You have an investment property you naturally think that you’re making money. But the truth is, many people actually lose money by accident.
As an investment advisor, I see many people mistakenly falling into the California (CA) bank trap.
What’s a CA bank? It’s the rental property that you have in California that has now tons of equity but barely breaks even or has negative cash flow.
This happened to one of my clients recently who came in for a refi. He showed me that he owned a property which was his previous home – a condo in San Pedro.
He bought it for $225,000 and the payments with the Homeowner’s Association were $1800. He had rented it out and was getting $1695 in rent. And it wasn’t until the tenant was moving out that we discovered this “piggy bank” of his with $200,000 more in equity was actually COSTING him money every month – and that was on a good day (on a bad day if repairs came up it was an even bigger hit).
So I showed him some examples of properties in other states where the same equity of $200,000 would be giving him MAILBOX MONEY (income that just shows up in the mailbox) of $1200-$1500 per month. He was excited!
He now owns a triplex and gets paid $1254 every month, and every time the rent goes up, he makes more money. Even better, when the mortgage is completely paid off the income will increase by $521 per month. Success!
Do you know someone who has equity but no cash flow that you can share this nugget with? Have them call me and be the reason someone smiles today!