te investment get-rich-quick methods upset me for a couple of reasons. They generally assume that you are going to self-manage the property yet ignore your cost of time to manage. Moreover, they promote “no money down” methods yet fail to warn you about the risks of high leverage. Besides, I find it difficult to trust anyone claiming to have found a goldmine when they anxiously peddle a map so it can be found. If they really discovered the way to real estate investment riches, why would they share it?

Actually, there is no secret way to attain real estate investing success.

In real life, you must work hard with good research and a commitment to a sound and systematic analysis. Pathways leading from get-rich-quick seminars are littered with disappointment; the key to successful investing, however, is to take as much time as necessary for proper preparation. Time is on the side of the prudent real estate investor.

In this article, we are seeking to help you better understand several nuances associated with real estate investing. We would like to discuss the importance of building a sound investment plan with meaningful goals and then cover the formulas of four popular financial analysis models used regularly in real estate investing.

Build a Sound Investment Plan

Having a plan with stated goals is one of the most important foundations of successful investing. However, it’s not about having lofty intentions and then declaring, “I want to be worth twenty million dollars one day.” There’s nothing wrong with desiring better things in life, the problem is that simply declaring something doesn’t bring you any closer to achieving it. The idea is to develop a general plan with stated goals and a method on how to get there.

Goals Must be Meaningful

Goals are the shortcuts to your desired destinations. Goals are not essential to life, many people do just fine without any kind of goal at all, but goals are essential to successful real estate investing. For a goal to work for you, however, it must be attainable, measurable, tied to a timetable, and clearly defined.

Moreover, divide long-range goals (say further out than one year) into intermediate goals, and your investment plan into subsections such as “cash flow requirements,” “net worth projections,” “tax shelter benefits required,” “cash withdrawal from plan,” and so on.

Start here: How much cash do you have available to invest comfortably? What length of time do you plan to stay invested? How much of your own effort do you plan to contribute?

Define a general plan: You plan to develop or own only the highest quality properties in prestige locations. You plan to own the largest market share of office buildings under 12,000 square feet in your local market. You plan to maximize your tax benefits on purchases and use tax-deferred exchanges and installment sales when available.

Define a detailed plan: How much cash do you want to collect each year beginning in the 10th year? What net worth do you want to attain by investing in rental properties after the 15th year? You plan on withdrawing $8,000 in three years to take your family on a cruise, or perhaps to generate $20,000 by the 4th year to buy a second car. And so on.

The idea is to create a target and then monitor your progress continually against that target to insure that you’re on the right course. A written plan with stated goals that projects where you’re headed and then reviewed regularly is critical to successful investing.

Financial Analysis Models

Okay, let’s switch gears and summarize four very popular investment value measures used regularly by investors and real estate analysts.

1) Cash on Cash Return – Cash on cash measures the initial profitability of a rental property. The higher the better, and typically a first-year cash on cash return ranges from about 4% to 10%.

Formula: Cash on Cash = Before Tax Cash Flow / Cash Equity (Initial Investment)

2) Gross Rent Multiplier – Gross rent multiplier measures the ratio between annual gross rental income and sale price. Think of it as an indication of the number of years it takes the annual rental income to equal the price, so the lower the better. It is good for simple comparisons to other rental property opportunities but insufficient as a stand-alone number.

Formula: Gross Rent Multiplier = Purchase Price / Gross Rent

3) Capitalization Rate – Capitalization Rate (cap rate) is essentially a return on asset indicator of how much debt an income property can carry. The higher the return rate, the more debt a property can support, and hence the better the investment opportunity for the real estate investor. Sellers of income property, of course, prefer to sell at lower cap rates. Local markets dictate capitalization rate (there is no one-size-fits-all) but they typically run from about 5% to 12%

Formula: Capitalization Rate = Net Operating Income / Purchase Price or Value

4) Internal Rate of Return – The IRR model essentially calculates the average discount rate that equates all future returns over the projected holding period back to the present value of the initial equity investment. It’s the most frequently used measurement of projected holding period overall returns because IRR delivers in one number an investment return that integrates rental growth rates and property value appreciation. IRR should be used as a comparison to the real estate investor’s required rate of return for making capital allocation and initial investment decisions. IRR can be computed for before or after tax cash flows.

Formula: To compute IRR you must use Excel or a qualified real estate investment software program.

By: James Kobzeff

About the Author:

Learn To Find Commercial Real Estate Deals And We Will Fund Them

It seems like almost everyone is learning how to cash in and make a buck from the current real estate craze. Home buying and selling is hot right now, and many are learning how to turn real estate investing into a gold mine. But unless you know the ABCs of real estate investing, you can’t even get started.

Many people share the dream of wanting to work for themselves alone, being their own boss, making money their own way. Real estate investing is a great way to make this dream a reality, but you have to know what you’re doing. You have to know the ABCs, and learn to play the game. Only then can you learn to enjoy the payoff. The more you learn about real estate investing, the bigger and better your payoffs should be. That’s what makes this type of investing so lucrative and exciting.

When you learn to read, you start with your ABCs. And when you want to start in real estate, you have to learn the ABCs of real estate investing. For starters, you want to learn about “the market.” This refers to the real estate market, and it only means knowing the condition of properties in any particular area. For instance, in a single city or area inside a city, you’ll want to know how much properties are selling for, how many properties are available, which neighborhoods are popular. You should know as much about the area you’re working in as possible. Know where homes are selling and where they’re not selling, and know what sort of price those homes are getting. This is a great way to get a feel for “the market” and learn what kind of money you can hope to bring in. Knowing your area is a very basic rule of real estate investing.

Once you know how the market looks in your area, you can get down to the nitty-gritty of real estate investing. The basic things you’ll need to know, the ABCs, are fairly simple. The trick to success at real estate is in learning what people want. What are home buyers looking for? What do you look for, when you buy a home? The kitchen and bathroom areas are very important, and many real estate professionals say that these areas are what sell homes. Keep costs down as much as possible, but if you’re going to splurge then put the money into these areas of the home. You’re likely to get the most money back from this investment. Learn more about more inexpensive materials, such as poured concrete instead of granite, and laminate flooring instead of hardwood, to learn how to make a home beautiful for less. This is one of the ABCs of real estate investing – knowing how to walk the fine line between spending too much and too little.

It’s important to work out a budget, plan for disaster, and keep on track as much as possible. Have an idea of what you want to get out of each property before you sell, and don’t put more into any one property than you think you should. If you won’t get that investment back, don’t put it in. This is one of the ABCs of real estate investing – staying on track with the budget. Remember, the less you make from the sale of the property, the less you make from your investment.

By: Brian Cliette

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The Reo List Every Agent Must Have!

Real estate investment has emerged as one of the best way to generate revenue and can be used as collateral to secure a loan for a business venture. The investment in real estate whether international or domestic involve risks, even if the venture is successful, when the future flows of income will accrue to the investor and could help alternative investment opportunities.

According to Ross Moore, vice president of Colliers International USA, “foreign real estate investment offers diversification that is a superior investment style”. It distributes the risk in an effective manner among the multiple markets and optimizes a possible return. Sometimes number of commercial real estate investors need a huge amount of capital to attain and maintain their global portfolio, but the small investors has the opportunity to diversify the assets on a microcosmic level, such as buying residential property, which show considerable possibility of a good profit. However, regardless of the type of investment in foreign real estate, which may be commercial real estate or vacation home in Mexico, investors should look for professional’s help, who have the knowledge about global markets and are well connected with the local real estate agent.  

Since a foreign real estate investment involves more risk, as you are expanding your property holdings beyond your country and you are not aware of the local market of other countries, you would have to do lots of research on the various countries, in which you are interested to invest. You have to collect various sources of information to acquire knowledge of properties that you would need and invest. You may not get time to do a research on many countries, but you could take the help of websites. This will give you an overview of various countries and their style of living. It is always advisable to visit the country personally and experience the living out there, if you plan to invest in foreign real estate. You can expect higher rewards even with the risk that you take to invest wisely.

You can inquire about different loans and mortgages that are available in that particular country, which would give you a clear idea that investing in that country would be a profitable venture for you or not. Once you are finished with the investigation of the countries’ real estate markets, you would now think, how you should invest in the international real estate market.  

As the foreign real estate investment market is huge, so you can get a property, which may be larger than the one in your own country. It could be a provincial property and if you could convert it into a commercial property, you could get higher returns on investment. Always look for the advantages and disadvantages, while you purchase a property, otherwise you may end up losing money and the investment may turn out to be a waste. 

Some of the countries, where real estate investment could possibly turn out to be a profitable venture are Croatia, China or Europe, where you find rapid growth in real estate properties due to industrialization and increase in the quality of living. In North America, investors find agricultural properties quite worthwhile to invest in, as they have higher returns on investment. Apart from these Asia and Africa are also worth considering as far as real estate investment is concerned.  

If you are a beginner in this foreign real estate investment, you may make mistakes, as it is a very difficult field to get into. However, even if you have invested in a property, you will not run in a total loss, even if the value of the property decreases. You still own the property, which you could hold onto until such time, its value increases and your foreign real estate investment would prove worthwhile. 

Written by: GS

Date Written: 07/04/08 

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By: Charles and Kim Petty

About the Author:

Find Ugly Homes And Assign The Contracts