Here are three simple guidelines that must be followed if
you plan to succeed at real estate investing. It's not everything, of course,
but at the very least, you must be willing to commit to these things if you
want to become a successful real estate investor.
Shall we get started?
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.
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 investing is not a love affair; 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 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 software providers
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 with a dash of common sense and you'll do just fine. Here's to your
investing success.
To know more about real estate investment, just go to http://hugepropertyroi.leadgenbuilder.com and get access to the book of "Earn Huge Returns from Property Investments"
Article Source: http://EzineArticles.com/1303880
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