Guest post by Doug Lytle

When you buy income property always remember that you are buying an ‘income’ property. Don’t fall in love with it, and be sure to keep these ideas in mind.

When you buy an income property are you buying the bricks and mortar, or the income stream? Take your time and think about this one… Are you sure? How does it get financed – an evaluation of the income stream and leases or strictly a direct comparison to other properties? From my perspective, you’re buying the income stream that the property generates i.e. you agree to pay a price today to secure future income. The bricks and mortar are simply a vehicle to provide that income. Within reason, you should ignore the final sale price of comparable properties unless they have similar leases with similar tenants with similar covenants in similar neighbourhoods, etc., etc. ad nauseum. Rather, when looking at comparable properties, you’ll be looking at the income stream and the capitalization rate applied and how it compares to the property you’re considering.

Buy for cash flow today, not tomorrow. The price you pay for income property today should provide positive cash flow today – not at some point in the future. If an investment can’t carry itself from Day 1, it’s not an investment, it’s a liability. If there is more month left at the end of the money, guess who gets to pick up the shortfall? Hint: It won’t be me, because I would have advised you NOT to buy that particular property!

Ignore capital appreciation – don’t wish for some future gain. Wishes won’t get you to your desired rate of return. Telling yourself, or worse relying on bad advice, that you shouldn’t worry about any shortfall in cash flow because the market is just going “up, up, up!” is sheer folly. Surely you haven’t forgotten 1990 or late 2008 already? As I said above, the property should return a postive cash flow that meets your target rate of return today. Any increase in value over time is your upside and should be looked at as just that, upside.

If I missed anything, or if you just think I’m off my rocker, I’d love to hear your ideas in the comments.

Guest post by Doug Lytle

Do you often feel that you:

• have too much to do?
• have too many calls to return?
• have too many people nibbling away at your time and energy?
• have too many ‘clients’ sucking up your time and never closing a deal?
• spend too much time away from family?
• can’t remember your last vacation?
• are still struggling to make ends meet?

If you answered yes to any of these questions, you’re doing too much of the wrong kind of business!

Ever heard of Pareto? He was an Italian economist at the turn of the 20th century who observed that 80% of results come from 20% of the inputs.

The Pareto principle (also known as the 80-20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes…It is a common rule of thumb in business; e.g., “80% of your sales come from 20% of your clients.”

There had to be more to the way this business is done. My partner and I decided – without having considered Pareto’s Principle – that we needed more time off before we just burned out. We also came to realize that life is just too short to deal with jerks.

So we stopped.

The year we decided to make a radical change in our business (around 2004), we each took about 5 or 6 weeks vacation. We reduced the number of people we dealt with to a small number of clients who were serious about making things happen and who we realized would produce the bulk of our income anyway. In other words, we fired about 80% of our clients and spent more time working with the other 20%.

It was magic! We were home for dinner and for kids and grandkids functions! We almost completely quit working on weekends and turned off the cell phone after 5 or 6 pm. Our smaller group of clients were happy to see that we were taking time off. Imagine that – your clients are happy that you’re not available – this was incredible!

Because we were focusing on meaningful business relationships, we closed more deals, made more money, and became much less stressed out. The business was fun again!

The 80-20 rule doesn’t just apply from our side of the desk though. If you’re an investor or property owner, consider using this principle in your business too. Take a good hard look at what you’re doing every day and decide to focus your efforts only the 20% that actually gets results and let the other 80% go by the wayside. Stop calling every agent in town to ‘get the scoop’ and interview several until you can narrow your contacts down to one or two really good agents that you can work with. With just one contact that you feel you can work with, you’ll have less to keep track of, and fewer headaches. And since you’ll have a better, more constructive and trusting relationship with that person, you’ll find that you actually do more productive business and your income will go up while your down time also increases.

I just love a win-win solution, don’ you? How else can you apply the 80-20 rule to your daily life?