Step 2 Verify Expenses

Expenses are the second important variable to consider. As I mentioned earlier, the definition of net operating income is income minus expenses. In the previous section, we showed you the specifics you need to review to estimate the income potential of a property. In this section, you'll see how to assess the expenses. Just as we did when we verified income, you'll want to get a picture of the current expenses. Unlike the income calculation where our goal was to be 100 percent on the money in...

Myth 3 You Can Flip Your Way to Success or Get Rich Quick with No Money Down

Many people think that flipping property, in other words buying it and quickly turning around and selling it for more than you paid for it, is the way to grow wealth. The people who believe strongly in this have been lucky enough to make money this way. But in my opinion, this is like day trading in the stock market. It isn't easy, and it is very risky. No money down is another way of saying that the property is 100 percent financed. That means a much larger part, if not all, of your cash flow...

Myth 1 You Have to Already Be Wealthy to Invest in Real Estate

People think they need to have a large lump sum of money to invest in real estate. They think it is like saving for their first home or that it's something they can only do once they have made their fortune elsewhere. Both of these thoughts couldn't be further from the truth. You don't need hundreds of thousands of dollars in the bank to invest in real estate and you certainly don't need millions. All you need is a good real estate deal that makes sense one that has profit potential and is...

Step 5 Calculate the Loan Payment and Your Profit Cash on Cash

Assuming you and the seller agree to the price of 256,000, now is time to figure out what the loan payment might be. This is where your finance team member or broker could step in, but I did it myself in a matter of seconds. I just went online and typed into my Google search engine the words mortgage payment, and up popped numerous mortgage calculators. I entered two numbers, the loan amount and the interest rate. Instantaneously the mortgage payment schedule appeared I love the twenty-first...

Actual Potential Income

The main source of income on most any property is usually the rent existing residents are paying. That's the actual potential income of the property. For that reason, you'll want your rent figures to be as accurate as possible based on the information that you have. The easiest way to get this information is to get the existing rent roll or schedule of what each resident is paying, put the units in numerical order, and add up the rent amounts. Another way is to physically review each lease at...

Letter of Intent

Once you've established the valuation using the five steps in the last chapter, you are ready to draft the letter of intent or a purchase and sale agreement. I prefer to use a standard letter of intent to map out the deal points between myself and the seller before moving to a formal purchase and sale contract. Letters of intent save me a lot of money in attorney fees because attorneys are not usually involved in letters of intent negotiations. Further, the work done during this process makes...