This article can be the part 2 for my previous article, The Reasons why Getting Started in Real Estate with Buying Rental Property which is talking about the reasons and also the benefits to get started your real estate journey with Rental Property. You can click on the link and read through the article first if you do not know what are the benefits of rental property. If you are ready, let us move on with this article: How to Buy a Profitable Rental Property and Get Passive Income.

Now I hope you have made your decision that you are going to involve in rental property and want to make some passive income for your pocket. Actually real estate is really a good way to invest your money where you can leverage on it for capital gain, tax deduction and also passive income. However, there are a lot of rental properties available in the market for you to choose from. Sometime you will easily get confused or we should call this Information overflow where you have too much to choose and too much of information have to be handled.

So in order to help you, I wrote this article which I will share some of the tips and guides that I learned which will help you to buy a rental property that make you money. In a nutshell, this is also a buying guide for rental property.

Without any further ado, here are the tips:

 

Understand Yourself Financially

1. Get your finances in order. Before you invest any money, please make sure your finances are in order and under control. Here is the checklist for your finance:
   • If you plan to taking out a mortgage, your credit report has to be good and does not contain any bad records. This will also help you have a higher chances to be approved and get a mortgage at a favorable interest rate. With a lower interest rate, your ROI (return of investment) can be increased too.
   • Always double confirm whether you can afford the installment payment of your property if anything happen such as late rental payment from tenants or cannot rent out your property where you have to pay the entire installment yourself at that time.
   • Make sure all your debt is under control. Maybe you can start a budget to make sure you can handle both your expenses, debt and mortgage payment.
   • Always prepare an emergency fund that can afford your expenses for 3-6 months just in case anything happen in future.

I have 2 articles that might help you to make better decision here:

Things that you must consider before ordering a house

Budget to Financial Freedom – Prepare for the Known, the unknown and dreams

How to Choose Your Rental Property

1. Choose a good location. In real estate, location is everything. People tend to care about the location when choosing their houses. Here are some of the example what people consider:
   • Area with good Neighborhood and low criminal cases
   • Surrounded with industrial or commerce zone which will provide job and business opportunities.
   • Easy Reach of a good shopping center or local shops
   • Good transportation infrastructure such as motorway, bus or train links
   • Will pay attention on schools or university for those who are having children.

If you buy a property in a good location, you can easily rent your property out because the demands are there. One of the good examples is buying a rental property around universities or colleges. The market demands, tenants, are there and also the chances that you are going to rent your property out are really high. In some cases, you can also charge more on rental too.

1. Look at the property. I heard from an experienced real estate investor that the ratio to find a good property is 1:100. That is mean he has to see 100 properties to find a good deal. As an investor, all you care is making money. So you must pay attention on the property itself to determine its investment value. In general, a good rental property should:

• Less than Twenty years old. This will reduce the chances you pay for the maintenance problems.

• Have good security system

• Have nice inner decoration

• Have fitted kitchen, private bathroom, etc

• Parking place

• If you rent out with furniture, make sure the furniture, curtains and carpets are in good condition and clean

• Clean and neat

DO Your Investment Homework

1. Calculating the number. Investment is a math related activities where you must calculate the expense, income and cash flow from the investment. Before you buy a rental property, make sure you collect all the expenses associated with the property and deduct it from your rental income. Make sure the result is positive. There is always a good advice from real estate investors that “You are making money while you buy and not sell”. I believe on this.

1. Do not overpay your investment property. In real estate, all you have to do is just have a little right over a rental property. Maybe you get a mortgage at minimum expenses, and then make money from the difference between your expenses and rental income. So do not overpay your property, use the extra money to get another property if you have. If not you will end up losing money or hardly make a dime from your investment.

1. Find the right broker. If you are first time investor in real estate, maybe getting a broker is correct for you. A reputable real estate broker can make a lot of difference in your investment. They are experienced, familiar with the market and also have the contact list on their hands which may help you rent your property out easily. Of course, they may charge on their expertise but if your investment can afford it, I think this is quite ok to get someone to help you.

1. Understand the real estate market. Well, this is the hard part of the homework where you must learn about your market. I can tell you that different area, district has difference on its market trend. So you must learn about this. In this matter, a broker may able to help you. But if no broker is helping you, then you must learn it by yourself and here are the tips:

• Low prices in the housing market can mean that the amount of rent is also low.

• Generally, high housing costs cam mean that you will be able to find more renters.

• Some people recommend that when buying rental property, look for those which have rent prices that below current market rents. Will allow you to raise the rent in future

• Make sure your targeted area is having a good rental history. You must check and see the average how long tenants are staying and their payment records.

• Understand your tenants. Whether they can afford a new house in the same area or are they prefer to rent rather than buy? By knowing this, you can understand that whether there are demands on your rental property.

Conclusion

I hope after reading this, you will have a clear picture on how to choose a rental property that will generate passive income to you and help you achieve financial freedom. Please feel free to comment on this article if you have any ideas, tips or experience to share with us.

Good Luck,

Harrison

There are a lot of ways to make money from real estate. But there are certain reasons that you must get started with rental property.

1. Leverage on Bankers Money

One of the advantages of buying a property that other investments do not have is you can borrow money from bank to buy it. You can always leverage on the money of bank to buy property that you want to. In most cases, all you have to do is just pay a small amount of money, usually 10%, and get a mortgage from a local bank to own the property. That is mean with a small amount of money, you can own a rental property that bring you money in several ways.

Another issue that you must pay attention here is the PMI charges. For your information, PMI, Private Mortgage Insurance, is an insurance that purposely protect the lender against the losses should the borrower default. You must buy this insurance if you put less than 20% of down payment in your property. The monthly payment for the PMI is depending on a number of factors and will generally fall into the $25-$100 range for median price property.

If you are trying to make money from rental property, then you must pay attention on this PMI expenses and do some calculation. $25 dollar monthly expenses might affect your profit or even make you getting a negative cashflow from your property. Collected Rent < Mortgage payment + insurance.

2. Real Estate Tax Advantages

You can have a lot of taxation benefits by owning a property. Below is some of the Standard Tax deduction/Tax Advantages that you can get from the rental property:

Home Mortgage Interest. Once you start making payment towards your mortgage, remember that you can the portion paid toward interest is deductible.

Depreciation. Depreciation is all about the overall wear and tear on your building. Only the portion of a property's value that is attribute to the buildings. Residential rental property must be depreciated over 27.5 years.

Operating Expenses. All the expenses that related to your rental property are deductible. For example Travel expenses that you drive around for the rental activities. So you are advised to keep track all the expenses on running your rental property business.

To fully benefit from the real estate tax deduction, you must help yourself to be Real Estate Professional. IRS defined that a real estate professional as someone who spends more than half of his or her working time in the rental business. A real estate professional also needs to spend more than 750 hours per year working in rental properties. Once you achieve the name of Real Estate professional, all your losses are fully deductible against all income. Otherwise, your losses are only deductible up to $25,000 against your rental income.

3. Side Income or more income

All the time, rental property is claimed to be the best way to build passive income. A tenant rent your property and pays some money to you every month. Then you use the money to pay your mortgage and also other expenses that involved, maybe some maintenance on the property. If the pays is high enough to cover all the mortgage payment and expenses, then you are considered having a positive cashflow from your property and this will be your passive income. You do not have to do anything but this positive income will go into your pocket each month. All you have to do is choose a right location with the right market, and then you can easily have the passive income you want to. The good news is the rent hike each year, while the mortgage of your rental property remains the same. That is mean…. YOU MAKE MORE MONEY!

4. House Equity, a better saving fund

When you are paying the mortgage payment every month, you are paying both the mortgage interest and also the propertys equity. The more you pay, the faster you can build the equity.

So what is this house equity for? You can use it on anything you want to. You can take it out for your house improvement, vacation or even as an education fund for your children. Some of the real estate investors are using this home equity fund to perform No-Money-Down purchase for their next investment properties.

There are a few points you must know:

1. By owning a rental property, your tenant will build the property equity for you as he/she will pay the mortgage for you.

2. You still own the property even you take out the equity.

3. You can take out the equity many times as long as you own the property. Of course you must know your credit and have a plan to manage it

Now you know why the home equity is called as a better saving fund where someone save the money for you and you can withdraw the money again and again in future.

5. Getting more information getting information for a market

Real estate is a business. For rental property, a property will be your income source. You rent it out to your tenant (customer) and collect a certain amount of payment every month (service income). So you must know the market and then you will only know what kind of strategy you can use to rent your property out or even increase your property value and rental and make more money.

By owning the first property in certain area, you will start learning the local culture, behavior and real estate market trend. In a nutshell, you are learning the local people behavior on housing. Then you will know

How much of rent you can charge. whether you can fully maximize the profit or away from it as you are losing money

What kind of facilities in your property can boost your profit. This is all about the taste of your tenant and how you provide the business value to them and make them happy with your service, maybe some improvement or add-on on your property.

What kind of property that you can buy that will make you money. By familiar with a real estate market, then your brain and your eye will be your analyzer on how to choose a property that will bring you money. This is all about experience and sometime this is hard to be learnt from a book.

Who can help you in that area. It is important to have a list of handyman or real estate agents that you can trust with especially you want somebody help you to run your rental property business. A trustworthy handyman can help you solve your tenants problem and give a silent night to you.

The more information you have on a particular market, the more strategies you can build to make money. To me, this kind of information is important if you are going to run a property flipping business in future.

Simple Formula of Making Money from Real Estate

You can consider rental property is the base, is the foundation of your real estate business. First, it let you leverage on bankers' money to own property. Second, with a property you can get some extra tax deduction on your income which helps you save some money. After that your rental property will generate income to you and also help you in capital appreciation in home equity. From here, you can generate the enough money to start owning more property. With your experience dealing with tenant, you start learning more about a market and you can use the generated money to buy your second, third or even more property. This is a simple formula on making money from real estate.

Good luck

Harrison

The author of the famous book The Seven Habits of Highly Effective People, Stephen R. Corey, mentions that our current habits are the main factors to determine how success we will be in future. So if you want to success in real estate investment, then you must learn and adapt the 5 following habits:

 

Habit #1 : Being Curious. Curious to learn something new daily

Habit #2 : Staying flexible. Be flexible enough to change according to the environment and condition

Habit #3 : Looking for properties. Go out and practice the theories that you learn from a book and internet

Habit #4 : Cultivating the gift of gab. Communicating is very important in business and real estate

Habit #5 : Reading real estate ads – obsessively. Catch up the latest real estate market trend and information.

 

Source : The Trump Blog

No matter what kind of investment you are involving in, there are 2 kinds of analysis that you can not miss: Technical Analysis and Fundamental Analysis

 

Technical Analysis is something that has formula, trend, data and charts for you to analysis a deal.

 

Fundamental Analysis is more about fact, history, human behavior and other unpredictable factors involved.

 

Today, I’m going to share with you the real estate fundamental and technical analysis that I read from Richdad Forum which can protect your real estate deal from going bad.

 

Real Estate Fundamental Analysis

 

Analysis on the property developer

 

• Who is the property developer?
• What is their track record with other properties in the past?
• Do they turn a profit?
• Do their investors walk away happy?
• Do people invest with them again and again?
• Do they finish projects on time, on budget, and within promised parameters?
• Will the developer be able to purchase building materials, bring them in, and have the labor to build while maintaining affordability? (These are 3 big areas that can increase a price and put a project in jeopardy).

 

Analysis on the property location

 

• What has happened in the area to suggest that it could grow? (For example, why did the developer choose to build there instead of somewhere else in the world?)
• What are other properties around it selling for? Is this area growing in popularity? How do you know? Will it grow more? When will it reach capacity? What factors would you look to in order to feel that it has reached its capacity?
• Has interest been strong on those other investments? Why or why not?

 

Analysis on the property usage

 

• Is this something that will be supported by others in the area? (For example, will a rental location be filled with staff because the area is growing quickly and needs lots of people? Or as another example, will a hotel get booked up because the government is working hard to market the area?
• Is the property appropriate for the demographic who it will be marketed to?

 

Analysis on the property competition

 

• Who else is building right now? What is their track record? (You want to see this because if just one never-heard-of-before builder is building, you might not be as attracted to a project as you would be if several big-name builders were all creating projects in the same place).
• Who else is investing right now? Is it the Donald Trumps of international investing? There’s a good chance you’ll want to get in on the same deals they do.(did you see that Mr. Trump is investing one year behind me in the same area we are…LOL…got to love it….being ahead of him by one year internationaly…not the first time or last….LOL…)(that one is for you Chris)
• What will the “end user” competition be like? Will there be dozens of buyers clamoring for a single unit? That will increase prices and potentially earn you a good return. However, if there is not enough demand, the result would be the opposite. Is the property appropriate for the demographic who it will be marketed to?

 

Above is just some questions that you need some hard works to find out the answers. Because of this, fundamental analysis is more challenging and sometimes quite hard to learn. Maybe because of this, many people tend to skip this analysis steps and ruin their investment deal at the end.

 

 

Real Estate Technical Analysis

 

In technical Analysis, all you have to do is looking at the historical pricing of a property and tries to identify the pattern in future.

 

However, it is really hard to get the accurate number for this. Even you compare with other projects that finished or running at this moment, you just can get the average pricing for a particular area or property.

 

So based on the pricing data you collected, ask yourself the following questions:

 

1. “Does this piece of information change my opinion of the risk level of the project?
2. “Does this piece of information change my opinion on the reward level of the project?
3. “Do I still feel that the risk/reward ratio is within the acceptable parameters I’m comfortable with?”
4. “Given my answer to question 3, should I hold the line or should I implement an exit strategy right now?

 

Now you should have a big picture on how to run the fundamental and technical analysis on real estate. Hope the information I collected are useful for you.

 

Good Luck!

 

 

Source : Richdad

 

There are a lot of ways to invest in real estate and invest in Foreclosure properties is one of them.

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Foreclosure is a process where bank or the creditor sells the property due to the owner’s failure to pay their mortgage in times.

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There is no doubt that investing in foreclosure home is one of the first ways that many people start their real estate investment journey. There is nothing more attractive than foreclosure home which can let you purchase a property under the value.

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However, thedfwmentor said that there are 5 myths of foreclosure that you must remember and understand before get started.

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4 Myths of Foreclosure

1. Foreclosure is always a great deal.
2. Foreclosure Properties have a lot of equity
3. Homeowners are never at fault
4. Texas is 6^th in the nation with foreclosure.
5. Homeowners are motivated to sell

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My Opinions:

I quite agree the myth number 1.Not all the foreclosure properties are great deal. As a real estate investor, there are many factors you must consider. The location, facilities and also the neighborhoods might affect the returns of an investment. Because of this, a foreclosure property is same with a new property, where some researches still need to be carried out.

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Source : BiggerPockets.com