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HAVE A POSITIVE CASH FLOW
There are two kinds of positive cash flows: pre-tax and
after-tax. A pre-tax positive cash flow occurs when income
received is greater than expenses incurred. This sort of
situation is difficult to find, but they are usually a
strong and safe investment. An after-tax positive cash flow
may have expenses that outweigh collected income, but
various tax breaks allow for a positive cash flow. This is
more common, but it is generally not as strong or safe as a
pre-tax positive cash flow.
Regardless of what kind of real estate you choose to
invest in, timely collections from your tenants is
absolutely necessary. A positive cash flow -- whether it be
pre-tax or after-tax -- requires rental income. Be sure to
find quality tenants; a thorough credit and employment check
is probably a good idea.
USE LEVERAGE
One of the most important factors in determining a solid
investment is the amount of equity you are purchasing.
Equity is the difference between the actual worth of the
property and the balanced owed on the mortgage. In order to
increase equity, investors often choose to borrow money.
Borrowing money allows you to magnify the return on your
investment. Borrowing money to increase equity is known as
leverage. Leverage can make the money you invest out of your
pocket go a long way.
In order to illustrate the value of leverage, let's take
a fictional example: assume you bought a $200,000 rental
property with a 30% down payment; the remaining 70% of the
purchasing price is paid for with borrowed money, Let's
further assume that after several years the home is worth
$270,000. The $70,000 return on your $60,000 investment --
the amount that you paid directly -- is more than 100%.
(There is more to calculating the return on investing, but
this will keep it simple.) If you bought that same $200,000
property without borrowing, the return on your investment
would be 35%. Leverage puts borrowed money to work for you.
BENEFIT FROM GROWING EQUITY
While investing in real estate is relatively complex, it
is often worth the extra work. When compared to other
financial investments, like bonds or CD's, the return on
investment for real estate purchases can often be greater.
The key to real estate investing is equity. Determine an
amount of equity that you want to achieve. When you reach
your goal, it's time to sell or refinance. Determining the
proper amount of equity may require the assistance of a real
estate professional.
Remember as a real estate investor in the Morris County
area, you can manage more investment properties and increase
your profits by teaming up with professionals such as Smitha
and Rahul who are already geared up to handle various aspects of the
transaction. This team-based approach not only reduces the
risk for novice investors, but also maximizes your profit
potential. Contact Us for more details.
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