So you want to be successful. What does it mean to be successful? For some people it means financial independence. For some it means more time with their family, more time to travel, etc. For others it means a bigger house, a nicer car and other lifestyle niceties. But what else comes with success. The unknown is what scares a lot of us. One of the things that may be getting in your way, is your fear of the unknown or your Fear of Success.
I have spent a great deal of time and money educating myself as a Real estate Investor, and continue to do so. What I look for and what you should look for will depend on a number of things.
When looking for Real Estate Investing education you want to make sure you pick education that is right for you. One of the criteria you might use is “how do you like to learn”? Some people learn better by listening and watching so lectures and seminars might be better for them.
Don’t put all of your eggs in one basket.
Financial experts and financial planners will usually recommend some sort of diversification in your investment portfolio. As part of your financial freedom planning with real estate, I recommend diversification as well.
When people first start out in Real Estate Investing they tend to focus on how many deals they can make. They are trying to achieve a certain amount of income so they figure they need a certain amount of deals to make that much money.
But sometimes it may take a long time before a deal actually happens.
Evaluating A Real Estate Investment for Rental Purposes
A lot of people looking at investing in rental real estate are using something called the capitalization rate (or “cap rate”) to evaluate the financial viability of a potential investment.
The cap rate represents the return you would get on a real estate investment if it was fully capitalized. What that means is that if you were to pay all cash (fully capitalized) for the property you would earn that percentage return on your investment. So, basically, it doesn’t include any costs associated with financing, i.e. no mortgage.
Your Investment Must Cash Flow
You should never acquire an investment property where your profit is based on an expected future price.
I have seen some investment proposals where the promoter is pitching deals that even have a negative cash flow now … but a high return later. That higher return is based on expected appreciation and a higher price.
Partner With Your Competition
One of my students is running some ads looking for Tenant Buyers for her Lease Option business. She is getting so much response that she had to stop running them for awhile. I am having the same problem with the ads I am running and I had to stop them as well. My salesman can’t keep up. There are a couple of things to notice here.
One of the keys to successful Real Estate Investing is finding motivated sellers. You make money when you buy.
A motivated seller is someone who owns a property and wants to sell it but can’t. Perhaps there is not enough equity to sell because they owe too much money on the mortgage. Maybe the place needs a lot of repairs and no one is interested. Perhaps they have moved and are carrying two mortgages. There are a number of reasons why sellers might be motivated.
Don`t Set Your Option Price Too High
Price It Right For You And The Buyer.
When setting up a Lease Option investment you will need to decide what your Option Price is. Your Option Price is the price that the Tenant Buyer will buy your property from you when they decide to exercise their option sometime in the future. This could be anywhere from 1 to 5 years. Most of my Lease Option investments are for only 3 years.
Cap Rate or Capitalization Rate is a financial indicator that helps guide you in your decision to invest in a certain property. These financial indicators can be confusing and misleading.
To calculate the Cap Rate you first have to find out what the Net Operating Income (NOI) is for the building. This is simply your income minus your expenses (excluding debt service). What is left over is your NOI. Once you know your NOI, just divide it by the asking price of the property to get your Cap Rate. Let’s look at an example.