Think of it as a lever.  More cash investment up front equals more cash flow.  It is really as simple as that.  Everyone WANTS no cash investment and lots of cash flow.  Sorry….   That’s why KKR and alot of the Merger & Acquisition deals of the late 80s failed.  They overpaid for a company and saddled it with too much debt AND at too high an interest rate.  The whole thing is bound to fail.  Same thing goes for real estate.  Don’t plan on putting no money down AND not having a cash cushion.   Anyone who “sells” you anything else is giving very bad advice.  If you put 50% down on a real estate investment, then you don’t need a cash cushion because your Principal and Interest payment are low relative to your net operating rental cash flow.  If you put nothing down, more than likely, you have negative cash flow which can normally be more than offset by your income tax savings.   Sound complicated?  it is, and isn’t.  Just talk to a knowledgable and experienced professional like an accountant and they can explain how all this ties together.

it’s coming.  Freddie Mac and Fannie Mae are goign to be bailed out and put under strict governmental control.  What does it mean for Investors?   Tighter lending standards for homebuyers and consequently, less buyers qualifying for loans.  So, more tenants who would have qualified for mortgage loans….   Eventually - 18 months, 36 months????   Lending standards will be relaxed and the tenants will qualify for a loan.  Guess what home they will want to buy?  The one  where they have lived, raised their families, made friends with the neighbors, sent their children to the neighborhood schools, made improvements, etc.

The elimination of downpayment assistance (DPA) substantially increases the need for rental homes.  Too many Gen X and Gen Y have not saved any money for a downpayment.  They have not been taught the need to save - they want instant gratification and are “willing” to do it on credit.

The new Housing Bill:

• Bar the FHA from insuring mortgages in which the borrower’s down payment is paid by the seller, beginning on Oct. 1, 2008.
• 40% of all FHA loans use DPA
• FHA says seller-funded down DPA’s present the single biggest challenge to its solvency.  Borrowers who take part in DPA’s go to foreclosure at nearly three times the rate of borrowers who put their own money down.

Want to increase the tax benefits of your rental propeties???? 

Substantially increase your depreciation deduction by segragating all the components of the property - the whole way down to elecrical outlets.  There are 3 classes for depreciating residential rental homes - 5 years accelerated, 15 years accelerated and 27.5 years straight-line.  Guess where you want the most of the property depreciated???   in the 5 year category, where you can deduct a whopping 52% in the first 2 years or around 5% for 27.5 year category. 

The Columbus Real Estate Investment Association (REIA) has added Bill Moorhead to the faculty.  He teaches classes on New Homes and Rehab.  The faculty was selected by the Association based upon experience and knowledge within their fields.

http://www.columbusreia.com/node/65