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Your Financial Real Estate Investment Model

Aug 17, 2007
When you wish to become involved in real estate investing, there are several things you should do before you begin this endeavor. You will want to make sure you are making a good investment decision and understanding the terms and definitions of real estate is just one way in learning how to make a good investment.

Perhaps, most important of all, however, is understanding the financial real estate investment model. This is an analysis that will help you to determine what financing options you may have, as well as help you to develop an operating budget for your real estate investment. A good financial real estate investment model will help you to make sure this endeavor is a profitable one.

Before you can calculate your financial real estate investment model, you must first do research on the property. You will want to review all of the records on the property. The rental history is very important to determine whether or not this will be a sound investment for you. The cost of utility services, insurance and claims, taxes, loan documents, and previous loan payment history are all important in helping you to make a decision on this investment. All of this information should be gathered a studied accordingly.

The analysis of these items is crucial in your real estate investment model. If, for example, you determine that the property has had a bad rental history in the past or has not appreciated in value over several years, you may deem the property to a high risk property. In helping you to determine this, however, there are several other factors to consider.

The inclusion of other information in your real estate investment model is crucial. Data from all the cash flow determinants is just as important as the others. You will want to make certain that you have information on any and all operating expenses for the property, including those that can be recovered from the tenants and those that can not, capital expenditures, occupancy rates and all losses due to non-occupancy, and all other costs associated with the property.

This financial investment model will be produced from all of the information gathered on the property, including information such as market history, the economy, and any changes that may occur in the future that will effect the valuation of the property.

When you have all of the necessary information, the data should be inputted into your real estate investment model. Many investors choose to use software programs developed specifically for real estate investors, while others use Excel to produce the analysis of the data they have gathered. Many of the software programs can be found online or at major software companies. Once the information has been inputted, the analysis will begin and you will be able to determine whether or not the property you are considering will be a good investment or not.

Without a good real estate investment model to go by, you take the chance of purchasing high-risk properties which may result with a capital loss instead of a capital gain. To help you to determine whether or not a property is a good investment, thoroughly research the investment model you will be using by asking others what they use and talk to real estate agents specializing in investment properties.
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