Once you determine that being a landlord is right for you by understanding the market, learning the climate of the rental community, learning the neighborhood or neighborhoods that the potential income property is in, and understanding your finances to include vacancy rate. Then, the investor is ready to find an income property.
Know Your Finances
First, we will discuss understanding the investor’s finances. The Myst Condo Showflat The goal of the income property is to produce income. In other words, the property must cash flow. To determine if a property cash flows, the investor must know the property taxes, the mortgage amount, maintenance cost, insurance cost, the fair market rent, and the repairs needed to make the property livable.
The property taxes, mortgage amount, insurance and fair market rent can make or break the income potential of a property. How you ask? The latter items with the exception of fair market rent must be paid by the owner whether the rent is collect from the tenant or not that is why the vacancy rate must be part of the investor’s calculations in determining the income potential of a piece of property.
Let’s look at the math.
As an investor looking at the math is just as important and in some cases more important than finding the property.
There are options that the investor must consider if he or she is financing the property. One option that an investor may choose is a hard money lender.
In order to determine if this the right choice for the investor, I found a math calculator that will help with minimizing the risk of this type of loan. Remember, the interest rate on this type of loan can be very high. Let’s examine by click on the link.
There is an advantage to this type of loan. The advantage of this type of loan is that the investor can get immediate cash or access to the equity of the property. This loan, however, is often used if the investor needs to rehab the property after purchasing it.
At the time of purchase of the property that needs rehabing the investor will need to determine what the after rehab value is for the property. The reason this is important is that the hard money loan will yield 65% to 70% loan to value for the investor. For example, let’s say the investor found a property for $35,000 and the after repair value is $90,000. The loan amount will be $58,500, so the investor will have $23,500 for the rehab. The available amount for the rehab needs to be determine before purchase, so that the investor can determine if the project will possibly yield the income or value that the investor is expecting after the rehab is complete.
Once the potential amount of funds for the rehab is determined the investor needs to get estimates on the rehab to determine if the amount available is enough to complete the project.
It is important to note that all of this research needs to be completed before purchase. In an effort, to prevent the prospective property not being sold before the investor completes his or her research, the investor would need to have his or her contractors available at the time the potential property is considered for purchase.
The contractors would give the investor a rough idea of the amount needed for the rehab. Of course, most properties that the investor would consider will not have utilities on, so the investor needs to add an additional twenty percent to the final estimated rehab amount to cover possible unknowns.