 year note)
Monthly Principal and interest $853.40
The calculation shown here is based on standard investment criteria which are generally 10% down, (or more) required for investment property. An interest rate of 7.25% is reasonable for an investor with better credit. (Your actual rate may vary, this is for example purposes only). I use a 360 month term simply because that is the longest possible time frame and therefore represents lowest possible full payment.
So what do we have here? Basically we have a property we can rent for $1,000 per month. And we see from our quick calculation that this property is going to cost us $853.40 per month for principal and interest. We still have not added taxes and insurance. Taxes and insurance should easily amount to $150 or more per month. (Much more in some areas). The Principal, Interest, Taxes A
So you have taken the past 5 years off of work to raise your child and now you are ready to return to the workforce. Now what?! It's a competitive market out there and having a 5 year gap doesn't help things, but here is a tip to help you get started.What I want to share with you, you will need to draw from both your professional experience as well as your experience from being a parent and staying at home. The tip is simply this: Work Experience Stories. WES are short stories about either how you overcame an obstacle, resolved a major challenge, negotiated a better deal, or a host of other corporate-related topics. These stories have a simple format: the issue, the body of the story, and the result. Let's look at 2 examples, one from your former corporate experience and one from your more recent parenting experience.Example 1 (Issue) “ I remember at my former company I was having a hard time with a vendor. (Body) We were getting shipments late and our customers
Once I know what the likely potential income is for a given property then I am ready to determine what I can actually offer for the property by “backwards engineering " based on the income.
Let's say for example that a particular property rents for $1,000 per month and the seller is asking $139,000 for the property. Is this a deal or not? The simplest way to answer the question is to take a mortgage calculator and run the numbers.
Sales Price $139,000
Down payment $13,900 (10% down)
Loan amount $125,100
Interest Rate 7.25%
Term in Months: 360 (30 year note)
Monthly Principal and interest $853.40
The calculation shown here is based on standard investment criteria which are generally 10% down, (or more) required for investment property. An interest rate of 7.25% is reasonable for an investor with better credit. (Your actual rate may vary, this is for example purposes only). I use a 360 month term simply because that is the longest possible time frame and therefore represents lowest possible full payment.
So what do we have here? Basically we have a property we can rent for $1,000 per month. And we see from our quick calculation that this property is going to cost us $853.40 per month for principal and interest. We still have not added taxes and insurance. Taxes and insurance should easily amount to $150 or more per month. (Much more in some areas). The Principal, Interest, Taxes A
Are good writing skills required of insurance professionals? That is an interesting question. If good writing skills are not required of most insurance professionals, they should be. As an insurance professional, you have not just set up a stand on the corner of the block. You are not just calling out to passers-by to purchase your insurance policies. True, you are selling a product, but the product you are selling comes with a lot of “the written word” – especially before the sell is made.How do insurance professionals get the word out about their products? Web sites, billboards, advertisements in newspapers and phone books – the list could go on and on. Each of these forms of advertisement requires some kind of writing. Your insurance company’s Web site and brochures include the most writing. Your goal is to sell insurance policies, but you also want to make sure you clearly explain the different kinds of insurance policies to your potential customers in terms they can
Interest Rate 7.25%
Term in Months: 360 (30 year note)
Monthly Principal and interest $853.40
The calculation shown here is based on standard investment criteria which are generally 10% down, (or more) required for investment property. An interest rate of 7.25% is reasonable for an investor with better credit. (Your actual rate may vary, this is for example purposes only). I use a 360 month term simply because that is the longest possible time frame and therefore represents lowest possible full payment.
So what do we have here? Basically we have a property we can rent for $1,000 per month. And we see from our quick calculation that this property is going to cost us $853.40 per month for principal and interest. We still have not added taxes and insurance. Taxes and insurance should easily amount to $150 or more per month. (Much more in some areas). The Principal, Interest, Taxes And Insurance are your PITI.
Our payment (PITI) will be $1003.40 but our income will only be $1000. We are going to lose a minimum of $3 per month. Given that the object of the game is to make money we have to come up with an offer price that will allow us to do that. This is where “backwards engineering" comes into play.
Going back to my P I T I calculator in the “Real Estate Investors Guide To Buying Right”, I am going to begin to lower the sales price in increments of $10,000, until I find an amount that will allow me to earn a positive cash flow of $200 or more. I am working backwards starting with the seller’s asking price and going down until I find a number that allows me to net at least $200 per month.
If I lower the sales price in my calculator from $139,000 to $129,000 my P & I will drop to $785.18. I haven't changed the interest rate or the number of years. I am only changing the selling price. $785.18 added to my $150 per month for taxes and insurance now gives me a total cost of $935.18. Subtracted from our $1,000 a month rent we have now achieved a positive cash flow of $64.82. Still not what we're looking for, but we are headed in the right direction.
Next I lower the sales price to $119,000, re-run the calculation and my P & I drops to $716.97. Added to our $150 taxes and insurance we now have a PITI (Principal, Interest, Taxes, Insurance) of $866.97. Potential positive cash flow now stands at $133.03 per month. I still haven't reached my target of $200 positive cash flow per month but again I am headed in the right direction. Next I'll drop the sales price to $109,000.
At $109,000 my P & I is now $648.75. Added to my $150 for taxes and insurance, my total PITI will be $798.75 bingo! $1,000 -$798.75 = $201.25 positive cash flow. I have identified the maximum amount that I can pay in order to achieve my benchmark of $200 per month positive cash flow.
Let's quickly review – The seller is asking $139,000 for a property that will rent for $1,000 per month. If I pay the sellers asking price, I will lose money every month
Using my P I T I calculator I have adjusted the asking price downward, recalculating the payment until I reach the point where I have achieved my desired positive cash flow.
This is the essence of “backwards engineering” your offer price. As you can see from this example it is totally irrelevant what the seller is asking. It is only important to know what you can afford to pay in order to keep the payments at a level that will allow you to achieve your cash flow goal.
In this particular case I would offer no more than $109,000 for the property.
Of course the seller can refuse my offer price and try to hold out for more. But I know that I cannot exceed $109,000 if I want my cash flow to be at least $200 per month. It is not an emotional decision. I could care less about buying a property if it will not make any money.
This is an easy way to determine how much you can really offer for income properties. Whether you're talking about single-family houses or multi unit apartment buildings, your cash flow must be higher than your costs or you will not make money.***
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