How To Determine A Good Investment Property

As we get older, we begin to think about how money actually works and not just where we spend it.  The concept of residual income is often an intriguing and enticing idea of generating revenue while you can expend energy doing something else, whether that be working at your job, going on vacation or more to the point doing whatever you wish.  One specific means of generating residual income is an investment property.  In my opinion, most ideally would be to start with a four family. My reasons being that there are several units which can provide a stream of income allowing for extraneous variables such as one unit failing to pay rent, a vacancy, or perhaps occupying one unit yourself, and not too many (6 or more units become subject to rent stablilization/control laws in NY) as to cause a landlord considerable time and energy. Several factors will need to be examined when determining whether a specific property is a wise investment, and the rules will change as you become more experienced as a landlord, but to begin you will look at the rent roll of the property which is the income generated from the rental units. In addition, you will need to determine the expenses required to operate the property which includes the property taxes, fuel, insurance, water and sewer, repairs, etc.  After deducting the expenses and any debt service (if the property is financed) from the rent roll, you can determine the net operating income which will be generated each month on the property. If you divide the annual net operating income by the price of the property, the result yields a capitalization rate or rate of return.  Generally speaking, cap rates of 10% and greater are considered an extremely good return.  If you ever doubt the attractiveness of investing your money in real estate, just remember that the bank will only give you a measly 1%. Then apply the rule of 72 which is take 72 divided by the interest earned, and that is how long it will take your money to double. If you’re interested in purchasing an investment property or finding out more information, contact me today.

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