Real Estate Investment Financing

by Parsa Sepahi - Date: 2007-01-21 - Word Count: 240 Share This!

1. Location: Your real estate investment's location is arguably the most important component of your real estate investment portfolio. A good location, in terms of demographics, local economy and wealth distribution among other factors is critical for a success.

2. Value: the value of the property in terms of equity and growth is also critical to the overall investment portfolio. The property value needs to increase as time passes on and you always need to have a liquidation option that will minimize your risk potential of loss.

The general formula for calculating value is the Cap Rate. The higher the rate the better the investment, the formula is as follows:

Yearly Net Income of the Subject Property / Current Price of the Property

3. Financing: last but not least important factor in your real estate investment efforts is financing, a right investment loan will exponentially grow your wealth. The right leverage will allow you to acquire more properties and after one or two successful investments you can save your cash and grow your portfolio by using the right financial products.

The general formula for financing feasibility is the Debt Service Ration (DSR), which is simply:

Yearly income from rent collection - (Mortgage payments + other related property expenses)

These principles apply to both residential and commercial properties. Although there are several strategies to invest in real estate such as short term flipping or long term holding, these 3 mentioned components remain the same no matter which investment strategy you use.

Related Tags: real estate investment, real estate investing, investment loan, real estate investment financing

Parsa Sepahi is the Co-Founder of INVESLOAN a Real Estate Investment Financing company. In the past several years he has helped many people use real estate investments to their best advantage and grow their wealth.

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