Against what most math-allergic people might prefer, real estate investment requires a level of math. Thankfully, most of the calculations involved in a typical real estate investment are simple. Moreover, there are also a wide number of advanced tools available out there that can help you with the overall ease of real estate calculation.
The constant change in the real estate prices of the investment market tends to entice the real estate investors to become more serious in the given market. Before joining the ranks of the landlords out there, it is important to make sure that you have a strong knowledge of vital financial information. This can help you in making the right real estate investment while being aware of the investment criteria.
Real Estate Investment Numbers You Should Know About
If you are looking forward to making a lucrative real estate investment, here are some of the vital numbers that you need to know about real estate investing:
1. Mortgage Payment
While most of the lenders prefer delivering a total debt-to-income ratio of around 36 percent for the typical owner-occupied home, there are others who might raise the bar to reach 45 percent in some cases. The overall rise in the ratio bar might be due to specific factors like the cash reserves and credit score. To invest in a property, the real estate investment guidelines by experts explain that the maximum debt-to-income ratio should be 45 percent
2. Rental Income for Qualification
Most of the investors out there believe that as the rent payments for the tenants will be covering the mortgage, there is no requirement of extra income when you wish to qualify for a home loan. The fact is, when you wish the rent to be regarded as your income, you should maintain at least a 2-year history of investment property management
3. Price to Income Ratio
The given ratio is used to compare the median household price in the given area to the median household income
4. Requirements for Down Payments
While you can consider financing the owner-occupied properties with the mortgage, investment mortgages are known to need a down payment of around 20-25 percent – sometimes even as high as 40 percent. Individual lenders can help in deciding how much you are required to put down in order to qualify for the home loan based on the overall credit score, debt-to-income ratios, rent, and the price of the property
5. Price to Rent Ratio
It is the real estate investment calculation that helps in comparing the median rents & median home prices in the given real estate market
6. Capitalization Rate
It is the ratio between the net income produced by the property compared to the original bulk investment in the venture
7. Gross Rental Yield
This value can be calculated by dividing the overall annual rent that is collected by the total cost of the property
8. Cash Flow
While making a real estate investment, it is important to make sure that you are able to cover the mortgage principal, insurance, interest rates, and taxes. You should have ample cash flow to ensure the best results
If you are thinking of buying a home, you would want the best deal on the property. It is important to have a grasp of the financial information that would come in handy when you are buying or selling a property. The points mentioned above will help you make an informed decision about whether a particular property is worth the investment or not.
Make the wisest decision when it comes to real estate investment for your portfolio!
OHI is a thirteen-year-old real estate services company working with 50+ commercial and residential real estate developers, funds and property management companies across USA. Our deep expertise in real estate accounting, financial analysis, lease administration and asset management has helped clients cut associated costs by 40-50%. We currently provide these services to a portfolio of 75000 units across clients.
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