Financial Concepts

Real Estate Financial Basics

Financial Concepts:
Real Estate Financial Basics
Why Invest in Real Estate
Real Estate Investing FAQ

Learn Financial Basics from Realty ProClub:

Where the Real Estate Pros Invest

All investments involve money. The real estate world, like any other sector you invest in, has some financial terms specific to it. Learn them, and you’ll be on your way to intelligent real estate investment. The quicker you learn, the sooner you can find that perfect investment property—and buy with confidence.

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Purchasing an Investment Property

With a huge dollar amount of residential real estate transactions completed, Realty Pro Club knows the ins and outs of real estate financing. Here are some basic financial terms you need to know before you start the buying process.

Auctions

You participate in a bidding process. The highest bidder wins the right to purchase the property. Most auctions require a substantial payment on the day of the auction and the entire amount at closing.

Off-Market Purchases

The best real estate deals aren’t on the open market. If an owner can close the sale of a property without having to go through the hassle of listing, they’re often willing to offer a deep discount to the buyer. Realty ProClub has access to off-market purchases throughout the country—and they’re willing to let you in on the secret, too.

Appraisal

A lender will determine the value of a property by ordering a home appraisal. Conducted by highly trained experts, an appraiser will compare the recent sales of properties like the one you want to buy (called “comparables” or “comps”), assess the condition of the property when you purchase it, and the property’s location.

LTV Ratio

If you take out a loan to purchase a property, the lender will judge the risk by how much you want to borrow versus the value of the property. That number is then converted to a percentage. The higher the percentage, the greater the risk for the lender.

Cash Purchases

If you have enough money to buy a property outright, you can avoid hefty interest charges that conventional loans charge.

Crowdfunding

You pool your money with that of a group of people to purchase a property. Share the risk; share the reward. With Realty ProClub, you can buy into a property with a relatively minimal investment.

Loans

With decades of experience as mortgage brokers, Realty ProClub can find you the best deals on loans to help you get the most out of your investment.

ARV

Real estate investors who purchase off-market properties often have repair costs before they resell them or find renters. It’s important to calculate the value of your purchase after you complete all the repairs to see if your purchase is indeed a good deal.

When you determine the best way to purchase your investment property, it’s time to act. Get in touch with the real estate investment pros at Realty ProClub to get started.

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The Investment Property Itself

Before you purchase, you need to know if the investment will net you the kind of money that will make the investment worthwhile. Though you can depend on Realty ProClub’s expertise to find already-vetted properties that will make you money, it’s always worthwhile to know the ins and outs of what makes one property a great investment—and another.

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The Long-Term and Short-Term Potential of an Investment

You need to evaluate potential purchases for their future value as well. Time, too, factors into the calculations. Learn more about how to gauge your future income from your investments to make sure you’re getting the best property for the money.

Time Value of an Investment

You need to weigh what income you receive over time for your investment against what that income will be worth down the road. Although an income of $1000 per month over 20 years’ time is worth more on paper than one for $1,500 per month for 10 years’ time, you need to compare whether that $1,000 will have the same value after 10 more years. With inflation, the cost of living, and other factors, that may very well not be the case.

Future Value of an Investment

You can’t gauge the future. Often forces beyond your control cause an investment to fall in value. A neighborhood that suddenly goes into decline, an economy that tanks—such as the 2008 recession—such factors affect the future value of your investment. On the other hand, your property may grow in value over time if those external factors are in your favor. It’s important to look at these factors, though, as you consider selling your current investments to purchase another more valuable property.

Discounted Cash Flow

Taking into consideration the present value of the property, likely future income, and likely future expenses, you factor in the growing expenses into likely future cash flow to come up with a target price to pay for your investment property. If your likely future rate of return on your investment is at or above the target rate you set for yourself, it’s probably a wise investment at that price. If not, you need to move on. That’s why you need to team up with the real estate investment pros at Realty ProClub. With all their experience, they’ll be able to give you an honest assessment of your likely rate of return.

Net Present and Net Future Value

The net present value is that price you should never pay more than for an investment property. If the estimated net future value looks to show a good increase, you’ll know it’s well worth your investment to buy the property if the seller will sell it to you at its net present value or less.

It pays to have a team that can accurately assess good deals quickly—before another investor snaps them up. Realty ProClub employs a vast network of property databases, construction pros, lenders, auction houses, and appraisers to help you choose an investment that will net you more money than you dreamed possible. Let us show you how.

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