Two of the largest investors I do business with have the same goal in mind. They want to aggressively pay off their buildings by paying down their mortgages over the next five to 15 years for a specific outcome. They both want financial security through large cash flows from free and clear properties which will provide generous retirement income.

They have a goal and they have a plan.

One investor in 1984 made a plan and he was ready to meet his goal. The plan was to purchase a four-plex. His goal was to create cash flow and accumulate dollars for his two children's college educations.

He bought a 4-plex in a small city and spent the next 10 years managing the building. In 1985 he sold his building and his net growth totalled more than $100,000. He also had paid off the property and had created a retirement nest egg. He made a plan, met his goal, and lived happily ever after.

Here are some questions any investor must use to develop a plan for buying multi-family income property:

• What is your goal? There normally is a sale of the asset which meets the goal. The investor should know when it is time to sell. An example is, "When a building has a net equity of $150,000. Some want to sell because I they want to "generate enough cash to meet there needs."

  A more common example is, "When an investment grows to $100,000 in net equity you are in a position to exchange into a larger building and that will be the time to sell."

• How long do you want to hold the investment? You may meet your goal sooner than your plan allows, but it could also take longer. So you must be flexible. The holding period determines how you choose the area that best suits the growth you expect, the number of units, and the type of loan.
• How much cash do you have to buy the property? Each building requires down payment and closing costs. If you intend to buy a one-to-four unit property you should expect a 20 percent down payment without the benefit of secondary owner financing. If your intentions is to buy five or more unites you should plan on 30 percent.
• Leverage. How much do you want? This term generally means that the buyer needs less cash to purchase. An example of leverage is -- a purchase price of $200,000 accompanied by a 80 percent loan of $260,000 and a second loan of $10,000 that requires only $30,000 cash, plus closing costs. An example of a no-leverage buy would be a $200,000 purchase with $200,000 down payment, plus closing costs.
• Do you want to manage this building or do you want to hire a property manager? Income property is a business and businesses do not run themselves. An owner must plan weekly involvement in the management of the investment. An option is to work with a professional property manager.

  there are people who owns and manages approximately 50 units . I think he's a miracle worker. There are people who owns 50 units and often does the maintenance and repairs. But he also employs a property manager to collect rents and find new tenants. This owner is retired and through use of a property manager he is free to travel for weeks at a time.

• Do you want to exchange or carry mortgages? When it's time to sell, an owner will have many options. Exchanging under the I.R.S. 1031 Tax Deferred Exchange rules allows an owner to achieve equity growth and move those gains into the move-up property without paying tax liability at the time of sale. Another option is for an owner to carry a first or second mortgage and spread the gain over many years and collect interest and principal for retirement income or fund a college education for their children.
• How many properties in different locations can provide diversity and spread the gain. Each property performs differently. Each property has different management demands and each property has needs for repairs and maintenance.

People who have accumulated large pools of equity and have bright futures through ownership of multi-family income property. Knowing that you want to build financial independence 10 or 20 years from today is the first thought. Deciding how you want to get there requires a plan that takes hours of focus.

Enlist your accountant and an income property Realtor to get you started on your way to your goal. Discuss your thoughts and dreams with these specialists. Remember, it starts with a goal and it succeeds through a plan.

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