Every Real Estate Investor Should Master

When you learn about something, when you are interested in new subjects, you also learn a whole new vocabulary you start using. Well, with real estate investing happens exactly the same. If you are a Real estate beginner or an experienced investor, you must understand and master all the terms and words of the investment vocabulary, especially acronyms, so here is a small list of every acronym a real estate investor should know:

1. PITI

Initials for: Principal (P), Interest (I), property Taxes (T) and Insurance (I). Essentially this means, the “bottom line” or the minimum amount needed when you estimate the acquisition of investment property with a loan. Frequently this is estimated monthly.

This amount is what you would might spend in the investment property over the life of the loan. Every and each month is the frequency of the PITI you have to pay in order to be in good standing. Thanks to this you will know how much rent you should pay.

2. GOI

GOI or Gross Operating Income, is related to the annual income that is collected from the property, including: laundry, parking, storage, etc. and consider any vacancies.

3. LTV

Initials for: Loan-to-Value, this is vital if you’re removing a loan on your investment property, it is estimated by dividing the loan by the property’s value; then, that number is expressed as a percentage. For example, to make it easy: if a loan is $200,000 and price of the property is $250,000, then the LTV is 80%.

You will have more equity in your property and negotiate more if the LTV is lower.

4. DCR

Initials for: Debt Coverage Ratio. This is referred to a commonly used term by lenders when they have to deal with underwriting loans for income-generating properties. How it is calculated? You need to divide the NOI (see below) by the total debt. If the ratios is 1.20 or higher, this is considered the average.

5. NOI

Initials for: Net Operating Income, this is the income left over from your rentals after paying all your monthly operating expenses. So, deduct your expenses from your GOI (Gross Operating Income) to get you the property’s NOI. For example, if you take in $20,000 in leases on all the units you have and spent $6,000 on maintenance including supplies, accounting, taxes, insurance, utilities and more, the NOI for the month was $2,000.

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Ways to Succeed in Real Estate

If you are considering the idea about becoming a real estate investor you need to make sure to do your homework before jumping right in. Real estate investing can be enormously lucrative for those who approach it in the right way and learn how to stay ahead of the competition.

Step 1: Get Your Finances in Order

You need to have all your personal finances in order before making the first step to entering the real estate market, you need to consider this: while many investors see very lucrative returns from real estate transactions, you won’t receive those amounts of money  if you don’t have a required a solid plan and patience. Don’t underestimate or neglect to figure out all of the possible expenses that come along with buying property, such as renovations, utilities, maintenance, legal fees, etc. If you’ve decided to become an investor but don’t have resources stashed away to pay cash outright, you’ll have to consider financing options as well.

Step 2: Define your Role

There are diverse roles that investors can play in the market. Some select to be landlords and others buy exclusively to restore and resell. Knowing which type you prefer to be from the beginning will help narrow down the selection of properties in your local market to match your specific investment approach. It also it is about how much time they actually want to put into their real estate.

Step 3: Study the Market

Most successful real estate investors put an effort to study the location they do business in and know its history, neighborhoods, schools, transportation and planned developments like the back of their hand. They compare current prices in an area to understand where the demand for the property is as well as helps you to begin to distinguish fair from overpriced properties.

Step 4: Think Outside the Box

Finally, to be as efficient and successful as possible, there are numerous options to choose from, while you’re looking in your most desired locations, keep an eye out for signs of a developing area nearby. New construction can mean big returns if you get in on the ground floor of something that’s about to be a booming community.

Investing in real estate can be just as fun and exciting as it is profitable. Use your connections and local resources as much as possible to find your niche in the business.

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