In many areas of the country, housing prices have been driven down to levels not seen since the early 2000s. This has created many buying opportunities for potential first time homebuyers and investors. Over the past few years, housing prices have risen so high that buying a vacation home or rental property was out of the question for most of us, with rental properties becoming negative cash flow money pits. But in the past two weeks, I’ve been analyzing some deals in my area where I can buy a 3 bed, 2 bath investment house for less than $100 a month. The deals are not very complicated, but require a mindset change and an ability to take a calculated risk in return for a guaranteed reward.

Change Your Thinking

You might be thinking, “How can I get a $100 mortgage payment on a 3 bed 2 bath house, no matter where the location?”

A 100 year mortgage? Nope.

Foreclosures? Not necessarily.

A 90% down payment? Not at all.

The key is learning to differentiate between your money and other peoples money (OPM). Investment properties are fantastic investment opportunities because you are using other peoples money. The tenants that rent your property pay your mortgage for you. You get the double benefit of owning a property that is increasing in value, as well as potentially earning additional cashflow. In the future, the value of the property itself will increase, as well as the rental prices in the area. Usually within 2 years the rent in the area will rise above your mortgage payment and you will receive income each month from your investment property. Of course by signing the mortgage you do assume some risk, but by doing your due diligence you can minimize the risk to ensure that you are making a wealth generating investment.

Research Your Plan

There is no excuse for not doing your research before making any investment of any kind. Although investment research does not have to be excruciatingly dull or take an absorbent amount of time. Researching your investment ahead of time should be interesting, efficient (time is money!), and rewarding!

To purchase a house for only $100 a month (or less!) out of your pocket you must concentrate on cashflow.

Income

Rent

Expenses

Mortgage Payment (including property taxes & insurance), Home Repairs

Real estate markets are totally different, even between zip codes. The key when researching potential rental properties is comparing the potential rent to the rest of the expenses within that zip code or (even better) that neighborhood.

The rent you can charge for a property is primarily based on the other available rentals in the neighborhood, and not much else. The best way to determine what you could potentially charge for a property is to seek out properties that are “for rent.” I generally like to get an idea of the rentals in the zip code by searching the home rental sites or craigslist.com, before driving through the neighborhood and looking for homes for rent. It’s safe to assume you could rent any comparable home in a neighborhood at the lower end of the rent range.

Your mortgage payment is determined by 4 factors, Principle, Interest, Taxes, and Insurance (PITI). The price you pay for the home will naturally be the biggest determining factor in the mortgage payment. Interest will depend on the mortgage market and your credit score. Insurance and taxes vary by location. Actual property taxes can be found on the local county website, or zillow.com. Home repairs will depend on different factors, including the age and condition of the property, and the type of tenants that you rent to.

The key to cashflow is minimizing the expenses while maximizing the income. In many real estate markets the price of homes has fallen to where investors can purchase homes for less than or equal to the going rental rate in the area. Eventually rental rates increase while your fixed rate mortgage remains the same creating positive cash flow! At the same time your equity will increase turning into a fantastic investment you did not even pay for yourself!