Taming Alligators - Real Estate Investment Strategy


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You might ask, “What does a real estate investment newsletter have to do with either of two crocodilians having broad heads not tapering to the snout and a special pocket in the upper jaw for reception of the enlarged lower fourth tooth?" Well…actually nothing. The alligators that I am referring to here are not the ones with the enlarged lower fourth tooth, but ones with an equally dangerous bite. The term “alligator" in the sense that that I mean refers to a real estate investment with a negative cash flow (where the expenses and debt service are greater than the income the property produces).

Most people in the crowd would suggest that in order for a property to be a viable investment it should always have a positive cash flow, but this is not necessarily true. Alligators (in the real estate investment sense) are not bad creatures as long as you have the alligator food (cash) to feed them and they don’t eat more than they are worth. In some cases, small alligators can even grow up to be very large cash cows with positive cash flows.

Several strategies exist that are effective in taming negative cash flows (some of these should not be attempted without the assistance of a skilled professional). While I will not be able to discuss them all thoroughly in this article (please give me a call or send me an e-mail if you would like more information), I can highlight a couple and describe how they work.

One simple strategy is to make sure that your alligator will, at some point in the future, actually become a cash cow (go from a negative to a positive cash flow). With this strategy, you will still need to make assumptions and work out the numbers so that you know exactly when this will occur and set aside enough alligator food (cash) to make it through the dry spell.

Another, more complex strategy is to slay (sell) other alligators (or, in some rare cases, cash cows) in your portfolio and use the remains (proceeds) to feed your alligator. This strategy is effective when you have strong evidence that the alligator you are taming will be far more valuable to you in the future than the opportunity cost of keeping the other creatures that you used for alligator food around.

Whichever strategy you choose to tame your own alligator, proceed with caution for these are very dangerous creatures; they can quickly tear through a portfolio before you know it. If properly tamed, however, some can be very valuable to you in the long run.

Richard St. Rose is the Founder, President, and Principle Broker of Epifany Properties. Throughout his successful 10 year real estate career, he has been licensed in 5 states. He personally owns and manages his multi-million dollar real estate portfolio. View his long list of accomplishments and qualifications at http://www.epifanyproper/Rich.html


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