Investing in the Numbers Game

By
Real Estate Broker/Owner with Respect Realty LLC 200311024


Know the numbers when buying investment propertiesEvery successful investor knows what the numbersare before purchasing an investment property.
You mightsay to yourself, "that is easy, does the rental on the property pay forthe mortgage?" That is a good start, but there are so many othernumbers that you need to know about. That is where an experiencedRealtor can help you find out what ALL the numbers are and if you can make a profit.

When you buy an investment property,most first time investors think that once they have purchased theproperty there are never any more costs. So let me gothrough with you some other things you need to consider before puttingan offer in on an investment property. Is this a multi-plex unit or asingle family home? If this is a single family home you need to look atthe appreciation over time. Is the property in a neighborhood of mostlyowner occupied homes?  More owner occupied homes in an areamean higher resale value and more community involvement.

Does the property come with long term renters or isit vacant? This can either add value to a property ordecrease the value. An owner of an investment can say they charge $800a month in rent a month, but if it is vacant they might as well charge$0. No renters means no money. If the investment property is vacant youneed to consider the cost to fill it, such as newspaper ads, signs,internet, flyers, and so on.  Also, if it is rented you needto consider these same costs if someone should move out. Plus if youhave a tenant move out you need to consider that you will have the costof at least one month without rental income, and also carpetreplacement, painting, etc. These are all things that need to beconsidered when planning your budget on an investment property.

Another way to save on costs is tomanage the property yourself. If you plan to do this,make sure you get a property within 10 miles. You don't want to spendall day driving to units clear across town; Remember time is money!Management costs vary, so if you are planning to use a managementcompany shop around and get references.

Who pays for the everyday maintenanceand utilities? These can add up to thousands per year inincremental costs. Who waters and mows the lawn? Who pays the water,electric, sewage, garbage etc? These are all things you need to askbefore you purchase a property. There are also the maintenance coststhat will have to be covered by you like a new roof or a failingexterior of a property.

Now for the nasty word that everyonehates to hear...TAXES! This is a number that changesevery year. It isn't a fixed cost like a mortgage payment. So if yourun the numbers and they look good, will the taxes going up next yearand you not giving a rent increase change your mind on thisproperty?  It is a good idea to talk to your tax professionalbefore deciding. Remember even if you buy a property that has a zerocash flow in every month, it will still give you tax benefits that atthe end of the year will put money in your pocket.

So if you decide to get into investment property toincrease your net worth, sit down with a Realtor®and run the numbers with him/her and find out what type of propertywill best suit your needs immediately and in the future.

 

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Dale Cosack 04/28/2010 07:03 AM
Topic:
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Location:
Oregon Washington County
Groups:
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Real Estate Investors
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Tags:
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Rainer
135,548
Bill Exeter
Exeter 1031 Exchange Services, LLC - San Diego, CA
1031 Tax-Deferred Exchange Expert

Hi Todd,

Great post.  Really good information and easy to understand. 

We always recommend that the investor also have their team of real estate advisors selected before they get into any transaction so they are ready for anything that might be thrown at them.  Also, they should know what their intended exit strategy is before they buy because it can affect the way they structure their purchase, including any legal entity that might be formed to hold title to the property.

Jan 02, 2008 05:12 AM #1
Ambassador
2,135,080
Respect Realty LLC
Respect Realty LLC - Milwaukie, OR
Brokers - Oregon / SW Washington Real Estate

Bill - That is great advice and thank you and I'll make sure to add that to my investors packages.

May 16, 2008 06:58 AM #2
Ambassador
2,008,677
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Todd - These are important considerations for any investor, but especially a new investor, to consider before buying a property.

Apr 27, 2010 04:40 PM #3
Ambassador
522,042
Virginia Hepp - Mesquite NV REALTOR
Desert Gold Realty - Mesquite NV Homes For Sale - Mesquite, NV
Mesquite NV Homes and Neighborhoods - Search MLS

Todd - I don't work with many investors - I kind of specialize in 55 + communities and 2nd home buyer.  I counsel them as to the what ifs, and make sure they have a long term plan with out options.

(and congratulations on the MIL - well earned and you have obviously enjoyed the journey)

Apr 27, 2010 06:22 PM #4
Rainer
75,717
David James
ReMax Real Estate Services Columbia South Carolina - Columbia, SC

I try to get investors 1% per month of the vlaue of the property.

Apr 27, 2010 09:26 PM #5
Ambassador
557,018
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

May I...

Lay around on the money too? :)

TLW...ROAR!

Apr 27, 2010 11:17 PM #6
Rainmaker
597,934
Valerie Osterhoudt
Johnson Real Estate, Inc. - Cromwell, CT
ABR, Cromwell, CT Real Estate ~ 860.883.8889

Todd.. Wow... a Feature blog.  It was originally written in 2007.  I'm impressed. 

valerie osterhoudt

Apr 28, 2010 12:17 AM #7
Rainmaker
4,432,217
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Todd, Great tips for investors. I work with investors and will share these tips.

Apr 28, 2010 01:24 AM #8
Rainmaker
202,278
Dale Cosack
BHHS Fox & Roach Realtors - Newtown - Newtown, PA
Newtopias: The Cosack Team

Thanks for the blog Todd I reblogged it.  I agree with David above if you can get 1% of the sales price per month it's worth looking at.

Apr 28, 2010 07:04 AM #9
Rainmaker
716,358
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Hi Todd,

Around here the property taxes are so bloody high - that relatively few properties survive the number crunch.  Investors previously counted on appreciation to make their money.  We all know what has happened to that....

Apr 28, 2010 08:05 AM #10
Rainmaker
544,206
Eric Michael
Remerica Integrity, Realtors®, Northville, MI - Livonia, MI
Metro Detroit Real Estate Professional 734.564.1519

Great investor tips. I'll keep this around for any investors I may run across.

Apr 28, 2010 10:05 AM #11
Rainmaker
662,099
Patricia Aulson
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate - Exeter, NH
Realtor - Portsmouth NH Homes-Hampton NH Homes

Thanks for the information today.  Good post I enjoyed it.

Apr 28, 2010 11:32 AM #12
Rainmaker
309,330
Mike Wong
Keller Williams Realty Southwest - Sugar Land, TX
Realtor: Commercial, Residential, Leasing, Invest

Great post to explain some of the basics of investing to new investors. Its critical for a new investor to work with an experienced agent. One mistake in real estate investing could be devistating, and some people never recover.

Apr 28, 2010 05:45 PM #13
Ambassador
699,779
Lee & Pamela St. Peter
Berkshire Hathaway HomeServices YSU Realty: (919) 645-2522 - Raleigh, NC
Making Connections to Success in Real Estate

Todd, I'm following through Brad's post yesterday of going back to some of our favorite bloggers very 1st post.  I can't believe this is your first blog REALLY???  It's fantastic.  I guess you are a natural blogger!  Well done Todd, and may I be the first to wish you a happy anniversary ~ can you believe you've been contributing to the rain for almost 4 years now???


Merriest of Christmas wishes from our home to yours!

Dec 19, 2010 03:58 AM #14
Rainmaker
430,981
Bob Willis
Berkshire Hathaway HomeServices California Properties - Orange, CA
Orange County & L.A. County Real Estate Agent

I just have to echo what Lee & Pamela wrote.  What a good first blog it was, indeed.

Dec 20, 2010 02:49 AM #15
Ambassador
2,135,080
Respect Realty LLC
Respect Realty LLC - Milwaukie, OR
Brokers - Oregon / SW Washington Real Estate

I really wish it looked this good originally. When it was first posted, there was no graphics, no buttons, no signature, just typed TODD CLARK at the bottom. I was so embarrassed by it about a two years ago I went back and changed it to look like it does now.

Dec 20, 2010 03:06 AM #16
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