There
are quick formulas to determine if a deal is going to
work for you. Understanding them and a few other
principles will help you a great deal in getting a great
deal.
Cap Rates - Cap Rates
are a down and dirty way to judge the value of a
rental. Divide the gross rent by the sales price.
This will give you your return in a percentage. Over
time you will find that you will only do a project
if the rate of return is above some level. It will
have to be to include costs of business and
operation.
Opportunities - Those
who work hard get lucky. Do your research and go to
work. Opportunities will pop up all over if you keep
your nose to the grind stone.
When Money is Made -
Money is always made at the purchase of a property.
Remember that. You can't change what the market will
pay for your property. What you can do is find one
that is priced below market value or increase its
value by rehabilitating it. Just make sure you
invest based on the purchase and know you will sell
it based on other comparables in the market.
Leveraging
in real estate consists of using someone else's money to
stretch your cash resources. For example, if you have
$20,000 you can potentially acquire 4 loans for $5,000
down and have positive cash flows from each loan. Team
up with someone who has made it happen and use them as a
mentor.
What
determines if a particular market is hot or not?
Research will help you determine if a market is ready to
increase in value or not. Get a pulse on your market.
Use your agent to let you know what is happening.
Understanding your risk tolerance
for a real estate venture is the first step here. Use your agent
and your mentor to help you understand what projects are low risk
and which are high risk/high return. Learn what you can handle
depending on your situation.
