What is Alligator Property?
Affordable Alligator property is used as a real estate term and represents a situation in which the costs of mortgage payments, property taxes, insurance and maintenance on a rental property are higher than the income it produces. If this situation is not corrected, the owner’s profits will be lost, leaving the owner with negative cash flow. When a client purchases a real estate property during or close to the top of a real estate market cycle, that’s when the alligator property often happens. In this situation, the investor purchases the overpriced building and rents it out, but as the interest rates increase and repair costs add up, the owner has to either sell the building or undergo a negative cash flow. It is important to oversee the cash flow when dealing with any businesses including real estate properties. Cash flow is the net value of cash and cash-equivalents that has been transferred into and out of an organization. At the most basic level, a good investment can lead to a long period of positive cash flows. But also, an investment that in the short run experiences a negative cash flow can later turn around and become a high income generating property investment, or have a long-term positive cash flow.