After spending the holidays reading one of the national bestseller books in real estate, let me share what I learned from this book, which will benefit the “occasional” real estate investors as well as homebuyers.
How I define the “occasional” real estate investors for the purpose of this summary are those who are not interested in developing a real estate portfolio: investors who wish to invest 1 to 2 single-family homes in communities nearby that they know well, when market condition is right and everything is convenient to them. If you are looking to develop a real estate investment business and to build a sizable real estate portfolio, I strongly recommend you to study this book as you will find a lot of great tips that will save you thousands of dollars.
The following are 3 tips that I found in the book that will also benefit the occasional investors as well as homebuyers who desire appreciation in the equity they invested in their home.
Tip #32: Stick to the Cash Flow Zone
In the book the author provides a simple “filter” to find investment properties:
Gross Annual Rent / Purchase Price x 100 = Cash Flow Zone % where Gross Annual Rent is Monthly Rent x 12, assuming the property is leased all year.
The author suggests looking for at least 8% for positive cash flow. This is a simple way for buyers to identify good rental income potential and in most cases, a good deal. Of course if you are moving into the home your family lifestyle should come first, but knowing that investors would love to invest in your home means that you home has better potential for appreciation.
Tip #33: Use the “Property Goldmine Score Card”. It’s your real estate treasure map.
The “Property Goldmind Score Card” that the author provided in the book consists of a list of questions designed for buyers to assess if the area is a potential good investment. The score card consists of questions like the following, which is essential for identifying an up and coming neighborhood:
- Is there an overall increase in demand in the area
- Are there currently sales over list prices in the area?
- Is it an area in transition – moving upward in quality?
- Is there a major transportation improvement occurring nearby?
- Is the area’s average income increasing faster than the provincial average?
- Is it an area that is attractive to baby boomers?
Tip #56: Ask these critical questions before buying any property.
The author compared the importance of these 2 questions as a pilot’s pre-flight checklist:
1. Is this the right area?
2. What does your due diligence tell you?
The “due diligence checklist” provided in the book consists of a rating of the properties in terms of the location, the quality of the property, the quality of the property versus other properties in the same area, the buyer’s financial and cashflow expectations. I would keep these criteria in mind when helping homebuyers to identify their future home.
There are a great number of mortgage financing tips, negotiating and legal tips that I learned from this book. Hopefully I will have a chance to share more in the future!