If you’re like me, you know many people who ended up losing a ton of money during the real estate crash and are probably still losing money today. Hopefully you’re not one of them, but if you are, here’s how to make sure you don’t make the same mistake again.
First, buy quality properties that people will want to live in. For example, when looking at a house, ask yourself, “if push ever came to shove would I live in this house?” If you’re buying disgusting houses in the ghetto and the market tanks (and renters can be more choosy) it’s going to be a lot tougher to find good tenants.
You want to invest in “quality” 3 bedroom, 2 bathroom single family houses. I’d definitely stay away from condos and properties with only one bathroom. Also, if you’re looking at a property and you have to take a lot of time to figure out if it’s a quality house, then it isn’t.
What to do next…
Once you’re picking up properties that you’re pretty sure will attract good tenants, then the second critical factor is to ensure you have positive cash flow. Listen, you can survive almost any market crash as long as you have positive cash flow.
For instance, I have several properties that of course lost a ton of equity over the past few years. And although I wish I didn’t lose that money, it’s not a huge deal because I have positive cash flow and because I plan to hold the properties for the next 30 years.
How to figure out cash flow…
And when you’re figuring out cash flow, be conservative and be honest with yourself. You should sit down at the computer, open a spreadsheet and factor in all your expenses. What is insurance going to cost? Is there an HOA fee on the house? Are you getting a home warranty? You want to know down to the penny what your cash flow will be on a property.
With a quality property and a positive cash flow, the next thing you need to do is maintain it. Most entrepreneurs are terrible property managers. We’re just not the management type. But you have to force yourself to stay on top of your property and your tenants, to keep it in good shape and to keep getting paid.
Use Quicken rental to set up all of your rental payments. Send your tenants birthday cards and Christmas cards so they’ll want to stay with you for years to come and learn how to be a good property manager overall.
If you do all of the above, you won’t be freaking out during the next market cash, because you’ll have a stable and reliable business that will keep chugging along, despite what the market is doing.