Property Pathways

The term leverage in real estate refers to your ability to leverage an investment property by creating the opportunity for someone else (i.e. your tenants) to pay off the property’s loan. By doing so, your ROI will be higher because you’re able to purchase an investment property with a smaller down payment The smaller down payment frees up additional cash that can be used to purchase other cash flow real estate investment opportunities.

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The rule of thumb is that you should set aside 50% more of your budget as reserves, especially as a new investor. Your budget almost always goes higher than anticipated and when you're rehabbing houses, one issue can detect another one, etc. For example, fixing a leaky pipe may turn into replacing the pipe and removing mold damage and replacing the drywall. In terms of timeline, I would say that the same thing goes: If your timeline is 60 days, prepare for the project to take 90 days. With added expenses, comes added time.

Unless you have deep pockets, you want to avoid the hole a vacancy creates in your cash flow. The only way to do this is to factor it into the cost of carrying the property. For most landlords, this means assuming that not all months in a year will produce an income. For some that means 2% less in revenue, for others, it's as high as a 10% loss in revenue. The key is to assess the property, the type of tenant and then to factor in how much revenue loss you should expect on an annual basis.