How to Safely Invest in Real Estate. Part 9

We know why we're here. Part 6 of our series covered the reasons for investing in real estate.

We know whether the numbers work. Part 7 took care of that.

We know this particular property meets the three basic criteria-curb appeal, fitness for use, and structural integrity-that we outlined in Part 8.

Now all we need is a little money, and this Dollar bill printing press will be ours. But, oh, the woes of obtaining financing. How can I get my hands on some more money? I am assuming, of course, that everyone reading this series has purchased at least one investment property in the past. I am also assuming, since it is so prevalent in our country, that everyone reading this series has some level of credit card debt. A friend told me the other day that he is still paying for a TV he bought 7 years ago with his credit card. I'm not sure he was kidding.

Financing can be a tricky, and sometimes dangerous, proposition. There have been times in my past where I was able to schmooze the banker into giving me a loan I really shouldn't have had. As a consequence, I almost went bankrupt. I had to be bailed out by my mother-in-law. Take a bite outta that apple, and see if ya like it!! That was humiliating to me, but it was a good lesson that I needed to learn.

When I look at investment property now, I always try to factor in a 20% down payment. That does a couple of things for me. First, it forces me to commit my own money to the project. Second, it puts me in a good position with the bank to negotiate favorable terms. Third it gives me a cushion in case I need to sell quickly.

Before you laugh me out of the real estate investment community, remember the title of this series is "How to Safely Invest in Real Estate". I have purchased many properties with 100%, creative financing. I am not opposed to it, when used properly. I have simply used it improperly enough to know that I shouldn't be playing with matches while sitting on a gas can.

At one point in my career, I was paying out about $10,000 per month in mortgage payments and taking in about $8,000 in rents. Then I had to pay for utilities, taxes, insurance, etc. Then I had to buy groceries. This is where you are supposed to say, "Dan, you are a meathead!!" My wife sure felt like saying it...

Since that time, I have put together a lot of information and safety valves that have kept me from making more catastrophic financial decisions. My mentality prior to my humbling was to swing for the fences. Now I just want to hit singles and get on base. If I hit enough singles, I'll win the game, and every now and then, I'll get lucky and knock one out of the park.

Please learn from my mistakes and find ways to weave safety margins into your investment decision matrix. You will be much happier if you do.

In subsequent blogs we'll discuss how to obtain financing.

Dan.