upkeep will help keep cash flow strong. Instead of dipping into monthly profits to make repairs, holding some cash back in a rainy day fund will help smooth out any unantic- ipated bumps in the road.
SWEAT EQUITYMIGHT BE BETTER THAN CASH Another key to conserving cash is dependent on both your skill level and your work ethic. You can reduce labor costs by doing a lot of the work on your own. Sweat equity can get you in on the ground floor of real estate investing without taking any cash out of your pock- et. Oftentimes, other people have the money to invest in a property, but don’t have time to take care of the minutia that goes into a rehab. If you can bring some skills and some hustle into the equation, it’s possible to develop profitable partnerships. As my business has grown, I’ve built a team of trusted, highly skilled tradesmen who do a lot of work for me at a reasonable rate. We have significantly reduced our costs by providing our own labor. As you grow, finding reliable team members can be just as important as doing the work yourself. FINDAFINANCIAL PARTNERWHOVALUES COMMUNITY, APPRECIATES SMALL ENTREPRENEURS In the early phases of your real estate investing career, it’s probably best to think Main Street more than Wall Street. Finding a local banking or finance partner who knows the community and has roots in the community is an important strategy. A local partner is far more likely to believe in your dreams and take a chance on you than a number-crunch- ing national bank looking to maximize profits. Shop around and find a financial partner that believes in the community and in you. Those partners will be good long- term partners. If you can lay out a clear investment vision, find a good financial partner, keep some cash in your pocket and invest your own sweat equity, you will be off to a fast start in your real estate investing journey. •
strategy. The goal for any real estate investor should be to keep their out-of-pocket investment as low as possible. At first glance, making a small down payment might seem counter-intuitive. After all, as homeowners the goal is to build up equity over a long period of time. For traditional homeownership, starting with a large down payment with your own cash is a good strategy. But, what if your goal is to do a rehab and quick flip? Conserving your own cash makes a lot of sense. If an investor ties up $50,000 in a down payment, they have equity in the house, but that $50,000 is no longer working for them. Instead, if they can put $25,000 down and sink the other $25,000 into a kitchen remodel, they will see a significantly higher return on investment. According to Zillow.com, the average minor kitchen remodel has an 81.1 percent ROI. That means the $25,000 you sink into the kitchen will net an additional $20,000 return. If you sold right after the remodel, instead of walking away with $50,000, the investor will walk away with $70,000: the $25,000 down payment, the $25,000 kitchen investment, and the $20,000 return. There are other practical reasons for investors to conserve their own cash. If they plan to develop a cash- flow-positive rental model, they will likely need to make small repairs along the way. Holding some cash on the sidelines for both routine and unanticipated repairs and
Bruce Kellogg has been a Realtor® and investor for 38 years. He has transacted about 800 properties in 12 California counties. These include 1-4 units, 5+ apartments, offices, mixed-use buildings, land, lots, mobile homes, cabins, and churches. Reach him at
brucekellogg10@gmail.com or (408) 489-0131.
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