The Key Numbers to Analyzing Investment Properties

When it comes to investing, it’s all about the numbers, right? If the numbers just don’t add up, there’s no point investing. The whole idea is to gain profit from either buy and hold properties or flipping properties. If you are considering buying and holding properties, meaning you are looking for a cash flow income from rental properties, here are some key numbers to look at when analyzing the type of property.The Key Numbers to Analyzing Investment Properties

NOI – Net Operating Income this is your gross income minus operating expenses and it’s one of the most important numbers you need to know if you’re planning on investing in buy and hold properties. This is roughly the amount of income the property produces each month. If there’s no cash flow none of the other metrics will be good either. You have to decide whether or not you’re putting in a management fee as well, which can lower your NOI, making or breaking the investment.

Occupancy – It’s also important to look occupancy. If you are buying an investment property in a highly popular area, chances are it will be occupied 90% of the time. But this is important. You have to factor in some vacancy somewhere along the line. It’s easy to assume that the property will be occupied at all times, but that’s not always the case. It’s important to look occupancy rates in the area in which you want to buy.

ARV – After Rehab Value is really only a number you need to look at if you’re planning on buying and selling. This is not necessarily a number to be concerned about when purchasing but, if you plan on selling any time you need to understand what you’re ARV cost will be. If this number doesn’t make sense, you may need to hold on to the property longer than expected.

Cash Flow – The cash flow is basically how much gross income minus the total expenses. For instance, if you are charging $2000 for rent and there are homeowners fees and utilities of up to $500, your cash flow would be $1500 per month. This is not necessarily the NOI because this is just the gross a cash flow after paying any expenses from the rent. Your net cash flow will be after paying any management fees, insurance, and property taxes.

Leverage – Even though this isn’t really only dollars and cents term, it’s one of the most important facets of real estate investing. When you put less cash into one property you can acquire more properties and extend your returns, compared to bring all your money in one property. This is probably the number one real estate term to consider and it helps to have a real estate agent, broker, or team behind you that understand all of these numbers and can help you identify the right property for your income needs. [Source]

For more information or answers to any of your real estate investing questions for Northern Virginia and surrounding areas call our office. We may have an office in your area.


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