Investor’s Cold Feet

I work with investors, some seasoned and many who need an education. Those that desire to buy income property but don’t really know what they are getting into, I wade through extensive consultation. I attempt to get at the person’s hopes and goals for owning income property. The general response is usually “I want income!” Or said in another way, they have the hope of the cash flow. They want a property that will pay all their expenses and have money left over for themself (every month). This expectation (at least in CA) is usually unrealistic. I find that this person not aware of all the expenses, like management fees, lease up costs, maintenance, vacancy, etc. The typical hopeful uneducated investor usually at this point is rethinking their hope of owning income property – they get nervous about the cost and responsibity.

At this point I try to take another angle. I suggest that income does not necessarily always come in the form of immediate cash flow. In California, one is more likely to see income growth in the form of appreciation in equity. Even if a person begins with a slightly negative cash flow it may still be a great investment. I love the 401K scenario. If you think about it, this is a negative cash flow investment. You invest a certain amout out of your pay check every month to have a growing retirement fund. Many times an employer will pay a percentage of that invested. Let’s say your employer is

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