Real Estate Investing By The Numbers: Part 1

In our recent Mastermind Group training session, our key topic of discussion was how to invest by the numbers. The longer that I spend investing in real estate and also evaluating projects around the county, the more and more I am astounded at the lack of knowledge from “so called” professionals. For most individual real estate investments, the level of analysis is not terribly difficult?. You find yourself doing the same thing over and over again. In this article, I will try and share this simplistic view and how you can know more than 95% of the “professionals” in this market.

What You Need To Know? For any investment, there really is 4 things you need to know and guess what, NOBODY gives them to you in a normal sales presentation. Let’s break down each one and how it is obtained:

1)Purchase Equity ? This is one of the simplest to obtain but is easily abused by sales people. What you want to know is what is your purchase price, relative to the actual STREET PRICE; i.e., the price a real individual in the area would pay to own your property. How do you get it? Appraisals, talking with agents in the area, running test ads in newspapers, etc.

2)Annual Appreciation (%) ? Now the witch craft begins?.. This requires a CRYSTAL BALL to look into the future. Because of this, appreciation is an OPINION that you should form on your own?. An “Experts” OPINION is still an opinion and you should treat it as such. To make an opinion, you had to consider things like job growth, lack of similar product, future demand, etc. Bottom line is that you would like to come up with a % number and this takes a little practice but after looking at a few areas, you can pretty easily form an opinion. PLEASE NOTE: If we “project” appreciation rates in an area, we are violating securities laws so we don’t do this. We share all the information about an area and why we like it and then have to leave it up to the individual to form their own opinion. However, when we have decided to introduce a property, we have formed our own OPINION and we like what we see.

3)Annual Cashflow ? Over time, you will either be making or losing money on this investment. It may turn out that small amounts of negative cashflow make sense if the annual appreciation and purchase equity are strong. The components that you have to gather for annual cashflow are

?Gross Annual Income; ?Management Expenses; ?Taxes, Insurance, HOA; ?Interest Expenses; and ?Maintenance Estimates

Fortunately, most of the expenses can be estimated pretty closely. For gross annual income, realize that again, NOBODY can predict the future. So, you can gather market rents data that you believe are comparable, apply any safety factor that you like, and then use that for ESTIMATES.

4)Special Tax Situations ? This is typically an unusual situation for individual investors but applies in areas such as the Go Zone where bonus depreciation can be used.

How Do You Use This Information Suppose you could see EXACTLY what was going to happen into the future?.. Of course, we know this is unrealistic however it still does not hurt to try based on our assumptions.

Suppose you looked into the future and you saw that in 5 years, your net gain on a property was going to be a little over $87,000 with a $21,000 dollar total investment and a little bit of your time. If you KNEW that was GOING to happen, what would you do? Would you purchase the property? Would you pass on the property? Why?

Realize, that for a $21,000 investment, this equates to making 33.9% on your money, year after year after year. That is not too shabby. Let’s apply the “rule of 72″ here which states that you can calculate how long (approximately) it will take to double your money with a certain return %. You take 72% / 33.9% = 2.1 Years to double your money. Is this something that is good?

The answer of course depends on a few factors but let’s put it into perspective. Suppose you invested $100,000 at a steady 33.9% rate of return. In 15 years, then you have now turned that $100,000 into $7.9 Million. Got your attention yet if you KNEW this was going to happen? Of course, if we have to take on all kinds of risks to get that return, then that may, or may not be such a good idea. If, however, it is low risk, now you have the makings of a good investment.

My argument now is that IF YOU COULD SEE INTO THE FUTURE, and you saw this kind of performance, you would be excited. Right? Well, why not pretend we can look into the future and CALCULATE what the future looks like using our 4 KEY parameters above. If we like the “future” answers, and we believe our assumptions, and we believe the risk to be low, isn’t that a prudent approach?

For many non-investors, they believe that real estate investors take on tons of risk and are gun slingers?? Quite contraire, monsieur, that is exactly what we DON’T do. Good investors simply look at all the FACTS, make some estimates of key parameters, estimate future performance, and then play “what if” games to what happens if things don’t work out exactly as thought.

Real Estate Investing By The Numbers: Part 1

In our recent Mastermind Group training session, our key topic of discussion was how to invest by the numbers. The longer that I spend investing in real estate and also evaluating projects around the county, the more and more I am astounded at the lack of knowledge from “so called” professionals. For most individual real estate investments, the level of analysis is not terribly difficult?. You find yourself doing the same thing over and over again. In this article, I will try and share this simplistic view and how you can know more than 95% of the “professionals” in this market.

What You Need To Know? For any investment, there really is 4 things you need to know and guess what, NOBODY gives them to you in a normal sales presentation. Let’s break down each one and how it is obtained:

1)Purchase Equity ? This is one of the simplest to obtain but is easily abused by sales people. What you want to know is what is your purchase price, relative to the actual STREET PRICE; i.e., the price a real individual in the area would pay to own your property. How do you get it? Appraisals, talking with agents in the area, running test ads in newspapers, etc.

2)Annual Appreciation (%) ? Now the witch craft begins?.. This requires a CRYSTAL BALL to look into the future. Because of this, appreciation is an OPINION that you should form on your own?. An “Experts” OPINION is still an opinion and you should treat it as such. To make an opinion, you had to consider things like job growth, lack of similar product, future demand, etc. Bottom line is that you would like to come up with a % number and this takes a little practice but after looking at a few areas, you can pretty easily form an opinion. PLEASE NOTE: If we “project” appreciation rates in an area, we are violating securities laws so we don’t do this. We share all the information about an area and why we like it and then have to leave it up to the individual to form their own opinion. However, when we have decided to introduce a property, we have formed our own OPINION and we like what we see.

3)Annual Cashflow ? Over time, you will either be making or losing money on this investment. It may turn out that small amounts of negative cashflow make sense if the annual appreciation and purchase equity are strong. The components that you have to gather for annual cashflow are

?Gross Annual Income; ?Management Expenses; ?Taxes, Insurance, HOA; ?Interest Expenses; and ?Maintenance Estimates

Fortunately, most of the expenses can be estimated pretty closely. For gross annual income, realize that again, NOBODY can predict the future. So, you can gather market rents data that you believe are comparable, apply any safety factor that you like, and then use that for ESTIMATES.

4)Special Tax Situations ? This is typically an unusual situation for individual investors but applies in areas such as the Go Zone where bonus depreciation can be used.

How Do You Use This Information Suppose you could see EXACTLY what was going to happen into the future?.. Of course, we know this is unrealistic however it still does not hurt to try based on our assumptions.

Suppose you looked into the future and you saw that in 5 years, your net gain on a property was going to be a little over $87,000 with a $21,000 dollar total investment and a little bit of your time. If you KNEW that was GOING to happen, what would you do? Would you purchase the property? Would you pass on the property? Why?

Realize, that for a $21,000 investment, this equates to making 33.9% on your money, year after year after year. That is not too shabby. Let’s apply the “rule of 72″ here which states that you can calculate how long (approximately) it will take to double your money with a certain return %. You take 72% / 33.9% = 2.1 Years to double your money. Is this something that is good?

The answer of course depends on a few factors but let’s put it into perspective. Suppose you invested $100,000 at a steady 33.9% rate of return. In 15 years, then you have now turned that $100,000 into $7.9 Million. Got your attention yet if you KNEW this was going to happen? Of course, if we have to take on all kinds of risks to get that return, then that may, or may not be such a good idea. If, however, it is low risk, now you have the makings of a good investment.

My argument now is that IF YOU COULD SEE INTO THE FUTURE, and you saw this kind of performance, you would be excited. Right? Well, why not pretend we can look into the future and CALCULATE what the future looks like using our 4 KEY parameters above. If we like the “future” answers, and we believe our assumptions, and we believe the risk to be low, isn’t that a prudent approach?

For many non-investors, they believe that real estate investors take on tons of risk and are gun slingers?? Quite contraire, monsieur, that is exactly what we DON’T do. Good investors simply look at all the FACTS, make some estimates of key parameters, estimate future performance, and then play “what if” games to what happens if things don’t work out exactly as thought.

Real Estate Investing By The Numbers: Part 1

In our recent Mastermind Group training session, our key topic of discussion was how to invest by the numbers. The longer that I spend investing in real estate and also evaluating projects around the county, the more and more I am astounded at the lack of knowledge from “so called” professionals. For most individual real estate investments, the level of analysis is not terribly difficult?. You find yourself doing the same thing over and over again. In this article, I will try and share this simplistic view and how you can know more than 95% of the “professionals” in this market.

What You Need To Know? For any investment, there really is 4 things you need to know and guess what, NOBODY gives them to you in a normal sales presentation. Let’s break down each one and how it is obtained:

1)Purchase Equity ? This is one of the simplest to obtain but is easily abused by sales people. What you want to know is what is your purchase price, relative to the actual STREET PRICE; i.e., the price a real individual in the area would pay to own your property. How do you get it? Appraisals, talking with agents in the area, running test ads in newspapers, etc.

2)Annual Appreciation (%) ? Now the witch craft begins?.. This requires a CRYSTAL BALL to look into the future. Because of this, appreciation is an OPINION that you should form on your own?. An “Experts” OPINION is still an opinion and you should treat it as such. To make an opinion, you had to consider things like job growth, lack of similar product, future demand, etc. Bottom line is that you would like to come up with a % number and this takes a little practice but after looking at a few areas, you can pretty easily form an opinion. PLEASE NOTE: If we “project” appreciation rates in an area, we are violating securities laws so we don’t do this. We share all the information about an area and why we like it and then have to leave it up to the individual to form their own opinion. However, when we have decided to introduce a property, we have formed our own OPINION and we like what we see.

3)Annual Cashflow ? Over time, you will either be making or losing money on this investment. It may turn out that small amounts of negative cashflow make sense if the annual appreciation and purchase equity are strong. The components that you have to gather for annual cashflow are

?Gross Annual Income; ?Management Expenses; ?Taxes, Insurance, HOA; ?Interest Expenses; and ?Maintenance Estimates

Fortunately, most of the expenses can be estimated pretty closely. For gross annual income, realize that again, NOBODY can predict the future. So, you can gather market rents data that you believe are comparable, apply any safety factor that you like, and then use that for ESTIMATES.

4)Special Tax Situations ? This is typically an unusual situation for individual investors but applies in areas such as the Go Zone where bonus depreciation can be used.

How Do You Use This Information Suppose you could see EXACTLY what was going to happen into the future?.. Of course, we know this is unrealistic however it still does not hurt to try based on our assumptions.

Suppose you looked into the future and you saw that in 5 years, your net gain on a property was going to be a little over $87,000 with a $21,000 dollar total investment and a little bit of your time. If you KNEW that was GOING to happen, what would you do? Would you purchase the property? Would you pass on the property? Why?

Realize, that for a $21,000 investment, this equates to making 33.9% on your money, year after year after year. That is not too shabby. Let’s apply the “rule of 72″ here which states that you can calculate how long (approximately) it will take to double your money with a certain return %. You take 72% / 33.9% = 2.1 Years to double your money. Is this something that is good?

The answer of course depends on a few factors but let’s put it into perspective. Suppose you invested $100,000 at a steady 33.9% rate of return. In 15 years, then you have now turned that $100,000 into $7.9 Million. Got your attention yet if you KNEW this was going to happen? Of course, if we have to take on all kinds of risks to get that return, then that may, or may not be such a good idea. If, however, it is low risk, now you have the makings of a good investment.

My argument now is that IF YOU COULD SEE INTO THE FUTURE, and you saw this kind of performance, you would be excited. Right? Well, why not pretend we can look into the future and CALCULATE what the future looks like using our 4 KEY parameters above. If we like the “future” answers, and we believe our assumptions, and we believe the risk to be low, isn’t that a prudent approach?

For many non-investors, they believe that real estate investors take on tons of risk and are gun slingers?? Quite contraire, monsieur, that is exactly what we DON’T do. Good investors simply look at all the FACTS, make some estimates of key parameters, estimate future performance, and then play “what if” games to what happens if things don’t work out exactly as thought.

Real Estate Investing By The Numbers: Part 1

In our recent Mastermind Group training session, our key topic of discussion was how to invest by the numbers. The longer that I spend investing in real estate and also evaluating projects around the county, the more and more I am astounded at the lack of knowledge from “so called” professionals. For most individual real estate investments, the level of analysis is not terribly difficult?. You find yourself doing the same thing over and over again. In this article, I will try and share this simplistic view and how you can know more than 95% of the “professionals” in this market.

What You Need To Know? For any investment, there really is 4 things you need to know and guess what, NOBODY gives them to you in a normal sales presentation. Let’s break down each one and how it is obtained:

1)Purchase Equity ? This is one of the simplest to obtain but is easily abused by sales people. What you want to know is what is your purchase price, relative to the actual STREET PRICE; i.e., the price a real individual in the area would pay to own your property. How do you get it? Appraisals, talking with agents in the area, running test ads in newspapers, etc.

2)Annual Appreciation (%) ? Now the witch craft begins?.. This requires a CRYSTAL BALL to look into the future. Because of this, appreciation is an OPINION that you should form on your own?. An “Experts” OPINION is still an opinion and you should treat it as such. To make an opinion, you had to consider things like job growth, lack of similar product, future demand, etc. Bottom line is that you would like to come up with a % number and this takes a little practice but after looking at a few areas, you can pretty easily form an opinion. PLEASE NOTE: If we “project” appreciation rates in an area, we are violating securities laws so we don’t do this. We share all the information about an area and why we like it and then have to leave it up to the individual to form their own opinion. However, when we have decided to introduce a property, we have formed our own OPINION and we like what we see.

3)Annual Cashflow ? Over time, you will either be making or losing money on this investment. It may turn out that small amounts of negative cashflow make sense if the annual appreciation and purchase equity are strong. The components that you have to gather for annual cashflow are

?Gross Annual Income; ?Management Expenses; ?Taxes, Insurance, HOA; ?Interest Expenses; and ?Maintenance Estimates

Fortunately, most of the expenses can be estimated pretty closely. For gross annual income, realize that again, NOBODY can predict the future. So, you can gather market rents data that you believe are comparable, apply any safety factor that you like, and then use that for ESTIMATES.

4)Special Tax Situations ? This is typically an unusual situation for individual investors but applies in areas such as the Go Zone where bonus depreciation can be used.

How Do You Use This Information Suppose you could see EXACTLY what was going to happen into the future?.. Of course, we know this is unrealistic however it still does not hurt to try based on our assumptions.

Suppose you looked into the future and you saw that in 5 years, your net gain on a property was going to be a little over $87,000 with a $21,000 dollar total investment and a little bit of your time. If you KNEW that was GOING to happen, what would you do? Would you purchase the property? Would you pass on the property? Why?

Realize, that for a $21,000 investment, this equates to making 33.9% on your money, year after year after year. That is not too shabby. Let’s apply the “rule of 72″ here which states that you can calculate how long (approximately) it will take to double your money with a certain return %. You take 72% / 33.9% = 2.1 Years to double your money. Is this something that is good?

The answer of course depends on a few factors but let’s put it into perspective. Suppose you invested $100,000 at a steady 33.9% rate of return. In 15 years, then you have now turned that $100,000 into $7.9 Million. Got your attention yet if you KNEW this was going to happen? Of course, if we have to take on all kinds of risks to get that return, then that may, or may not be such a good idea. If, however, it is low risk, now you have the makings of a good investment.

My argument now is that IF YOU COULD SEE INTO THE FUTURE, and you saw this kind of performance, you would be excited. Right? Well, why not pretend we can look into the future and CALCULATE what the future looks like using our 4 KEY parameters above. If we like the “future” answers, and we believe our assumptions, and we believe the risk to be low, isn’t that a prudent approach?

For many non-investors, they believe that real estate investors take on tons of risk and are gun slingers?? Quite contraire, monsieur, that is exactly what we DON’T do. Good investors simply look at all the FACTS, make some estimates of key parameters, estimate future performance, and then play “what if” games to what happens if things don’t work out exactly as thought.

Get Your Head in the Game

 by: Willie Horton

How did you start your day today? When you leaped out of bed, were you ready and alert for all today will offer or did you drag yourself out of bed on automatic pilot, and lurch into the bathroom in the normal early morning daze. If, of course, you were awoken by an alarm clock, then you started your day already on the wrong foot because your subconscious mind wasn’t ready to wake up and, anyone reading my articles or watching my videos on my website will have a good appreciation for the extent to which your subconscious runs your daily life.

It runs it totally!

So, before you let your day get going, your subconscious mind needs to be up and running or you’ll never properly get up and running yourself. Most people wouldn’t consider leaving the house in the morning, to tackle the day ahead, unwashed. And almost nobody (I do know one person!) would even think about leaving the house undressed (the person in question has left the house totally nude - but that’s another story!). So why, oh why, does almost everybody in this world leave their homes each morning mentally “nude”, mentally “unwashed” and “unshaven”, mentally totally unprepared for all that life has to offer in the upcoming day?

I say “almost everybody” because a good number of universities, on more than a couple of continents, have come to the conclusion, based on decades of research, that about 96% of us are “normal” and that “normal people” are mad. I haven’t put mad in inverted commas because it’s not a joke. “Normal people’s” subconscious minds control them - not the other way around. Surely that’s a definition of madness. Our subconscious mind controls our reactive behaviour which, 99 times out of a 100 comes flying out our mouth (or from our fist) before we have had time to think about the sense of doing it. You know what I mean. How many times to you react to some argument or problem and make it better? How often do you react to someone you’ve never met and will probably never see again, just because they’ve pulled in front of you in traffic. Almost always, “normal” knee-jerk reactions make things worse.

Which leads me back to where I started. If you’ve woken up this morning and your subconscious mind wasn’t ready and if you haven’t bothered to get your subconscious mind in gear for the day ahead, then don’t blame anyone else if you have another “one of those days” or if, when you arrive at work this morning and someone asks you how you’re doing that you automatically react by answering “not too bad”. Because, if you haven’t got your subconscious mind in gear, “not-too-bad” is about as good as it gets!

So, here’s a quick tip. There are things you have to do each morning (I assume), like brushing your teeth, shaving (only applies to some people!!), getting dressed and driving to work or taking the bus or train. Early on each day, stop yourself in your tracks and do some, or all, of those things differently. In other words, brush your teeth with the “other hand”, shave with the “other hand”, but the “other leg” into your pants first, the “other arm” into your shirt.

Harvard University has shown that by doing little things differently you pay more attention to them and paying attention more attention to the little things enables you break the cycle of daily repetitive behaviour before it has a chance to drag you down into another repetitive day. And decades of research proves that paying attention to what you are actually doing in the here and now is how you turn your subconscious mind on. It’s that simple. If you drag your subconscious mind out of automatic mode by something as simple as brushing your teeth differently, you will stop your automatic reactive behaviour and you will begin to pay attention to what’s actually happening in the here and now. And, again, years of research proves that this is a sure-fire way of noticing today’s opportunities which, if you’re on auto-pilot, you simply cannot notice.

So, try it tomorrow morning and break the habit of starting your day on auto-pilot. Paying attention is the beginning of all wisdom - and the beginning of a much better day.

Copyright (c) 2009 Willie Horton