If you’re thinking about investing in a multi-family real estate property, you should carefully consider exactly what kind of a return you might get from the property before taking the plunge. Here are some tips which will help you determine whether or not this is a financially viable real estate transaction.
Your first step should be to consider the seller’s asking price, and see if it’s in line with comparable properties in the area. Make sure to compare against other properties which have similar size and amenities, and are in the same location.
Actual Cost of the Property
Make sure you understand the actual cost of the property, instead of thinking that the list price is what it will cost you. You should research the property to find out whether any renovations will be required, then add in closing costs and a bank appraisal, and all the other fees that will be tacked on to the sale price.
Figure Out Net Operating Income
In order to make this calculation, you would have to subtract all operating costs from the income generated by the property. This is a very important calculation that will tell you how much actual profit you will be receiving from the property, and whether it will actually be a money-maker for you.
Calculate Cash Flow
Calculating cash flow can be done by subtracting your mortgage payment from your net operating income. If the net operating income is not at least equal to the mortgage payment, you will have negative cash flow and no profits from the property at all.
Determine Your Return on Investment
Return on investment is the reason you would purchase any property in the first place, and if you don’t receive a worthwhile ROI, there’s not really any point in making the purchase. Calculate ROI by dividing cash flow by the total investment cost. Generally speaking, if you can keep your down payment plus closing costs plus rehabilitation costs to a minimum, your ROI will be favorable.
Got Your Eye on a Real Estate Deal?
If so, we may be able to provide financial assistance at Capital Crown Investments. Contact us today, so we can discuss with you some options which may be available to you for funding that next real estate transaction.