Financial Analysis Of Real Estate Investments

Posted on July 3, 2008
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To amplify your profits when investing in property, it is essential to dissect the numbers pertaining to your prospective property acquisitions just as you might do with stocks.

Once you have established the location that you are going to invest in (the factors you should take into consideration when selecting a target area are taught by real estate educators such as Hans Jakobi’s Real Estate Secrets, but fall beyond the scope of this article), you should bring a comprehensive Inspection Checklist which you can tick off whilst inspecting each property.

You could create your own such checklist, search for one on the internet, or instead use a real estate analysis program intended for this purpose.

One such award winning software is the POSH Property Owner System. POSH is actually 2 programs in one, as it comprises a Real Estate Analysis Part, in addition to a comprehensive Management Part.

The entire workflow of the program is in actual fact conceived to mimic the real estate investment process from assessment, thru to acquisition, financing, leasing, and lastly selling.

The Analysis Module enables you to examine and evaluate many prospective acquisitions against one another with a comprehensive Inspection Checklist which you can print out and take with you when viewing potential purchases.

Later on, upon returning to your house or office, you can submit your entries into the POSH software program in order to evaluate gross versus net yields, $ per square meter, price-earnings ratios, internal rate of return, forecast capital appreciation, and before and after tax cash flow. The reports it then generates will allow you to evaluate and evaluate multiple prospective purchases against one another.

Beyond the analysis aspects of the program, it also enables you to manage your property portfolio by permiting you to enter and keep track of all revenue and expenses pertaining to each of your properties. This includes such things as mortgage interest and related mortgage and refinance costs, tenancy and lease data, property management expenses, council and water rates and insurance, and maintenance expenses.

Once entered, POSH Property Software Program permits you to create thorough revenue and outgoings reports, depreciation schedules, rent receipts, and can compute your capital gains tax you would need to pay upon sale of the property. Another module allows you to create a detailed budget and compare it, as time progresses, with your actual revenue and expenses.

In addition to the benefits sumarised above, using software like the POSH Property Owner System will also ease your workload at tax time. With all of your revenue and outgoings data pre-entered as it was incurred during the course of the previous year, you only need to press a few buttons to output a few reports to take to your accountant, and these will enclose all the information he or she is likely to require to prepare your annual return.

You may not be preparing to be the next Rick Otton of Massive Passive Cash fame in property investment, with dozens of properties under your belt, but you need not be in order for POSH to be of noteworthy assistance and benefit to you. Investing in real estate is a capital intensive activity, so the cost of a software program like the POSH Property Owner System is trivial when contrasted with the monetary benefit you could glean from the education and breakdown provided in the Analysis Module of this software in assisting you to decide on a property that is liable to do better than the others in a given location.

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Evaluating Your Budget Before Taking The Plunge For A Fixer Upper Home

Posted on June 26, 2008
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Many people buy fixer upper homes thinking they will earn a huge profit upon its resale. Although such great fortune can happen, usually you make a smaller profit than what you may think.

This is because some people when buying a home that needs fixing up are unsure of exactly what is entailed and unfamiliar with the kind of budget it will take to do the repairs. Estimating what it could cost you will show a more realistic profit potential and help stop you from actually overspending and thus not making a profit at all.

Initial Considerations

When you first consider buying a fixer upper, be sure to add up every cost that you will need to spend for renovation. This includes large items, such as replacing the roof, to little items like buying a door for a closet. All the little costs that don’t seem like they add up to much can break a budget very quickly if you do not factor them in to the total cost.

Don’t neglect the cost of labor if you aren’t doing the work yourself. As you look at house under consideration, take all these cost factors into consideration before making an offer on the home so that you have any chance of making a decent profit when you resell.

Go for the Smaller Upgrades

You mainly want a home that includes decorative renovations rather than major, time-consuming, and expensive renovations. Such improvements do not cost very much, and they can bring in a substantial profit for relatively little work and investment.

When hiring someone to do the renovations, you will need to supervise them well. Besides potentially doing the renovations poorly - which could quickly add more expense - you need to ensure the person you hire remains on schedule.

This is one of the common losses in profit. If it takes much longer than expected to complete the house work, you could be slowly eating into your profits and may even run into a change in the real estate market.

Determining Market Value

You need to also evaluate the location in which the house resides and figure the house’s market value after all the renovations have been completed. By subtracting the repair costs from that, you should begin to gain a clearer picture of the profit potential and what would be the best offer for the home.

After that, though, subtract yet another 10% to factor in any emergency costs you are not expecting. Those unexpected costs come up more frequently than you might imagine.

By subtracting all these estimated costs, you should be able to figure out your initial offer for the house and determine if it is worth buying as an investment.

Just the Unemotional Facts

If after your homework you anticipate little or no profit, you may need to face the fact that it is not worth it. (Don’t allow an emotional attachment to the house cloud your judgment!) However, if you conclude the profit can be significant while remaining within your budget, then it may be worth making the plunge.

Don’t be afraid to study your budget closely and compare it frequently against what you are spending. It is the best way to be sure that you are making the right choices for maximum profit.

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Sell Your Property Even In A Slow Market

Posted on June 25, 2008
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If your home has been listed on the market for any amount of time, you know that the boom times of getting multiple offers within 24 hours are long gone. Today’s buyers can be much more choosy. In addition to the overall quality, location and price of the home, buyers will be looking at the style, or even worse, lack of style, of each room. It is essential to make your home look as enticing as possible to grab the first time home buyers’ interest. Home Staging is the key.

The country style that you spent so much time perfecting may not be as appealing to the first time home owner as it is to you. Having too specific of a style throughout a home can discourage viewers. However, having no style, or even worse, an empty home, could hurt your chances of making a sale even further. Buyers want to be able to envision their dream home, which includes well decorated and furnished rooms.

However, if they can’t see past an unsightly color or ugly piece of furniture, a sale will never happen. When done right, home staging allows a buyer to take mental pictures of the way they would want the home to look. Incorporate home staging styles that work after researching home decorating magazines, visiting the local home decorating store, and visiting open houses in your community. Don’t forget to take notes of what did and didn’t work.

The extensive pictures of friends and relatives on the walls, piles of Christmas cards on display and wall of college diplomas are impressive, but they can also make potential buyers feel like the home is already too established and that they are intruding and don’t belong. Placing collections in storage will allow buyers to vision their belongings in each room while not having to mentally remove yours. Home staging doesn’t require you to remove all personal items, so while it’s ok to leave up a family picture or two, don’t leave up too many items that will make buyers feel overwhelmed or unwelcome.

Dust bunnies in the corner aren’t fun to clean, but potential buyers don’t want to see them either. Make certain that your home is in the cleanest condition it’s ever been in, even if that means hiring a cleaning service.

You’ve spent so much time re-arranging the inside of your home that it’s easy to think all bases are covered. Not so! Home staging includes the outside of a home just as much as it does the inside. Make sure that the outside of your home reflects the natural beauty as much as possible. It should be well manicured: grass cut, flowers planted, paint refreshed, cracks filled. You will never get a second chance to make a great first impression. And with mortgage rates predictions of higher rates ahead, a great first impression will help you sell your home sooner rather than later.

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Real Estate Investment Dangers - What Can Happen And How To Sidestep Problems

Posted on June 21, 2008
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The consideration of real estate investing is about more than picking up a property cheaply and reselling it at a profit. While how-to books and real estate guru seminars may make it seem easy and risk-free, there is a reality to real estate investment. To learn more about the potential downsides of real estate investing, keep reading.

It Takes Capital

Typically, real estate isn’t considered a quickie investment, and your capital can be tied up for a long time. A down payment on a home can’t always be taken out and withdrawn in the case of a financial emergency or the need for quick cash.

That capital could also be used for other investments. For example, let’s say you invest $20,000 into a home that winds up not appreciating at the 8 percent annual rate you hoped it would. Instead, it depreciates and then eventually appreciates at a low 4 percent rate. That $20,000 could have made more by investing it wisely in a diversified investment portfolio.

Returns Will Vary

Like any investment, other than GICs (Guaranteed Investment Certificate) or guaranteed savings programs, your returns are going to vary. While real estate is more stable than, say, the stock market, that doesn’t mean you can bank on a 10 percent annual return.

You Will Pay Capital Gains Taxes

Taxes can slash your profits on your real estate investments if you’re unprepared. While there are deductions and capital deferral programs available to real estate investors, you need to understand the law and be prepared to apply it to your own circumstances.

Closing Fees and Transaction Costs can Reduce Profits

Unless you’re savvy enough to handle your own sales, you’ll have to hire a real estate agent, meaning you’ll have to pay commission. In addition, most investors will need to pay closing costs, title insurance, inspection rates, legal fees and more.

Typically, the costs associated with any real estate transaction usually hover around 15 percent of the transaction, whether you’re buying or selling.

There is Work Involved

While a real estate investment on a home normally does reward sweat equity, that also means you have to put it in. Unlike stock market investments where it takes little more than cash and a telephone or a computer to make an investment and see a possible return, real estate investment involves getting out of your chair and a lot of leg work.

Whether it’s driving out to sale sites, attending home viewings, cleaning properties, maintaining rental units, upgrading or renovating houses or preparing a house for sale, it’s all hard work that you’ll have to put in. So, before you jump into real estate investing, make sure you have the time and energy to invest alongside your money.

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