#entrepreneur This Week Alon Ram Post 4 - Promise for Yield - Illusion
Many have talked and will talk about the concept of "guaranteed return".
The proponents won't call it that, but imply there is nothing to fear, there will always be demand for the property, the property will always be leased, the glitches will be minor and the flow will always be positive.
So it is - not.
And why not - the answer is simple. If the return is guaranteed and the cash flow is always positive, why would someone sell you and not enjoy himself?
After all, these are double-digit or very close yields, so anyone who can finance 4-6 percent interest rates, the common interest rates, will always be left with a positive margin.
I will not tell how yield is guaranteed, everyone knows it.
I will mention why a return cannot be guaranteed if we purchased a property at its true price.
Tenants do not remain forever in a leased property. Replacing a tenant and a refresher for a new tenant costs money.
Asset breakdowns are inevitable. Damage repair, replacement of equipment due to wear and tear and regular maintenance, all cost money.
Magnificent offices, marketing campaigns and salespeople - cost quite a bit!
So first of all, make sure you have taken into account realistic expenses and not been dragged into particularly optimistic scenarios.
The big surprise lies at the very top of your axle.
So always, but always check and make sure that the price you are paying is the real price of the property, corresponding to similar property prices in the same area. Make sure the rental price you are seeing is acceptable for properties of this type and that the type of population matches the rental payment capabilities in the area.
Even if you have bought a property that over time has a record of impressive returns and your excel shows a positive monthly cash flow, the reality sometimes behaves differently. There are years when significant care, such as a roof replacement or other infrastructure treatment, significantly impedes the flow of that year. Sometimes a minor repair or tenant replacement that lasts longer than expected results in a negative flow for more than one month. So if you are planning to finance a property using the cash flow that comes in from the rental property, make sure that there is an interval between the monthly net proceeds from the property and the monthly repayment of the loans and make sure you have air to bridge the troubled months. Otherwise, do not go far today and have to add from your pocket to the cover of the loan.
So the return is not really guaranteed, but experience shows that if you properly invest and invest wisely, the return comes.
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