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In this Investment Strategy, a cash flow scenario in the Eastern Lake Worth Market will be considered.  This market has been evaluated for potential long term upside growth due to the Eastern location and the restaurant and night life scene.  Further, the study of current market conditions displayed declining values, an over supply of inventory, increasing foreclosure activity and a large population of tenant occupied units.  These conditions are found to be attractive for the cash flow scenario in this example.  The typical investor that purchases cash flow properties looks to assume real estate in declining conditions and hold the units until conditions have appreciated all while reaping the benefits of positive monthly cash flow.  In this example, the investment objective will be a 15-20% annual return on the down payment or the Cash Out of Pocket (COOP).

To invest in cash flow properties, an investor needs to truly understand how an income operating sheet works and budget all necessary pitfalls of managing the investment property.  The search will be based on operating sheets of potential investments and the expected return on investment (COOP).  Since the average investor in today’s market needs to come to the closing table with a 10% down payment, we will base our needed annual return on the 10% COOP and an expected 15 – 20% annual return. 

A duplex property located on South F Street listed at $164,900 and has populated the search for a potential cash flow property.   The unit has two 2/1 units with a current monthly income of $930.00 per unit.  This property is overpriced by $25,000 with a current estimated value range of $140,000 – $150,000.  The property has no deferred maintenance with the current owner performing $7,000 of upgrades over the past 12 months.  For the purpose of this study, we will consider current rental income as a good indicator of market rents. 
 

The above is determined to be a reasonable operating expense for the subject property.  For the bid price, the low range of $140,000 to $150,000 will be considered.  The offer will be at $140,000 with the seller paying closing costs.  In this scenario, the investor will have to come to the closing table with a minimum of $14,000.  The hypothetical transaction is approved for a 30 year fixed rate at 7% giving the investor a mortgage balance of $126,000 and a monthly mortgage payment of $838.28 (Principal and Interest).  After estimating the mortgage balance, it will be applied to the cost breakdown and determine if this level gives a suitable return. 

This property investment if agreed upon produces close to a 65% annual return on the investor COOP of $14,000.  This investment strategy is a true cash flow property that takes the speculation out of the current real estate market.  Over time, historical evidence shows that property values will appreciate, rents will appreciate and the mortgage balance will depreciate.  Further, this investment structure if properly managed takes into consideration unexpected repairs and maintenance. 

If your interested in the property in this example or other income producing properties, contact me for a Free consultation www.FastFloridaAppraisals.com.  If you need help financing your investment properties, you can contact Lissette Cancio with Approved Team Lending at www.ApprovedTeamLending.com
 
 
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Next Bode Report January 2008, will feature a hedge strategy utilizing this property for protection in down markets. 
 
 
My reports include information from sources believed to be reliable and accurate as of the date of the reports.  I do not guarantee accuracy or completeness of these sources.  Opinions expressed are subject to change without notice.  The reports should not be construed as a request to engage in any transactions involving the purchase or sale of Real Estate.  The risk of loss in property investments can be substantial, and investors should carefully consider the inherent risks of such an investment in the light of their financial condition.  Any reproduction of my reports without the express written consent of Michael W. Bode, is strictly prohibited.