Here at GT>A we love us some real estate, investment real estate. And here are 10 things you should
1) Your home is not an asset!
Huh!? A real asset has an inflow of cash. Does your house do this? Let’s think about it. You pay out your mortgage, expenses, insurance, etc, etc and have no income from it. This does not make it a true asset. That being said, it does make for a happy family and peace of mind you have a place of your own.
2) Buy Now!
If you have always contemplated investment real estate, now is the time to buy! Interest rates for commercial properties are between 4% and 5%. That is unheard of! The best part, currently, it’s possible to get those rates locked in for 3, 5 and even in some instances 7 & 10 years. MOOOOLAH!!!!!
It isn’t all about the price, the key factor is cash flow! The deal terms. There are many ways to do this. Putting the least amount of your own cash in is key! Always search for the least amount of a down payment. This minimizes your risk, while increasing your cash on cash return. Look for financing that allows you to stretch out your amortization schedule from 15 or 20 years to 25 or 30 years. See if the owner will hold the mortgage, with a balloon payment after five years. If you are confused on some of these terms – stay tuned – a beginners definition guide is coming soon!
4) Entities & Legal Structure
Real estate law is quite possibly the most convoluted of legalities. Make sure you have a qualified attorney drafting your operating agreement, and articles of organization. A few hundred bucks is worth it in the long run. Most real estate is formed as a Limited Liability Company (LLC) and many times it is recommended to have each property you own, be its own entity, under its own LLC. This helps protect you, as the owner.
5) Real Estate Evaluation
There is a simple rule to abide by. If you are looking at multi-unit properties, such as a 2, 4 or 8 unit; you never want to pay more than what the property is worth. NO DUH! Right? So what is the property worth? A good rule of thumb is – one months rent, of the entire building, is one percent of the buildings value. So if I were looking at a property that had four units, each unit renting for $600 a month my thought would be:
Well, $600 per unit. Four units. $600 x 4 = $2,400. $2,400 x 100 = $240,000. Ding, ding, ding. In ordinary circumstances, never pay more than $240,000 for this property.
It’s that easy!
Thanks for checking out 5 Things Real Estate. Look for our next real estate edition that defines some common real estate terms for beginners!
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