Investing in Real Estate

If you want to invest in real estate by acquiring an investment property, here are some things you need to consider before pulling the trigger on a purchase:

1.) Do a market analysis to determine the rental rates for the market you are looking to invest in. This is extremely important because it will help you to project annual rental income,

2.) Determine the type of investment property you want to buy. Single-family home, multi-family, apartment complex? If you are new to investing in real estate, it is recommended to start small with a single-family unit. This reduces the risk if mistakes are made. Remember, mistakes happen and they are a good learning experience. That is why you want to start small so you don't bite off more than you can chew.

3. Analyze the market rents, and determine your annual income. Get an estimate of t annual axes, insurance, maintenance and capital reserve requirements for the type of property you plan on purchasing. When you have determined those estimated costs, you have determined your estimated expenses. Subtract those annual expenses from your total annual income and you have your Net Operating Income (NOI), Your NOI pays your mortgage, when you subtract your mortgage payment from the NOI, you have your Cash Flow. If that Cash Flow number is positive, you are looking at an investment that MAY be profitable.

I capitalized the "may" because in the paragraph above, I just explained a back-of-the-envelope calculation on real estate cash flow. This analysis need to be more detailed to really drive a decision. You need an in-depth analysis of the rental market, rental comps, vacancy rates, add in a vacancy rate to you calculations, calculate your mortgage amount and payment, etc. I will post more detail about this on the next post with a screen shot of an example analysis.

4.) After your in-depth analysis, if it looks good. Find the capital. You can find a lender willing to work with you, or raise the capital.

5.) Find the target property with a realtor that knows what you are looking for. Let the realtor do the leg work on the search. Give them your specific criteria and they will set up an automatic search for you so you notified once something comes on the market that meets your criteria. Your realtor should have access to the Multiple Listing Service (MLS) and should be able to get you information faster.

These five points should help give you a base to start your path to owning real estate investment properties. There is a lot involved, but you getting a general idea of what to do and look for will get the ball rolling.

I will post more about this in the coming weeks.