Give Me Ten Minutes and I’ll Make You Better at Real Estate Investing
Okay, ten minutes is a guess. You might absorb what I have to say and thereby become better at real estate investing in less time if you’re a fast reader.
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. Plus, non-monetary returns such as pride of ownership, the security that you control ownership, and portfolio diversification.
You’ll need capital, investing in real estate does have risks, and investment real estate 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 – This is determined by the amount of money collected from rents and other income less operating expenses and loan payment. Furthermore, real estate investing is all about the investment property’s cash flow. You’re buying income stream, therefore be certain that the numbers you use to calculate cash flow are truthful.
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 real estate investment goal with meaningful objectives. Have a plan with stated goals that best frames your investment strategy; it’s one of the most important elements of successful 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. Get familiar with the nuances of real estate investing and learn the terms, formulas, and 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 numerous software solutions to choose from online.
6. Create a relationship with a real estate professional that knows the local real estate market and understands rental property. 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. Work with a real estate investment 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.
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Help answer the question about Real Estate Investing
where/how can I register a business in Canada strictly for real estate investing liability protection?
I am looking to expand real estate investing into a more full time business, so I would like to register a business, but for my personal asset protection only. I will not have office space or employees so I don’t need a fancy business registration; I am only looking for help in setting up an LLC or something similiar to be operated from Canada, with the majority of my real estate deals in the USA.
Based on that- registering a business name basically for liability protection, and to be operated from Canada but with deals found in the USA- can someone give me some advice or point me in the right direction on registering cheaply and with low fees (maybe online?) either an LLC or something similiar in Canada that I can use in the USA and also Canada simply for my personal asset protection from being sued? Alternatively, can I register an LLC in a random state- but use it nationwide and in Canada- and operate it from my home in Vancouver, Canada? Thanks everyone.
About Author
James Kobzeff is the developer of a software solution for real Estate investment. Want to create cash flow, rate of return, and profitability analysis presentations in minutes? See ProAPOD at => http://www.proapod.com
This is the best time to be looking for the right investment, not when the market was sky high.
But would you recommend this to someone who lives out of state? If one lives in California I think it unwise to own multiple props in Mich or FL…
NO they are all scams – enlist the services of a realtor or real estate attorney and find a really smart mortgage broker who is a member of the National Association of Mortgage Brokers. Several of those "get rich quick investing programs" are under investigation by the states and federal Attorney generals offices-
http://www.FTC.gov
Have you heard of Robert Kiyosaki, who wrote a book called Rich Dad, Poor Dad? check out one of his books @ the library, read it, and then go signup up for RichDadWorld.com – there is free information there on how to start. Best of luck to you.
yea it bushes fault and housing market will get fixed as long as republicans dont fuck it up for us demicrats work for all humans not just people of special interest
Most government grants are in blighted areas where they want to spur rehabilitation of neighborhood properties. As far as I know there are no federal grants avalable unless you are revitalizing a property which will end up on the national register of historic properties, but these would have little to no profit potential due to the high cost of rehab to get the property to standards. The local programs generally only give 5-20k for help in rehabbing homes, but unfortunately come with so many strings attached that you will be begging them to take their money back just so you can get them out of your hair. Once you invite them in, you many times lose the grandfather clauses on any number of code requirements that have been put in place since the particular home was built and you have to spend as much if not more than the grant money to get the place up to the government standards that they require in exchange for the grant.
In my honest opinion, better to just get your own loan and go it alone….
Yes, you can, but if you have never owned real property previously, you need to learn a lot before you get started. You will be dealing with people who do this type of work day in and day out. You will be dealing with Mortgage companies, Title Companies, your County (taxes and deeds), as well as everyday people who might know more than you do. There are forms, contracts, not to mention home inspectors, etc …
If I were just starting out now in real estate, I would do these three things first -
1. Learn how things are done in your part of the world. This includes all of the paperwork involved.
2. Find out how much it really costs! Title companies charge more fees than just about any other business I have ever seen, but they are very good at what they do, you definitely get what you pay for. This is not the area to cut corners.
3. Make sure you don't overlook the best deals. When I started out, I worked the area within 10 miles of my home and missed out on a lot of opportunities. If I had been willing to do a little more driving, I probably could have had an easier time because I would not have been limiting myself geographically.
Check out your local Real Estate investment Group ( http://www.reia.org/ )
or check out the Cashflow Clubs from Richdad.com
-Angela
http://www.ratraceclub.com
The housing industry will never recover and thats the painful truth …
There are millionsof empty houses in California and folks aren’t buying them even though they are way cheaper than a few years ago …
since each state has different laws and taxes, you did not say where.
i bought some apartments in pennsylvania years ago, very good return
and the write off each year is amazing. thing is, i have them very close to where i live so i can keep an eye on the maintenance and upkeep. i'm not a slum lord nor do i want to be.
i had a rental house in florida, but it was too much of a pain. when it was rented it was profitable but you need to count on Realtors to rent it and they never keep an eye on it after they get their 2 months.
no matter how bad the economy got, people still needed places to rent especially when they could not afford to buy. i am one of the few landlord that allow pets. sometimes that bites me in the butt, but in general people who would rather move than give up their pet, seem to be more responsible. my 6 apartments have been rented by the same people for the last 5 years…when i have a good tenant, i tend to lower their rent a few dollars, everyone is happy.
good luck…whatever you put your money in, keep an eye on it yourself.
Malaysia real estate is still resilient to global economy dowturn. Some high end residential areas are stil in uptrend.
Please contact us if you need to know more about Malaysia real estate investment. Thank you.
TURKEY vultures?
cash flow, cash flow, cash flow, cash flow and cash flow.
People that get into investment real estate hear all the stories about NO MONEY DOWN. But the problem is, that you lose money every month. Rents are less then expenses.
My rule of thumb is that my PITI equals 50 percent (or less) of my gross monthly rent. The other 50% is NOT profit, but covers up keep and other expenses.
On all my properties I have a positive cash flow and a ROI of around 14% per year (before taxes and tax breaks).
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this is a cycle……..It’s happen before. U.S.A is still A. O.K. You can buy a home in Detroit or Orlando,FL for 50k and invest 5-10k to make it ready. Lease it out for $800-$900.
It’s too early to buy. After commercial RE downturn gets going and residential ARM loans readjust, then…maybe. But fundamentally, if people are unemployed or underemployed – even assuming serious inflation – RE prices will not “skyrocket.” We just have too many damn residential buildings and too few good jobs, especially in places like FL.
Your best bet are duplexes for rent or buying a house that needs a lot of cosmetic repairs. You just need to make sure you have enough money to pay the mortgage until it sells. The "real investors" purchase now and hold on until the market is high. Buy low, sell high pertains to real estate investor too. A real investor does not buy high and sell a little higher.
I’m a Malaysian myself, and though I am glad to hear about how things are currently in Malaysia, I must say caution is best in times like these.
In any economy, especially during boom times, there’s a tendency for human greed. If people in Malaysia are to avoid the worst in economic downturn, it’s best to avoid that trait exactly.
Buying a condo (high-end or otherwise) may not be too difficult for some. But imagine having to continue paying the mortgage if jobs are suddenly lost.
if you want to see luxury go check out the Marble Mountain Horse Estate
I think you should wait until you are able to be more aware of what is happening in that state you want to invest in. It's kind of like being blind to what's going on if you can't be there for a while. I think you should wait. The market will always have a favorable time again to buy if it changes.