The real estate world is kind of like the legal world, full of confusing terms and legal jargon. But, if you’re planning on investing in property throughout Northern Virginia, DC, or Maryland there are five really important real estate investment terms you need to know. These five terms play a very important role in your overall investment experience.
This is probably the most important term you’ll need to know because it’s how much money you will have left over each month after all your expenses have been paid. To find cash flow you need to take the cash income you’re making off of the property and subtract all the expense is associated with it such as your mortgage, any utilities you are paying, repairs, and upkeep. Your left over is your cash flow, one of the most important streams of income in an investment property.
Cap rate or capitalization rate, is the estimation of the rate of return an investor can expect to get on a property. This percentage is found by dividing the NOI (Net Operating Income) by the property’s current market value. This rate can give you an idea of the property’s potential as an investment property.
Net Operating Income
This is how much income a property will generate in the form of rental payments or other types of fees you could be charging your tenants. To find this figure, you’ll need to subtract your operating expenses from the operating income. The net operating income takes into account non-cash factors as well as depreciation and deferred maintenance. So, this gives you a much more accurate idea of the assets profitability.
It’s important to know the leverage you have as an investor. This could be using another person or entities money to increase your own profits. To get a mortgage, technically the bank owns the property until you pay the mortgage off. However, you are still able to use the full value of the property even though you only on a percentage. In reality, you have a small financial input in the rewards of full ownership.
With every investment you go into you should have an exit strategy in place. Are you planning on selling the property once you are done with it, renting it out, holding it until retirement? An exit strategy could be within months or decades depending on your overall strategy I’m using the property. Regardless, it’s important to have a game plan for unloading it when the time comes.
For more information on real estate investments throughout our area contact our office today. There are excellent opportunities in many communities around Northern Virginia and I’d love to discuss more real estate investments with you today.
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