Every house investor in the real estate market wonders how to succeed in real estate investing, most importantly, how to make money from real estate. Becoming a successful real estate investor strongly depends on finding, buying and managing the best real estate investments. In this blog, we will reveal the secret surrounding the best real estate investments. Thus, you will be one step closer to becoming a successful real estate investor. If you are interested to learn how to make money from real estate with the best real estate investments, keep on reading. And no, you do not need the assistance of a real estate agent.
#1 Best Real Estate Investments: Real Estate Market Analysis and Investment Property Analysis
In order to find the best real estate investments, the house investor should conduct some research first. Performing real estate market analysis along with investment property analysis is the way to succeed in real estate investing. Conducting research, however, is not enough to start making money in real estate. You need to know how to interpret the results. What is a good return on investment? Or what is a good cash on cash return for a rental property? What is good cap rate for real estate investment? Do you not know the answers? Do not worry, we will reveal them to you.
What Is a Good Return on Investment?
Before answering the question: “What is a good return on investment?”, we need to see what return on investment actually is. Return on investment is a real estate metric used to calculate the efficiency of an investment property. It basically computes the return of a property in regards to the associated costs. For calculating the metric, you need to subtract the costs of the property from the money it generated. Last but not least, you need to divide the result by the costs of the investment. It is hard to define what a good return on investment is. However, the common belief in the field is that to succeed in real estate investing, the properties you finance should have ROI of roughly 10%.
What Is a Good Cash on Cash Return for a Rental Property?
Cash on cash return is yet another real estate metric used to show whether or not investing in a specific property is a good idea. It takes into consideration the cash income earned on all cash properties. It is, then, computed by dividing the net operating income by the total cash investment. You may ask: “Then, what is a good cash on cash return for a rental property?” Every real estate agent will tell you that a value between 8% and 12% counts as a good cash on cash return. However, some investors aim for 20% or even higher.
What Is a Good Cap Rate for Real Estate Investment?
Cap rate estimates the rate of return on a property, based on the income that the property is expected to generate. To compute this metric, you need to divide the net operating income by the current market value of the property. So, what is a good cap rate for real estate investments? It is advisable that you check the average score for your area and aim for reaching that value at first.
#2 Best Real Estate Investments: Real Estate Tools
As you can probably imagine, doing research on your own takes a lot of time and effort. In order to properly conduct real estate market analysis and investment property analysis, you would need to gather data, enter in manually and do the calculations. Besides the fact that this is a very time-consuming process, you risk ending up with biased results. This is due to the fact that you can make a small mistake in the computations. This will ruin the results you get and might negatively influence your vision of becoming a successful real estate investor. Luckily, there are real estate tools which can help you out. The investment property calculator, also known as a rental property calculator, is one of the most popular and used tools in real estate investing. Another thing to help you in making money in real estate is using a heatmap. By using these tools, you will easily see how to make money from real estate.
Using an Investment Property Calculator
An investment property calculator is a tool which computes various real estate metrics quickly and with high accuracy. Mashvisor’s rental property calculator goes further than that. The tool provides you with a detailed analysis of the chosen investment property as well as its surroundings. Additionally, Mashvisor’s rental property calculator shows you the optimal rental strategy for your investment. Basically, it gives you all the information a real estate agent would but faster and cheaper. Make sure to read “Mashvisor’s Investment Property Calculator: Real Estate Investing Made Easier.”
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Using a Heatmap
Using a heatmap is also necessary when searching for the best real estate investments. Mashvisor’s heatmap shows the performance of different properties/ neighborhoods/ cities in numbers, but also in colors. For instance, the green color represents properties with performance higher than the average for the area. The orange symbolizes average performance, while the average- poor performance scores. This way you can easily spot the best real estate investments and focus on them. To learn more about the topic, check out “How Should You Use Mashvisor’s Heat Map Generator to Your Advantage as a Real Estate Investor.”
#3 Best Real Estate Investments: Real Estate Appreciation
Real estate appreciation is the increase in the value of an investment property over time. While real estate appreciation can occur naturally due to changes in the market/ location/ economy, it might also be forced. Forced appreciation is when the house investor takes some action to make the property more valuable. This may be simply cutting some costs or upgrading the investment. For instance, building a pool, extra bathroom, more living space, etc. Monitoring the naturally occurring real estate appreciation/ depreciation and doing your best to increase the property price is the way to be making money in real estate. To understand this concept better, you can read “6 Things to Know About Real Estate Appreciation.”
#4 Best Real Estate Investments: Positive Cash Flow Properties
The best real estate investments are in fact positive cash flow properties. Positive cash flow occurs when the inflowing money is more than the outflowing money. Hence, for achieving positive cash flow, the income your property generates should be higher than the property’s costs. Finding positive cash flow properties is an essential part of your success. In order to have a property which generates positive cash flow, you need to set a budget and keep constant track of it.
To learn more about all aspects of real estate investing, continue reading our blog.