Never ignore the #1 rule of Real Estate investing.

As someone who loves real estate investing and have been doing it for close to twenty years you would think I would never forget this #1 rule of real estate investing. The most important thing on a real estate investing transaction is cash flow. If it doesn’t cash flow, move on.

I recently found myself looking at a deal that included five houses. I liked everything about these five houses. The locations, the types of houses, the sq footage, the look of the houses. You name it, I liked it.

A couple of other things I liked about the deal.

It would be a step up for me in what I own. Not to say I don’t have nice properties. But these homes would be a step up. There is no question about it. I also, like that I am buying five at that same time. This is the only way to scale. You have to buy more doors at a time.

As I ran the numbers I quickly learned that there isn’t much cash flow. Best case scenario is it would be a wash. Meaning it would generate enough to cover the expenses to own it. As a long time investor, I know that a wash means you are losing money. Because things happen and it will cost you more.

I originally put the numbers into a system I use to run numbers for me. And it told me that it was cash flow negative. Some of the numbers I put in the system were estimates on what I thought taxes and insurance would be on the properties.

Since I didn’t like these original numbers I actually then requested actual numbers for taxes and insurance. And I learned quickly that my numbers were way too high on my estimates.

I was really excited about this.

I go back in to the system and put the actual numbers in it.

Guess what, they still weren’t positive.

Then I started thinking about appreciation. Which is another topic for another day, but never ever have I bought a property betting on the appreciation of it. But I started calculating what the properties would be worth five years from now and then ten years from now.

I then started playing with the amount of rent I think I can get on each door. Again, this is slippery slope for two reasons. The first problem with this thinking is you are assuming the current seller is so dumb that they aren’t getting the most they can on a monthly basis. The second problem is: You always over estimate what you think you can get.

As you can see I am getting emotional about this deal. I really want the deal.

I then reached out to a couple of people who know the market better than I do. And I was reminded about rule #1 again. If it don’t cash flow, move on. There is always another deal.

As I sit here today, I am going to rerun the numbers. The chances are the seller isn’t going to like the number I need to be at on the deal. But it is worth a shot.

I will update you as this deal evolves. It may already be dead, but we will see.

To your success and your future.

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