INVESTORS’ CORNER: Avoid Financing That Creates Negative Cash Flow

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By: Chad Carson

“After a couple of bankruptcies, even the brightest stars soon discover that ‘Nothing Down’ leads to ‘Nothing Left’.  Feasible financing is the key to real estate cash flow and wealth.  This is best obtained from motivated sellers than from skeptical bankers who insist that you personally guarantee your payments.”

-Jack Miller, Success Secrets

“Feasible financing is the key to real estate cash flow and wealth.” That’s worth repeating.

After surviving the downturn of 2008-2010, I agree wholeheartedly. I saw many investors go out of business because of their bad financing.  It led to negative cash flow, either with monthly payments or with big balloon payments. Those negative cash flows are what ultimately brought them down.

So, I would recommend that we investors all adopt this as our mantra:  Don’t buy with negative cash flow.

While we always want the most profit AND the most cash flow, early in our investing career cash flow is the priority. In other words, you must survive before you can thrive.

This is why early in our investing business my partner and I often gave up part of our equity to a private lender in exchange for feasible monthly cash flow. We wanted to make sure our monthly rent paid for our loan and also left a cushion. We also wanted longer term payoffs so that we could avoid big balloon payments that might sink our real estate ship.

Whatever source of financing you use (private lenders, seller financing, commercial loans, or long-term mortgage loans), focus first on your current cash flow. Long-term equity and net worth growth are important. But you must first survive to see that equity come to fruition!

Chad Carson is a member of Metrolina REIA (metrolinareia.org), which provides education, networking, and networking for real estate investing in the Charlotte region.  Chad also writes a newsletter about real estate, money, and life at coachcarson.com