Kim and I often talk about her first real estate investment property. It was in Portland, Oregon and it put a whopping $25 in income into her pocket every month. It was a single-family 3-bedroom / 2-bath house and she put $5,000 down. Our due diligence on this property and all those that we purchase is to look at income, expenses and financing. Those three aspects of a property are the ones we can control.

For example: Can we provide more value for the tenants and increase the rents? (Income)

Can we sharpen our pencils and get creative? And reduce what we spend to maintain and manage the property? (Expenses)

Can we refinance the property in a way that reduces the debt service expense? (Debt/Financing)

The ultimate test of course, and this hasn’t and doesn’t ever change, is this: Does the property cash flow? That means simply that the income, every month, is greater than all of the expenses.

One other thought in terms of the steps we took prior to purchasing property is that we look at areas that are both familiar to us and undervalued. Today, with real estate prices falling, is a great time to find good deals and opportunities to invest.