Analyzing Real Estate Investment Deals

Many experts agree that investing in real estate is a numbers game. You must be willing to look at large numbers of properties to find the deals that will make you money. Out of one hundred properties, you may find ten that are suitable to make offers on. Out of these ten, you will not have all of your offers accepted, unless you are offering way too much. You must also consider financing, since part of the investment strategy with real estate is the leverage gained by mortgages. When all is said and done, you may only actually buy one property out of every one hundred looked at.

There are a number of ways to value a real estate investment. Yield is simply the rental income divided by the purchase price. This is not a very good measure because it does not take into effect how much cash has been put into the property as well as other important considerations. Cash-on-cash return is more useful than yield in determining if a property is a good investment. This equation is determined by the rental income divided by your capital outlay. This still is not the most effective way to analyze a property. The internal rate of return is a more complicated, but more accurate, picture enabling you to see into the future regarding the property. It cannot be worked out quickly like the yield and cash-on-cash return can be. It is extremely difficult to calculate.

Fortunately, computer programs can do this for you. The software designed to determine the internal rate of return of a prospective investment property take into account: purchase price, renovation costs, true market value, closing costs, rental income, vacancy rates, expected capital growth rate, expected inflation of rents and expenses, mortgage interest rate, mortgage structure, mortgage application fees, property management fees, property taxes, maintenance, repairs, your income level, and prevailing tax rates.
Software that analyzes all of these factors provides results that give you insight that is extremely valuable when analyzing prospective investment properties. You can run the numbers differently to satisfy your curiosity regarding the possibilities of your mortgage interest going up, rent changes and so forth. Software and resources are available to assist you in valuing and property and their use can be very beneficial to the beginning and experienced real estate investor.

Another factor that should be considered when investing in property is its location. This is subjective, and relative to the type of property you are investing in. But just as we learned in week one, location is important. If you are investing in residential properties for instance, the quality, reputation and location of nearby schools can be important. Access to grocery stores, routes to city hubs and entertainment venues, parks and the general community and neighborhood are all important considerations. These are all subjective, so it is difficult to dictate any set guidelines as to what you should look for while investing, but they must be considered in your analysis.

Look at many properties when analyzing deals. Study all of the factors when determining which investment properties will meet your goals. The more properties you look at and analyze, the better educated you will become in the field and the easier it will be to determine the good deals from the duds.

Alain Burrese, J.D. is a performance and personal development expert who teaches how to live, take action, and get things done through the Warrior's Edge. Alain combines his military, martial art, and Asian experiences with his business, law, and conflict resolution education into a powerful way of living with balance, honor, and integrity. He teaches how to use the Warrior's Edge to Take Action and Achieve Remarkable Results. Alain is the author of Hard-Won Wisdom From The School Of Hard Knocks, the DVDs Hapkido Hoshinsul, Streetfighting Essentials, Hapkido Cane, the Lock On Joint Locking series, and numerous articles and reviews. You can read more articles and reviews and see clips of his DVDs as well as much more at http://www.burrese.com and http://www.aikiproductions.com.