Four Numbers You Should Know When Buying Real Estate With Zero Cash

Built-in funding can solve your real estate financing needs quickly and easily. Investors should look for it in every deal.

Government foreclosures may come with built-in funding. So be sure to check it out in advance to save time and money. Internet searches for government and private foreclosures can show you many different properties for sale that you can consider buying and earning money from.

New property construction financing can get you the money you need for spanking clean residential units you can rent for a profit.

"Financing Available" ads usually have seller financing or an assumable mortgage ready for you！the buyer.

* Zero-down property ads say that the seller has a property available for you for zero dollars down. This means you can get into business nearly free.

* For Sale By Owner (FSBO) properties may have financing available because the seller is anxious to get rid of the property and move on.

* Private lender financing may be available for a variety of properties you can use to build your real estate riches.

* Unusual offers made by sellers seeking to get out of property quickly can give you many new opportunities to build riches.

Count Your Way to Your Real Estate Wealth

There are the four easy, fun numbers you should know if you want to build riches in real estate on zero cash. We'll look at each of these numbers in terms of an income property you might buy. You'll see how you can use the numbers to figure the income you'll earn from one of your own properties. That way the numbers will have importance to you！personally.

1. Positive Cash Flow

Positive Cash Flow (PCF) is just what the words say, that is:
Your monthly cash income after paying all costs of your income property, including your monthly loan payments for all mortgages you have on the building. There's no magic about PCF ！ you either have a monthly positive cash flow or you do not.

Note that your PCF with each property includes your having paid for all these expenses BEFORE your PCF is figured:

* First mortgage！your long-term loan on the property.
* Second mortgage！your short-term (3 to 5 years) down payment loan for your zero-cash deal.
* Real estate, water, sewage, and all other property taxes.
* Maintenance of the property！repairs, cleaning, updating, expansion, painting, carpet replacement, or other.
* Any management fees to collect rents, find new tenants, or other fees.
* Heating, air conditioning, other climate control.
* Vacancy allowance！usually 5 percent of your annual rental income！but actually often much less or zero!
* Electric, gas, and other utilities for the building not paid by your tenants or an agency if they're on a rent payment program from the city, state, or national government.
* All other operational expenses of your building.

Thus, your PCF is true Money-in-Fist (MIF)！money you can spend for improving your property, deposit into a savings account, buy another income property, use 
to take a vacation, or another wish. You can use your PCF for any purpose you choose.

Remember！always！the Hicks rule of getting rich from zero-down income property, namely:
You must ALWAYS have a monthly PCF from every income property. Never buy an income property unless you can see it giving you a monthly PCF from the first day you buy it! Violate this rule and you'll regret it when you must pay from personal funds to keep the building in operation.

2. Monthly Debt Service

In every normal real estate project, you will make one or more monthly-debt payments. To determine if you have a positive cash flow you must know the amount 
you'll pay each month on every loan you have on the building. Such loans might be:

A. First Mortgage Payment Strategies for You

When applying for your long-term (15, 20, 25 years) First Mortgage, keep these three key facts about your monthly payments in mind at all times:

I. Apply for and get a fixed rate long-term First Mortgage. Why? Because with an adjustable-rate mortgage, your loan payments representing Principal and Interest (P&I) can increase if the measure on which the rate is based changes. You do not want to be faced with rising First Mortgage payments. Never accept an adjustable-rate First Mortgage. Demand and get a fixed-rate First Mortgage for every investment property you buy.

II. Choose monthly P&I payments for your First Mortgage. Why? Because by doing so you pay down your debt, increasing your equity (ownership) in the property every month. Every dollar of equity you gain becomes a dollar (or possibly even SI.25) that you can borrow to buy another income property or improve your present building. REMEMBER: Pay P&I monthly. Doing so builds your real riches (your assets) in real estate!

III. Keep your First Mortgage for its full term！15, 20, 25 years. Why? Because partial, early repayment only takes cash out of your pocket without getting you much relief from your regular P&I payments. The only time you benefit from early repayment of your First Mortgage is when you can pay it off in full. 

Then you gain relief from your P&I payment, giving you an instant increase in your PCF. REMEMBER: Don't make partial advance payments on your income-property First Mortgage. Instead, save your extra cash and wait until you can pay off your First Mortgage in full!

B. Second Mortgage Payment Strategies

Your Second Mortgage！usually your down payment loan！has different financial implications for you. So you'll treat your Second Mortgage differently from your 
First Mortgage, namely:

I. Pay off your Second Mortgage in full as soon as you can. Why? Because paying off your Second Mortgage in full early requires less cash than doing the same for your First Mortgage. 

II. you get an instantaneous PCF increase for yourself！the most important person in this entire deal! Thus, if you're paying $600 per month on your Second Mortgage and you pay it off in full, ; your PCF immediately rises by $600 per month. Pay off your Second Mortgage in full as soon as you can to increase your PCF.

III. Don't fret or worry about the interest rate you pay on your Second Mortgage. Why? Because the interest you pay is provable and legitimately tax-deductible. Your main concern is to get your Second Mortgage loan because this loan opens the door to the world of real estate wealth for you. Without your Second Mortgage you could not get the property you own unless you dipped into your savings. With your Second Mortgage you're on your way to real estate wealth! So look for and get the Second Mortgage you want and need. Never get discouraged when looking for your Second Mortgage. Keep applying at suitable 
lenders. REMEMBER: Your Second Mortgage is your key to wealth when you're just starting your journey to your real estate fortune. Use every legitimate means you can to get your Second Mortgage loan!


3. Debt Coverage Ratio.

The Debt Coverage Ratio is a number based on your income from the property that tells a lender whether you can easily make the monthly first mortgage payment. To figure your Debt Coverage Ratio for a specific property, take these five steps:

A. Your Annual Income from the property. We'll say it is $80,000.

B. Your Annual Expenses for the property BEFORE your P&I mortgage payments. We'll say it is $41,000.

C. your Net Operating Income BEFORE debt service by subtracting from your Annual Income (= $80,000 for this building) the Annual Expenses {= $41,000 for this property). Thus, $80,000 - 541,000 - $39,000.

D. Figure your Annual P&I Debt Service Cost. For this building, it is $28,000 per year.

E. Figure your Debt Coverage Ratio by dividing your Net Operating Income by your Annual Debt Service Cost. Or, S39,000/$28,000 - 1.39. This is your Debt 
Coverage Ratio.

As lenders, we look for a Debt Coverage Ratio of 1.3 or more. So this property, with its 1.39 Ratio, would be attractive to us as a loan candidate. That's all there is to the Debt Coverage Ratio. When you approach a lender for your mortgage loan, you will always point out the ratio for your debt coverage, if it's 1.3 or higher. Your lender will he delighted that you took the time to figure this out in advance.


4. Capitalization Rate

Your last easy number for your real estate millions is the Capitalization Rate. This number tells you your percent return on your income BEFORE your P&I debt payments, based on the price you paid for the property.

As a lender we always look at the Capitalization Rate. Why? Because it tells us, in just seconds, whether the real estate is a good business deal for you！and for us!

To figure your Capitalization Rate, divide your Annual Operating Income BEFORE Debt Service by what you pay for the property. Thus, if you paid $480,000 for the property discussed above, your Capitalization Rate - $39,000/5480,000 = 0.08. Or, multiplying by 100, your Cap Rate = 8 percent.

Typical cap rates range between 6 percent and 20 percent. Hence, this property is an attractive loan candidate for any lender！including the lender for which I am director.

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