Dwight D Eisenhower famously said “Plans are worthless but planning is everything.”
When it comes to real estate investing, no one can tell the future. That doesn’t mean you shouldn’t try. There have been other articles written on BiggerPockets.com exploring how to make a plan. However, thanks to my financial background, I like to think I look at things with a different bent. So let’s get your brain juices flowing by bring up some topics you need to consider when you’re doing your real estate planning. Look 5-10 years in the future when answering the questions in each section.
Loan To Value
Loan to Value is the amount of your financing divided by the value of your home. If you’ve borrow $80,000 on a $100,000 house the LTV is 80,000/100,000=.8 or 80%. The higher the percentage, the more risk you are taking on. I’ve made this argument many times in the past, but keep your LTV at a reasonable number. 100% LTV means you have no room for error. If anything unexpected happens in your market, you’re going to wind up in squeeze.
- Do you have a high income that you can use to dig yourself out of a hole?
- Is your income low enough that a bad investment will lead to bankruptcy?
- What LTV is ideal? Is this higher or lower than what you have today? Do you need to change your approach?
Passive Cash Flow
Passive cash flow is magical money that comes in your front door every month without you lifting a finger. In real estate, this typically is created by investing in rental real estate.
- Do you want to pursue passive cash flow? You can make money in real estate without passive cash flow.
- Are you still working? Are you hoping to use passive cash flow to retire? If so, how much income …read more