Generating Cash Flow and Low Risk Rental Properties

Most investors seek positive cash flow; however, the elusive trail to profit can be hard to define and follow. Will you find prosperity in real estate? If you are willing to work at it, you should be able to make money as an investor. How much you will make and where you will make it constitute your individual investment plan. Some investors do it with fast flip properties; others do it with keepers. Buildings constituting of three or four units can fall into either category.

A building's size, condition, and location directly affect how much money the building has the potential to produce. Typically, bigger buildings have higher sales prices than smaller buildings. However, smaller buildings often cost more on a per unit basis than larger buildings. In most cases, the value of triplexes and quads is computed with methods similar to those used to calculate the value of single-family homes. A direct income approach to appraisal normally is not used for smaller apartment buildings.

The cash invested escalates with the price of each building. If you have enough money to make large down payments, you create safer investment environments. Buying into a building with a small down payment can set the stage for financial difficulties. It is a good plan to spread out available cash and to work with multiple investments when things work the way you want them to, but it is a fast track to failure when things go wrong.

Generally, it is considered safer to invest in three unit and four unit buildings when you're starting out and gaining experience as an investor. In fact, buying a triplex or quad is about the safest way to get into rental property as a landlord. The risk of buying a triplex or quad is reduced even more when it doubles as your home. At the very least, you will have a place to live and should have rental income to help make your payments. Even after paying basic ownership expenses, you have a chance of breaking even on the deal and you could be living rent and mortgage free. Of course, if you opted for a smaller down payment, the numbers would change.

Don't fall into the trap of thinking that residential grade rental properties -- such as quads and triplexes -- are not serious investments. The money you spend and the money you make on a small building is just as real as the money you spend and earn on bigger deals. A profit is a profit, regardless of its size. The goal of investing is simple: making money. Granted, it is more fun to earn $50,000 than it is to make $500, but profit is proportionate to risk an effort.

Anytime a person puts hard earned money on the line in hopes of making more money, the deal is serious. Losing $15,000 on a duplex hurts just as much as losing it on a major condo development. To be successful, you must treat every deal with respect and a degree of caution. Buying $100,000 building that turns out to be a loser will sink your ship a lot faster than spending $500,000 on a winner. Never underestimate the power of small buildings. Net profit is much more important than gross income.

Apartment buildings with four or fewer units make excellent stepping stones and can stand alone as investments. You can use the buildings to establish yourself as an investor in various ways. Living in one building for awhile, then moving into a new building and renting out the first building works for some investors. Other investors buy several small buildings instead of one big building. By spreading out their ownership, they spread out their risk.

An investor who works wisely with small apartment buildings can create a tremendous power base for wealth. You don't have to buy multimillion dollar projects to make millions of dollars. In fact, it is sometimes easier to make more money with smaller projects than it is to turn the same profits with bigger deals. People often think that their profits must be in direct proportion to the size of their investments. This is not always the case. In fact, appreciation rates often are higher, on a percentage basis, for smaller buildings stand for larger buildings. A big apartment building might appreciate at a rate of 3% a year, while a four unit building may climb in value at 7% per year. Of course, even a smaller percentage rate on a much more expensive building can amount to more money. There is still money to be made with smaller buildings, though. Don't shrug off their profit potential. Learn how to create it and go for it.

Small buildings also fit the profile for different types of investments. You can buy them as rehab projects, conversion projects, or midterm or long-term keepers. You can even buy them with residential financing programs and live in them. This versatility is a strong reason to justify the purchase of smaller buildings.

In terms of finding a good starting place as an investor, you probably can't do better than a small apartment building. This is especially true if you plan to live in it. If you already live in a single-family home and seek cash producing investments, smaller buildings are still viable. Given the right sales price, income and expenses, you can make money with any type of property. Don't rule out small buildings when you structure your rental plans. For many, a four unit apartment building is an ideal first investment.