Six Rules When Buying an Investment Property

Investing in properties is a good way to make money and build up your net worth. It is a very safe option of getting rich over the long term, as real estate values generally increase over time. However, returns are not very fast and you have to wait for considerable time before you make substantial money from real estate. To make the most of your investment into real estate, follow the six simple rules below.

: When purchasing investment property, look into your areas expertise and knowledge. Do you know about vacation homes, single-family homes, multi-family buildings, or commercial properties? You should know how and when to sell the property to earn the highest returns. If you are unaware of all rules and regulations relating to that property type, you may not be able to sell the property at a high profit.
: It is not essential to sell an investment property immediately after purchase. You can hold on to your investment until real estate values increase and then sell the property. Sometimes, it is best to bide your time and wait for real estate booms to sell and earn good profits on your investment. Another opportunity is to make suitable renovations and sell the property at an escalated price to earn very good returns. Property values increase over time and net worth of your investment increases. You can invest in real estate to receive a regular income from rent while you are waiting for property values to rise.
: Purchase your investment property in an area experiencing higher growth than other local areas. Inspect properties in different areas and choose those that satisfy necessary requirements. If you plan to invest in the property for several years, look into how the area will develop in the next few years and whether you can receive desired returns. You should have sufficient foresight and knowledge of the area.
Visit local councils and research what developments are happening in the vicinity in the near future. Drive around and scout for development and other area investments. Check the property is located near essential amenities like schools, hospitals, banks, transport, and supermarkets.
: Your investment property yields good returns if there is sufficient rental demand for the property. Renters should be interested in renting the property. Normally, rental demand is high in densely populated areas like cities. Countryside locations do not have high demand and rental income could be substantially less.
: If you want to make money from real estate investing, choose properties that are being sold for less than the current market value. These properties may not be in the best shape and condition, so plan to incur repair and renovation costs. Before buying, hire a renovation consultant or home inspector to evaluate the cost of all repairs and renovations. Decide on the purchase price after deducting all additional costs. Ensure you can make a good profit when you sell the property after the renovation is complete.
: Investment property purchase requires strong financing. You may not be able to pool the entire cost, so consider the options for property loans. Assess all your mortgage options, so that you do not have excessive burden of repayments. If you are renting the property, apply the rent directly to the mortgage. Select a mortgage that can be repaid from the sale of property without additional fees or penalties for early repayment, especially if you plan to resell the property quickly.

Real estate investing for profit is a good option to earn money if you are an educated real estate investor. Investing in real estate is wise and can give even conservative investors high returns in the long-term. Renting the property while waiting for the best time to sell will increase your current income and cover the mortgage repayment costs.

Real estate is a complicated market. Even more so thanks to economic slips and slides.

The best way to survive it is to save thousands buying a home. We've got the ultimate inside scoop on http://www.EdmontonHomesBlog.com.

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By Karen Hanover

Because commercial real estate (CRE) property value is based on net operating income (NOI), if you can increase the NOI, you can not only increase your cash flow, but you can also increase the property's value as well.

Let's take an example: a 100 unit apartment complex producing $100,000 of NOI in a 10 Cap market is valued at $1,000,000.

NOI/Cap Rate= Value

$100,000/.10=$1,000,000

By increasing that NOI to $190,000, in that same 10 Cap market (meaning the market pricing that investors will pay for that income (NOI) hasn't changed), POOF, the property is now valued at $1,900,000.

$190,000/.10=$1,900,000

So in addition to putting $90,000 per year more cash in your pocket you just increased your equity by $900,000. Sound good? Are you amazed by way I quickly manipulated those numbers to make the example fall into place? Are you saying to yourself, "Well Karen, that's all good on paper, but how could I just magically increase the NOI by $90,000?" Well, after all of the articles I've written as an authority on CRE, you should just trust me but since you're the skeptical type, I'll show you!

As stated previously, if you can increase NOI, you can increase the value of the property. There are 2 ways to increase NOI.
1. Take in more money
2. Spend less money to operate the property.

Notice I didn't say, reducing the debt service paid to the lender. Although this will ultimately increase your cash flow before taxes, it has absolutely no effect on the value of the property. The property is worth the same amount of money whether it has a mortgage or is owned free and clear. Make sense?

Let's just say that after you purchased this 100 unit apartment complex, as the leases expired and were either renewed or the units re-rented, you increased the rent by a mere $25 per month. That's a monthly increase of $2,500 and a yearly increase of $30,000.

$25 x 100 units = $2,500 per month $2,500 x 12 months = $30,000

So POOF, you just gave yourself a raise of $30,000 per year. Congratulations!

By the way, how much would you have gotten if you increased rents by $25 a single family house? That's right... $25! That is the beauty of commercial real estate!

Now, let's just say that to reduce operating expenses you make the capital investment into individually metering the units with their own utility meters so the tenants can pay for their own utilities instead of you, the landlord. If the savings to you is a mere $50 per month, that would equate to $60,000 increased NOI because of decreased expenses.

$50 x 100 units = $5,000 per month (decreased expenses) $5,000 x 12 months = $60,000

So POOF, you just saved yourself $60,000 per year in utility expenses thereby putting the extra $60,000 into your pocket each and every year you own the property. Remember you earn these cash flows year after year, not just once. Now let's look at the effect on value in the same 10 Cap market. $100,000 + $30,000 (increased rents) + $60,000 (decreased expenses) = $190,000.

IF: $100,000/.10 = $1,000,000 THEN $190,000/.10 = $1,900,000

So you can see that you can not only influence the amount of money you earn from cash flow, but you can also control the value of your investment regardless of market conditions.

In residential investing, there is only one strategy. Regardless of how you acquire the property (foreclosure, etc.), the goal is to buy low and wait for the market to go up so you can sell at a profit or refinance. In this market, residential investors may be waiting a long time... a very long time. Additionally, if they don't have positive cash flow in the interim, they will not see a return on that investment for years to come.

By investing in CRE, you earn a return on your investment from Day 1 because of the significant cash flows. Additionally, by improving the NOI through your own efforts, you can increase the value of your property regardless of market conditions. It is for these reasons that CRE is a much safer and more profitable investment than residential investing.

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Karen Hanover is well known as a Certified Commercial Real Estate Advisor, President of the National Apartment Investors Association, Chairman of the National Commercial Real Estate Advisory Board and Senior Instructor for both the Self Storage Education Institute and the Apartments Education Institute.

As a CCIM Candidate, a highly prestigious designation, often called the "Ph.D. of commercial real estate" Karen works as a busy commercial real estate agent with Marcus & Millichap one of the nation's largest and most highly regarded commercial brokerage firms.

Sought by industry insiders for their toughest deals, Karen has helped thousands to create wealth in commercial real estate with less risk even in today's uncertain economy.

Karen founded the Commercial Investment Education Institute which provides educational instruction for investors on multiple subjects including apartments, self storage, office buildings, retail centers, mobile home parks and more. Her courses are taught in a friendly and easy to understand manner.

Article Source: http://EzineArticles.com/?expert=Karen_Hanover
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Steps to Freedom

Sunday, February 14, 2010

Six Rules When Buying an Investment Property

Six Rules When Buying an Investment Property

1. Use Your Expertise and Knowledge

2. Study Your Options

3. Consider the Benefits of the Location

4. Reflect on Rental Demand

5. Buy Property for Less than the Current Value

6. Gather Financial Support

Monday, August 3, 2009

Commercial Real Estate Appreciation - How You Can Increase the Value of Your Property in Any Market

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