When an income property doesn’t generate enough income to cover operating expenses, it results in a negative cash flow. A problem real estate investors want to avoid with investment property because it would require the real estate investor to feed the property.

Here’s a technique to help you avoid purchasing a rental property with negative cash flow. A formula you can use to conclude how much you can afford to pay and still break even. It’s not difficult to calculate provided you make the computation one-step at a time.

1. Compute gross operating income Gross scheduled income – Vacancy allowance = Gross operating income.
2. Determine net operating income Gross operating income – Operating expenses = Net operating income.
3. Figure net income percentage (NIP) Net operating income / Gross operating income = Net income percentage.
4. Compute down payment percentage (DPP) In this case, you’ll need to know the average gross rent multiplier in your area (GRM) and the current market interest rate (I) to make this computation: 1 – (Net income percentage / GRM x I) = Down payment percentage.
5. Determine maximum purchase price Available down payment / Down payment percentage = Maximum purchase price.

Let’s consider an example. Say you have $75,000 to invest and do not want to purchase an investment property with a negative cash flow you would have to feed. You would do the following two steps to establish the maximum purchase price you can pay for the investment property and avoid having a negative cash flow.

First, compute the down payment percentage. If the net income percentage (NIP) is 75%, the average gross rent multiplier (GRM) in your area is 10, and the current market interest rate (I) is 6%, compute the down payment percentage as such:

1 – (.75 / 10 x .06) = .25

Secondly, plug in the down payment percentage and compute the maximum purchase price:

$75,000 / .25 = $300,000

In other words, with a down payment of $75,000 at the parameters used in our example above, you can avoid a negative cash as long as you don’t pay more than $300,000 for the real estate property. Of course, plug in your own variables to determine the results matching your particular situation. But as you can see, it’s not difficult and well worth the effort. It really does incorporate a break-even point and therein quickly helps you resolve how much real estate you can afford without dipping into your pocket and feeding a negative cash flow.

Here’s to your real estate investing success.

Real estate investing is a business, and like any business, real estate investors have to work at it. Once the income property is purchased, therefore, and the investor becomes a landlord, the goal (unless the investment property is land) must become getting the units full, and at the highest rent per square foot possible.

This is where property management comes in, and decisions made to handle issues like parking (which typically gets overlooked by landlords).

How you maintain your rental property parking area depends on whether you have open parking, garages, carports, or a subterranean parking structure. But aside from the maintenance, there are common-sense principals about rental property parking that real estate investors are advised to understand.

Foremost, paint numbers on the spots and assign them to your tenants (even if you have open parking). Feuds between tenants in a building erupt quickly when someone monopolizes all the parking, whereas assigning parking spots to tenants do help eliminate any potential conflicts.

Extra parking spaces in your rental property can be used for several things. For an extra monthly fee, they can be made available to tenants who need more parking. Or, they can (and probably should be) designated for guest parking. Unless there are specific governing rules to the contrary, one guest space for every four units is a good rule of thumb.

Moreover, your parking area should have a sign clearly posted that says you have the legal right to remove any non-tenant cars from tenant spots. In most cases, your tenants will appreciate this. Just be sure to check with your city regarding their policies because most cities require posting a sign that cites the corresponding vehicle code and a phone number to call if a car is towed.

Parking rules should be spelled out in your rental agreements, as well as posted in the parking area. Here are some suggestions.

1. Tenants are to park in designated areas only
2. Guests are to park in assigned areas only
3. There is no storage of flammable or dangerous materials allowed
4. Car washing in parking areas is not permitted (unless, of course, it is)
5. Auto repairs or oil changing in the parking area is prohibited

Naturally, driveways and parking surfaces should be properly maintained and serviced. The last thing a landlord wants to hear is that a tenant got injured or sustained car damage due to a hole in the pavement. Besides your tenants see these areas every day, and they are part of the overall appearance of your building. If you fix small cracks and holes as they occur, it will save you a major expense later on.

Yes, real estate investing is a business, and proper management of that business, along with good management of the property is essential. The policies affecting the rental property parking area is one of those concerns about real estate investing that real estate investors should address.

A short sale is one in which the property has yet to be formally foreclosed on, but the lenders have agreed to take less than is owed on the loans to get a payoff on the balance owed.

A short sale typically is allowed by lenders to prevent a real estate foreclosure because they believe that it will result in a smaller financial loss than foreclosing, moreover it’s typically faster and less expensive than a foreclosure. For the property owner, the advantages include avoidance of having a foreclosure on their credit history

Why Do Short Sales Exist?

Short sales exist because owners get in trouble and lenders have found that they can minimize their loss on bad loans by getting the property sold before they have to go through the formal foreclosure process.

Why Are There So Many Short Sales?

Short sales have become especially popular due to the combination of falling real estate prices and real estate financed with low down payments. Many property owners simply owe more on their properties than they’re currently worth, and lender’s rather agree to a short sale and forgive the unpaid debt then to foreclose on the property and re-sell it.

If you’re in this position that your property is worth less then what you owe, call your lender. You may need to make a half dozen phone calls before you find the person responsible for handling short sales, but you do not want to talk to the “real estate short sale” or “work out” department, you want the supervisor’s name, the name of the individual capable of making a decision for a short sale.

It’s not guaranteed that the lender will consent to a short sale, and there are other things that can derail it, but it may be your best option, and you’ve got nothing to lose by asking.