With traditional 100% mortgages virtually non-existent due to the sub-prime loan crisis, those who can still qualify for a loan and can afford a down payment should take solace in the fact that buying long-term investment properties this way is more likely to make them cash flow.

When I analyze houses in my local market to determine if they will be a good investment, it is rare to come across a property that will provide positive cash flow without a down payment. In my market, this appears to be true even for discounted houses. However, I realize that other markets may be more investor friendly than mine is and I do own rental properties in other markets where cash flow is much easier to achieve.

But, for those of us in the more expensive markets…

If you can still get 100% financing from somewhere (like the owner carrying back with traditional payments), then you should consider whether you are able to handle the negative cash flow. I like to think of negative cash flow as a deferred down payment. Often, you can pick up properties with equity that would be nice for your long-term portfolio, but they just don’t cash flow unless you are willing to put something down.

If you can support a property like this, and are willing to make your “down payment” over time with the negative cash flow, then, by all means, consider these deals. But always be careful, because, while a little negative cash flow doesn’t seem too bad at first, when you factor in vacancies, repairs and market fluctuations, you can face some pretty lean times keeping your property fed. It’s critical to make sure that you have long-term holding power so that you don’t lose your properties.

If you do have the money to put down and are more comfortable staying out of the red most months of the year, then you should consider buying by putting money down. However, if you like to be more highly leveraged by getting in with nothing down, be prepared to pay the cost for this over time. Alternatively, you can buy houses with equity and turn them around quickly to increase your investment capital to put into long-term rental properties. Meanwhile… keep looking for those creative deals, because bank money is getting harder for all of us to acquire.

Remember, every market and every deal is different. Always do a full analysis of any investment property that you plan to buy and seek the advice of your local professionals.

Until my next post,

James

P.S. As an aside, there is still 100% financing available–not traditional 100% financing though–and we teach those strategies to our Real Estate Investor Bronze Members through our training materials and consulting sessions. We also discuss strategies for getting properties–even those with 100% financing–to cash flow with a variety of strategies.