hy would you buy your next home. When it isn't
investment property everything the seller says it is,
without seeing it? It's a you can reject the deal with
numbers game. Whether or not you little or no loss. So why
see the property before you make wouldn't you want to look at the
an offer isn't nearly as property?
important as making sure the
numbers make sense. Buy Investment Property By
Numbers
A man in California used to just
send out offers on a hundred MLS The main reason you might skip
listings at a time, offering 25% looking at a property before
less than the asking price on making an offer is time. This is
each one. Occasionally a few certainly true if the property is
sellers would accept his offers. far away. If you don't get a
He never had to look at the homes price that makes sense, why spend
beforehand. Including an your time traveling to look at
"inspection and approval" clause real estate investments? A price
in the offer meant he could and terms that make sense - this
always back out of the deal later is what is important. Of course
when he saw the house. Meanwhile, you'll probably want to look at
he efficiently found the truly the actual property eventually,
motivated sellers. but looking at the numbers is how
you invest.
This true story demonstrates that
with a good clause or two in the Investors value income property
contract, you don't have to worry according to current cash flow
about making an offer before you (or should if they want safe and
see a property. It's true when viable investments), so start by
you buy investment property or verifying income. Get the actual
income figures for the past 12
months. Always consider the Calculate loan payments (talk to
potential income if rents are your banker), and see how much
raised, vending machines are cash flow you'll have. Then you
added, etc., but base your offer can figure your cash-on-cash
on the current income. return based on how much of your
own money you put into the deal.
Verify all expenses with Just divide the cash flow by your
investment properties. If any investment.
expenses listed by the seller
seem unusually low, they most When the numbers work, you can
likely are. Just substitute your safely make an offer. Inspections
own best guess in place of any will tell you if there are
suspicious numbers. problems that will affect the
cash flow. You can always
After you determine the net renegotiate if there are such
operating income, apply the problems (assuming you made your
appropriate capitalization rate approval of all inspections a
to arrive at the value. If you're contingency of the offer). Of
not sure how to do this, get course, you can even go take a
help. However, you really should look now that you are truly ready
understand the principle of how to buy that investment property.
to figure a cap rate. This is a
numbers game you're playing.
About the Author:
Steve Gillman has invested in real estate for years. To learn more, get a free real estate investing course, and see a photo of a beautiful house he and his wife bought for $17,500, visit http://www.HousesUnderFiftyThousand.com
Source: www.isnare.com
