Friday, June 23, 2006
Very frequently beginning investors focus on real estate investing tricks that they lose sight of the vital issue - is this a good deal? Learn to identify a good deal takes research, education and, above all, a good experience. Here's a good formula to determine whether a prospective real estate buy is a deal. It's a simple short form called "C.L.E.A.R."
CASH FLOW
Ask yourself, would this property cash flow? Well, that depends on few of factors, such as the strength of the home rental market, the rate of interest on the financing and how much of a down payment you need to make. Also, it depends on whether it is a solitary family or multi-family dwelling. All of these aspects considered, ask you, "Will this give income for me?"
Also, ask the question, "How would this property cash flow compared to other possible properties?" For example, a $150,000 house that rents for $1,000/month has a improved income possible than a $300,000 house that rents for $1,600/month. A four-unit structure that costs $400,000 may bring in $3,000/month in the similar neighborhood.
LEVERAGE
If you are a long-term player, leverage would normally work in your favor if the markets in which you invest value in the long run and your income from the properties could pay for most of the monthly debt service.
EQUITY
Does the property you are buying have equity? Equity could take a number of forms, such as:
A discounted price
A potential fixer upper
A rezoning chance
A badly managed property
A foreclosure
There are many ways to make equity, but buying into equity is your best bet. Find an aggravated seller that needs out of his property and is eager to give up his or equity for less than full value. Or, purchase a property that wants work that could be done for 50 cents on the dollar or less. In other words, if the property needs $10,000 in work, ensure you get a $20,000 discount on the price or even better.
APPRECIATION
Buying for reasonable long-term (10 to 20 years) appreciation is safer and easier. Look at long-term area and city-wide trends to pick areas that would hold their values and improve at an average 5 to 7% pace. Combine this tactic with reasonable cash flow and buying into equity and you would be a smart investor.
RISK
Risk is a thought that too few investors consider. Ask yourself, "what if my suppositions are wrong?" If you buy for appreciation and the property did not appreciate in value, could you rent for positive cash flow? If you purchase with an adjustable rate loan and the rates go up, would this put you out of business? If you have a few vacancies, could you handle the negative cash flow, or would it break the bank for you? Expect the best, but be prepare for the worst
Remember, whenever you look at a property to buy, think "CLEAR".
CASH FLOW
Ask yourself, would this property cash flow? Well, that depends on few of factors, such as the strength of the home rental market, the rate of interest on the financing and how much of a down payment you need to make. Also, it depends on whether it is a solitary family or multi-family dwelling. All of these aspects considered, ask you, "Will this give income for me?"
Also, ask the question, "How would this property cash flow compared to other possible properties?" For example, a $150,000 house that rents for $1,000/month has a improved income possible than a $300,000 house that rents for $1,600/month. A four-unit structure that costs $400,000 may bring in $3,000/month in the similar neighborhood.
LEVERAGE
If you are a long-term player, leverage would normally work in your favor if the markets in which you invest value in the long run and your income from the properties could pay for most of the monthly debt service.
EQUITY
Does the property you are buying have equity? Equity could take a number of forms, such as:
A discounted price
A potential fixer upper
A rezoning chance
A badly managed property
A foreclosure
There are many ways to make equity, but buying into equity is your best bet. Find an aggravated seller that needs out of his property and is eager to give up his or equity for less than full value. Or, purchase a property that wants work that could be done for 50 cents on the dollar or less. In other words, if the property needs $10,000 in work, ensure you get a $20,000 discount on the price or even better.
APPRECIATION
Buying for reasonable long-term (10 to 20 years) appreciation is safer and easier. Look at long-term area and city-wide trends to pick areas that would hold their values and improve at an average 5 to 7% pace. Combine this tactic with reasonable cash flow and buying into equity and you would be a smart investor.
RISK
Risk is a thought that too few investors consider. Ask yourself, "what if my suppositions are wrong?" If you buy for appreciation and the property did not appreciate in value, could you rent for positive cash flow? If you purchase with an adjustable rate loan and the rates go up, would this put you out of business? If you have a few vacancies, could you handle the negative cash flow, or would it break the bank for you? Expect the best, but be prepare for the worst
Remember, whenever you look at a property to buy, think "CLEAR".
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