One of the best ways to create cash flow is to buy a house with a low interest, low balance, assumable Federal Housing Adminstration or Veterans Administration loan. Lower interest rate loans make the rental houses affordable.
Some of you may want to buy your first rental house, but can't afford to make a down payment. Maybe you already own a rental house and it has a negative cash flow. Can you create a cash flow under these circumstances? Yes, there are a number of opportunities to create positive cash flow:
- Seller Financing. A motivated seller is the best source for financing the purchase of a property. Lower interest rates and little or no financing costs make this a big cash flow producer.
- Long Amortization Schedules. Don't be talked into five and seven year mortgages unless you are planning to retire soon. If the seller will not carry the loan for 30 years, offer to make payments based upon a 30 year amortization schedule - with the loan all due and payable at the end of 10 to 15 years. This means smaller monthly payments for you.
- Increase Rents Or Decrease Expenses. However basic this may sound, an investor's success depends on his or her management ability once the property is purchased.
- Moratorium On Payments. Motivated sellers are especially willing to agree to a moratorium on payments (i.e., no payments on seller financing). There are a number of other reasons for asking for a moratorium on payments. For instance, suppose you agree to purchase a duplex that must be cosmetically improved before you can increase rents. To provide cash needed for the improvements, negotiate a full or partial moratorium on payments for the first six months.
- Low Interest Rate Loans. Use a low interest rate, government loan to buy or rehab your building. A low interest rate loan will have smaller monthly payments.
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