Home » Real Estate

Analyzing Real Estate Deals - The Truth about Buying Equity

Aug 17, 2007
Investment in real estate has grown in popularity in the past decade. It can be a powerful investment tool for building long-term wealth. However, investing in real estate does not automatically mean easy riches and profits, and caution has to be exercised before plunging into the market.

Make sure that you never purchase a property just because it has tons of equity. Try to analyze a real estate deal based on more than just equity. Investors should always use Net Operating Income, because it is the only true way of determining whether you can afford to pay for a house. The steps for calculating Net Operating Income for a property are:

. First, determine what the market rent is.

. Subtract out an allowance for vacancies in order to get the Net Rent.

. Add all the expenses including insurance, taxes, a reasonable maintenance estimate and HOA utilities, except your mortgage payment.

. Subtract the added expenses from the Net Rent, and the remainder you get after subtracting the expenses except the mortgage payment or debt, is what is called Net Operating Income.

This will tell you just how much debt the property can really afford. If you get to know the rate of interest you get a loan on and the duration, then you can plug in the Net Operating Income as the payment, and a good financial calculator can tell you how much you can afford to pay for the property. Then make an offer from your side to the seller and show him/her the real expenses for the property, and what your rent expectations are. Do not make offers at 70% of value of the property without being able to justify the price. However, when you make an offer based on Net Operating Income then you can show any seller why it is that you can pay only your price.

The truth about equity in real estate investment:

There are chances of losing your hard earned money in real estate no matter how experienced you are. Your true wealth cannot be determined based on how much real estate you own. Equity is just paper wealth. You can be rich on paper but you may not be rich in cash. However, you can always convert the equity into cash by selling the property, placing a new loan on the property, or by keeping the equity as collateral. But, despite all this, you may not get back the amount you expect. If you create notes on your property and get more equity then it will entail more problems, as it will increase the monthly liabilities. Real estate equity might mean dead equity.

So it advisable to be aware of the problems in real estate investment that can lead to heavy losses. Improving and reselling the property for gain, or renting it out in a cash flow method, accumulates profit in this form of investment. Thus, it takes a lot of hard work to make money out of your investment. Being aware of the pros and cons of this form of investment is the first step in the right direction.
About the Author
Real Estate Investments are easy with Real Net USA's easy process. Using little or even no money down you can own a Real Estate Investment . Discover a ton of free Real Estate Resources at http://www.realnetusa.com
Rating:
Please Rate:
(Average: Not rated)
Views: 114
Print Email Report Share
Article Categories
    • Artists
    • Gambling
    • Humanities
    • Humor
    • Movies
    • Music
    • Photography
    • Tattoos
    • Television
    • Classic Cars
    • Motorcycles
    • Recreational Vehicles
    • SUVs
    • Trucks
    • Vans
    • Branding
    • Business Opportunities
    • Careers and Jobs
    • Corporate
    • Customer Service
    • Direct Mail
    • Entrepreneurship
    • Ethics
    • Financing
    • Franchising
    • Home-Based Business
    • Human Resources
    • Import and Export
    • Leadership
    • Management
    • Market Research
    • Marketing and Advertising
    • Negotiation
    • Network Marketing
    • Networking
    • Organizational
    • Presentation
    • Project Management
    • Public Relations
    • Small Business
    • Strategic Planning
    • Team Building
    • Telemarketing
    • Training
    • Data Recovery
    • Databases
    • Games
    • Hardware
    • Networks
    • Operating Systems
    • Programming
    • Security
    • Software
    • Spyware and Viruses
    • Ask an Expert
    • College and University
    • Home Schooling
    • K-12
    • Languages
    • Online Education
    • Psychology
    • Accounting
    • Credit
    • Currency Trading
    • Debt Consolidation
    • Insurance
    • Investing
    • Leasing
    • Loans
    • Mortgage
    • Mutual Funds
    • Personal Finance
    • Stock Market
    • Structured Settlements
    • Taxes
    • Wealth Building
    • Coffee
    • Cooking
    • Gourmet
    • Recipes
    • Wine and Spirits
    • Acne
    • Aerobics
    • Alternative Medicine
    • Beauty
    • Cancer
    • Cosmetics
    • Depression
    • Diabetes
    • Diseases and Conditions
    • Fitness Equipment
    • Fitness
    • Hair Loss
    • Heart Disease
    • Medicine
    • Men's Health
    • Muscle Building
    • Nutrition
    • Skin Care
    • Supplements and Vitamins
    • Weight Loss
    • Women's Health
    • Yoga
    • Arts and Crafts
    • Babies
    • Collecting
    • Elderly Care
    • Genealogy
    • Hobbies
    • Parenting
    • Pets
    • Pregnancy
    • Woodworking
    • Feng Shui
    • Gardening
    • Home Appliances
    • Home Security
    • Interior Design
    • Landscaping
    • Affiliate Programs
    • Article Marketing
    • Auctions
    • Audio
    • Banner Advertising
    • Blogging
    • Broadband
    • Domain Names
    • E-Books
    • E-Commerce
    • Email Marketing
    • Ezines and Newsletters
    • Forums
    • Internet Marketing
    • Link Popularity
    • Pay-Per-Click
    • Podcasting
    • RSS
    • Search Engine Marketing
    • Search Engine Optimization
    • Security
    • Social Media
    • Spam
    • Video
    • Viral Marketing
    • Web Design
    • Web Development
    • Web Hosting
    • Copyright
    • Cyber Law
    • Intellectual Property
    • National, State, Local
    • Patents
    • Regulatory Compliance
    • Trademarks
    • Baseball
    • Basketball
    • Boating
    • Cycling
    • Extreme Sports
    • Fishing
    • Football
    • Golf
    • Hockey
    • Hunting
    • Martial Arts
    • Running
    • Scuba Diving
    • Soccer
    • Swimming
    • Tennis
    • Dating
    • Divorce
    • Marriage
    • Weddings
    • Astrology
    • Buddhism
    • Christianity
    • Faith
    • Hinduism
    • Islam
    • Judaism
    • Meditation
    • Metaphysical
    • New Age
    • Cable and Satellite TV
    • Cell Phones
    • Communication
    • Gadgets and Gizmos
    • GPS
    • Satellite Radio
    • Video Conferencing
    • VoIP
    • Addictions
    • Coaching
    • Goal Setting
    • Motivational
    • Stress Management
    • Time Management
    • Clothing
    • Electronics
    • Fashion
    • Gifts
    • Jewelry
    • Causes and Organizations
    • Environment
    • History
    • Holidays
    • Men's Issues
    • Nature
    • Philosophy
    • Politics
    • Women's Issues
    • World Affairs
    • Air Travel
    • Camping
    • Cruises
    • Destinations
    • Outdoors
    • Article Writing
    • Book Reviews
    • Copywriting
    • Fiction
    • Non-Fiction
    • Poetry
    • Quotes
    • Screenplay
    • Tools and Resources