Author: James Kobzeff Added: July 6, 2008
Yes, I said ten minutes, but it might require even less time depending on how fast you read. The information is here, and it will make you better at real estate investing (honest). Shall we get stared? Acknowledge the Basics Real estate investing involves acquisition, holding, and sale of rights in real property with the expectation of using cash inflows for potential future cash outflows and thereby generating a favorable rate of return on that investment. More advantageous then stock investments (which usually require more investor equity) real estate investments offer the advantage to leverage a real estate property heavily. In other words, with an investment in real estate, you can use other people's money to magnify your rate of return and control a much larger investment than would be possible otherwise. Moreover, with rental property, you can virtually use other people's money to pay off your loan. But aside from leverage, real estate investing provides other benefits to investors such as yields from annual after-tax cash flows, equity buildup through appreciation of the asset, and cash flow after tax upon sale. Not to mention, such non-monetary returns such as pride of ownership, ownership control, and portfolio diversification. Of course, capital is required, there are risks associated with investing in real estate, and real estate investment property can be management-intensive. Nonetheless, real estate investing is a source of wealth, and that should be enough motivation for us to want to get better at it. Understand the Elements of Return Real estate is not purchased, held, or sold on emotion. Real estate is not about love; it's about a return on investment. As such, prudent real estate investors always consider these four basic elements of return to determine the potential benefits of purchasing, holding on to, or selling an income property investment. 1. Cash Flow - The amount of money that comes in from rents and other income less what goes out for operating expenses and debt service (loan payment) determines a property's cash flow. Furthermore, real estate investing is all about the investment property's cash flow. You're purchasing a rental property's income stream, so be sure that the numbers you rely on later to calculate cash flow are truthful and correct. 2. Appreciation - This is the growth in value of a property over time, or future selling price minus original purchase price. The fundamental truth to understand about appreciation, however, is that real estate investors buy the income stream of investment property. It stands to reason, therefore, that the more income you can sell, the more you can expect your property to be worth. In other words, make a determination about the likelihood of an increase in income and throw it into your decision-making. 3. Loan Amortization - This means a periodic reduction of the loan over time leading to increased equity. Because lenders evaluate rental property based on income stream, when buying multifamily property, present lenders with clear and concise cash flow reports. Properties with income and expenses represented accurately to the lender increase the chances the investor will obtain a favorable financing. 4. Tax Shelter - This signifies a legal way to use real estate investment property to reduce annual or ultimate income taxes. No one-size-fits-all, though, and the prudent real estate investor should check with a tax expert to be sure what the current tax laws are for the investor in any particular year. Do Your Homework 1. Form the correct attitude. Dispel the thought that investing in rental properties is like buying a home and develop the attitude that real estate investing is business. Look beyond curb appeal, exciting amenities, and desirable floor plans unless they contribute to the income. Focus on the numbers. "Only women are beautiful," an investor once told me. "What are the numbers?" 2. Develop a sound investment goal with meaningful real estate objectives. Have a plan with stated goals that best frames your investment strategy; it's one of the most crucial aspects of profitable investing. What do you want to achieve? By when do you want to achieve it? How much cash are you willing to invest comfortably, and what rate of return are you hoping to generate? 3. Research your market. Understanding as much as possible about the conditions of the real estate market surrounding the rental property you want to purchase is a necessary and prudent approach to real estate investing. Learn about property values, rents, and occupancy rates in your local area. You can turn to a qualified real estate professional or speak with the county tax assessor. 4. Learn the terms and returns and how to compute them. Become familiar with the real estate investing terms, formulas, and definitions. Learn how to make the calculations. There are sites online that provide free information. 5. Consider investing in real estate investment software. Having the ability to create your own rental property analysis gives you more control about how the cash flow numbers are presented and a better understanding about a property's profitability. There are software providers online. 6. Develop a relationship with a good real estate agent that specializes in rental property and understands your real estate market. It won't advance your investment objectives to spend time with an agent unless that person knows about investment property and is adequately prepared to help you correctly procure it. Remember, not all real estate professionals are created equal and you want an investment property specialist. There you have it. As concise an insight into real estate investing as I could provide without boring you to death. Just take them to heart and you should be fine. Here's to your investing success.
--- James Kobzeff is the developer of a real estate investment software program. Discover how to create cash flow, rate of return, and profitability analysis presentations in minutes at => http://www.proapod.com
Comments
| 
