Over 90% of millionaires have made their money through investing in real estate.
Investing in real estate can be far more lucrative and rewarding in comparison to other forms of investments, but before deciding if this is a strategy or career you would like to get involved in, it may be helpful to ask yourself the following questions:
- Am I prepared to make a long term commitment
- Do I have the capital or funding for:
- Down Payments
- Qualifying for mortgages
- Lawyer’s fees, taxes, adjustments
- Will I manage properties myself or hire someone
- Am I willing to educate myself and do the research needed
- Will I be able to sleep at night, or will I worry about everything
The most common real estate investment involves the purchase of a rental property. This can range from condos, townhouses, single family residences and duplexes all the way up to multi-family housing units that can really bring in positive cash flow and increased equity.
A simple calculation can be done on a potential property to determine if it warrants looking into further.
Analyze what the current rents are for a particular type of property and calculate the yearly rent. Divide this number by the purchase price of the home.
If the result is higher than 8% , this property may be worth looking into further.
For Example: If the average rent for a single family dwelling in your neighborhood is $750, the yearly rent will be $9,000. If you think you can buy the house for $100,000, divide the yearly rent ($9,000) by thepurchase price ($100,000) and you will get an answer of .09 or 9%.
Once you have found a property that meets the 8% rule, you need to calculate all the monthly expenses.
Here is a list of expenses to consider:
- Mortgage Payment
- Improvements or Repairs
- Vacancy Allowance
- Common Expenses Fees (Condos)
- Property Management Fees
After adding up all monthly expenses, compare that with the income generated monthly from rents to see if you are able to create a cash flow situation where you are putting money in your pocket every month.
If real estate investing is something you plan on doing as a career or you simply wish to purchase more than one property, it’s a great idea to put together a team of professionals to assist and advise you. You will want a realtor, mortgage broker, lawyer or paralegal, accountant, insurance broker, home inspector and possibly a contractor.
The income that an investment property provides is not limited to monthly cash flow. Consider every mortgage payment, you are in fact paying yourself . The interest paid on your mortgage is tax deductible and each year depending on the real estate market, you should expect your property to appreciate in value. Check with your realtor to see how your local market is doing.
Thanks to www.canadarealestateadvisor.ca for the article.