Residential Property investing is a business activity that has waxed and waned in popularity dramatically during the last few decades. Ironically, there always appear to be a good deal of people jumping on board with investments such as gold, inventory, and property once the market is going up, and leaping OFF the wagon and pursuing other activities once the market is slumping. It means a good deal of property investors are leaving money on the table, although that is human nature. By understanding the Dynamics of your residential real estate market, and acting in opposition to the rest of the current market, you can often earn more money, so long as you also adhere to the real estate investing fundamentals.
Real estate investing, Whether you are purchasing property, is not a scenario. Sure you can make some quick cash flipping homes, if that is your bag, but that is a complete time business activity, not a passive, long term investment. That is exactly what it takes to make money. Therefore, while the pundits are crying about the residential property market slump, and the speculators are wondering whether that is the bottom, let us go back to the basics of residential property investing, and find out how to make money investing in real estate for the long run, in great markets, in addition to bad.
A Return To The Basics of Residential Real Estate Purchasing
When real estate is Going up, up, up, investing in real estate may seem simple. All boats rise with a rising tide, and even if you’ve purchased a bargain with no equity and no cash flow, you can still make money if you are in the perfect place at the ideal time.
It is hard to Time the market without plenty of market and research knowledge. A much better strategy is to be sure you realize the four profit centres for residential property investing, and make certain that your next residential property investment deal requires ALL of them into consideration.
- Cash Flow – How much cash does the residential income property earn each month, after expenses are paid? This seems like it ought to be simple to calculate if you understand how much the rental income is and how much the mortgage payment is. However, as soon as you factor in everything else that goes into taking care of a rental property – things like vacancy, expenses, repairs and maintenance, bookkeeping, advertising, legal fees and such, it starts to really accumulate. I prefer to use a factor of about 40 percent of the NOI to gauge my property expenses. I use 50 percent of the NOI as my ballpark goal for debt service. That leaves me with 10% of the NOI as gain. If the deal does not meet those parameters, I’m wary.