Buying rental properties and leveraging the purchases with long term financing means going into the transaction with at least 20 percent down, 25 percent if you want a slightly better interest rate. That gives you an immediate equity cushion of at least 15 to 20 percent, considering closing costs youReal Estate Investing would incur should you decide to quickly sell.

With this type of financing, there’s an inherent safety net and should a particular property value fall it would have to take quite a tumble before you made the decision to hold or sell. So that begs another question, what’s more important, your equity position or cash flow?

Let’s visit the unlikely scenario of property values plummeting along the lines of 2007-2009. That’s not very likely due to the hundreds of new regulations and stiffening underwriting guidelines but let’s just say that happens. If you buy at $200,000 and borrow $160,000 the property value would have to fall near $160,000 before you begin to be upside down on the unit. If you sell the property at this stage you would be coming to the closing table with a few thousand dollars of your own just to close the transaction.

Successful real estate investors tell you while your equity is a critical factor, if you’re long term then you’re long term. Buying and selling isn’t in your business plan but making sure the property cash flows from the very beginning is. Your decision to purchase the property includes current and future values but the deciding factor is whether or not you make money each month. You can still be upside down with a mortgage and have a profitable investment if you put money in the bank each month. Property values will vary over time but in the long haul they’ll be worth more than what you originally paid. And you’re putting a nice paycheck in the bank each month all the while.