So, What S Your Return On Investment

Category: Finance, Real Estate.

You need to know right from the get- go that, as a real estate option investor, you are not going to have option property deals served up to you on a silver platter by eager sellers and real estate brokers.

And unlike conventional real estate transactions, which usually involve properties that have been heavily advertised over a period of time, the most profitable types of properties to buy options on are not generally advertised as being for sale. In this business, the most profitable option deals are usually the ones that investors create from scratch by identifying an unfulfilled need in their local real estate market and putting a property under option, which best fills the need, and then reselling the option to a buyer, who has a use for the property. Instead, they are bought through what is known in the real estate trade as an unsolicited offer to purchase. Suppose, you buy a, for example$ 100, 000 house with cash and own it free and clear of any mortgage. Why is it a good idea to use other people s money when it comes to buying rental property? You have landed a tenant to rent your house for$ 1, 000 per month. Therefore, your positive cash flow is$ 800 per month.

Out of that$ 1, 000, you may have to pay$ 200 a month in taxes, maintenance reserves, insurance, vacancy reserves, and advertising expenses. So, what s your return on investment? Not bad, huh? Multiply$ 800 a month by 12 months, and your positive cash flow for the year is$ 9, 60Then divide$ 9, 600 by the$ 100, 000 cash you paid to buy the house, and that gives you a 6 percent rate of return. Compare that return with current certificate of deposit( CD) rates( in 2002 CDs are paying between 2 percent and 3 percent) , and it seems that owning the house free and clear gives you a pretty decent return on investment. Say you bought that same$ 100, 000 home but put only$ 5, 000 down and borrowed the remaining$ 95, 00And for numbers sake, suppose your positive cash flow is$ 100 per month.

But consider what your rate of return would be when you leverage other people s money. This number may seem small compared to$ 800 per month in the preceding example, but the goal here is return on investment. Now, here s the magic of OPM. Multiply$ 100 per month by 12 months, which is$ 1, 200 for the year. Divide the$ 1, 200 annual cash flow by your$ 5, 000 cash down payment, and you ve generated a 24 percent rate of return. Let s take a look at the long- term annual appreciation on these two investments.

And since you put only$ 5, 000 down instead of$ 100, you gain leverage, 000 to buy 20 more houses with the same$ 100, 00Wow! If the value of our one house goes up 3 percent annually and we compound the return, then in 10 years it will have gone from$ 100, 000 to$ 130, 000 in value- - long- term capital gain of$ 30, 00If we had 20 houses just like that, then we would have 20 times that capital gain or$ 600, 00 When you leverage other people s money, you dramatically improve your rates of return on your rental properties and build a much larger, potentially more lucrative portfolio.

Read more...

When Buying A Home In France Many Start Their Research Online - Kelsey Overholt about Finance and Real Estate:

When buying a home in France many start their research online. You will soon discover that prices vary greatly, from area to area.

Finding The Perfect Home - Finance and Real Estate:

Purchasing a new Florida home can be a fun and exciting process.

As Mentioned, There Will Be Commercial Development As Well - Finance and Real Estate Articles:

There is an overused( but sometimes true) saying that all good things come to those who wait.