Many beginner real estate investors are entering the real estate investing business; however, not all of them become successful property investors simply because they lack the knowledge of how to invest in property. Becoming a successful real estate investor requires so much more than just buying a rental property and waiting for it to generate a profit.
So, if you’re a beginner real estate investor searching for the key to how to invest in property and join the class of successful real estate investors, keep on reading!
How to Invest in Property – Finding an Investment Property
The first step of how to invest in property is, obviously, finding a real estate property to invest in. There are many sources to find investment properties for sale, and using a variety of these resources, real estate investors have better chances of finding the best investment property. Some of the best ways for finding investment properties for sale include the Multiple Listing Service (MLS), networking, real estate auctions, and heatmaps.
Heatmaps are actually an important aspect of how to invest in property and the most successful way of finding real estate investment properties for sale. They’re very easy to read and interpret; a heatmap shows various data in a visual – rather than a numerical – form, with different colors representing different ranges or percentages. Property investors looking for an income property search for locations with high return on investment, and using a heatmap makes finding investment properties in such locations much easier.
Related: Be a Smart Real Estate Investor: Finding Income Properties Using a Heatmap
Mashvisor’s heatmap shows real estate investors areas with low and high median property prices, cash on cash return, rental income, and more.
To start your 14-day free trial with Mashvisor and use our heatmap to find the best investment properties for sale in the US, click here. how to invest in property
How to Invest in Property – Evaluating an Investment Property
After finding the best income property for you, the next thing to know about how to invest in property is how to evaluate whether or not this property will be profitable. Real estate investors use a number of metrics to evaluate real estate investment properties and their rate of return, the two most prominent being the cap rate and the cash on cash return:
How to Invest in Property – The Cap Rate
The cap rate (capitalization rate) evaluates real estate investment properties based on the amount of profit they’ll generate in relation to their current market value. The cap rate value is calculated using the following formula:
Cap Rate = (Net Operating Income (NOI)/Current Market Value) x 100
So, imagine a rental property listed on the market for $400,000 and expected to generate $1,200 in monthly rent (an annual NOI of $14,400). The cap rate of this property would be:
Cap Rate = ($14,000/$400,000) x 100 = 3.5%
This means that the property will generate a profit equal to 3.5% of its total value each year.
How to Invest in Property – The Cash on Cash Return
The cash on cash return is another metric used to evaluate an income property; however, it determines the return on investment based on the amount of cash actually invested in the rental property. The formula for calculating cash on cash return is as follows:
Cash on Cash Return = (Net Operating Income (NOI)/Cash Invested) x 100
Imagine the same $400,000 rental property from our last example, with the same amount of NOI ($14,400). However, we’ll assume that you’re using a mortgage to finance 80% of the property’s price, meaning that you only paid 20% of the property’s price in cash ($80,000). The cash on cash return for this income property is:
Cash on Cash Return = ($14,000/$80,000) x 100 = 17.5%
This means that the rental property will generate a profit equal to 17.5% of the amount of cash that you actually invested.
Related: Cap Rate vs. Cash on Cash Return: Which Is the Ultimate Metric to Measure ROI in Real Estate?
How to Invest in Property – Financing an Investment Property
So, you’ve found and evaluated an investment property and decided that yes, this will be a profitable investment. What is the next step of how to invest in property? Financing the purchase of the rental property! Property investors have many financing options; they could buy an income property fully in cash (if they’re financially capable of that), take on a mortgage loan, borrow money from hard-money lenders, or borrow money private-money lenders. As a real estate investor, you have to determine which financing option works best for your income property and investment and financial goals. Read this blog to discover the many ways of financing real estate investments, which will help you further understand how to invest in property.
How to Invest in Property – Managing an Investment Property
Real estate investing doesn’t end after buying an investment property. The next step to how to invest in property is management! Management is key to a successful real estate investment. As a real estate investor, you have to find the right tenants for your income property, collect monthly rent, and keep track of repairs and maintaining the property. Managing a rental property is not an easy task and requires both time and effort. However, don’t let this discourage you as with time and experience, managing real estate investment properties becomes a second nature to property investors.
How to invest in property if you don’t have what it takes to manage it? Well, some real estate investors (especially those owning multiple real estate investment properties or an income property in an area in which they don’t live) opt for hiring a professional property management to take care of their investments. While this is a good idea in some cases, it’s not cheap. Thus, professional property management is not recommended for a beginner real estate investor whose goal is to make and save money.
Related: Professional Property Management: A Key to Success or a Waste of Money?
How to Invest in Property – Use Mashvisor
Mashvisor is an online platform that provides property investors with real estate investment data analysis including analysis of traditional and Airbnb pricing, occupancy rates, seasonality trends, revenue potential, cost assumptions, cash flow calculation, and financial and purchase investment analysis. Mashvisor works to empower real estate investors with regards to how to invest in property and optimize their performance.
When you sign up to Mashvisor, you’ll be able to use a number of real estates investing tools which help you make smart investment decisions, one of which is Mashvisor’s heatmap! In addition, another essential tool for how to invest in property that Mashvisor provides for property investors is the investment property calculator. This tool allows real estate investors to find and analyze thousands of real estate investment properties on the market in any state, city, and neighborhood across the country within minutes! This helps them find the best rental property and evaluate its profitability before even buying it.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Furthermore, in Mashvisor’s Knowledge Center, you’ll find thousands of blogs, guides, and tips related to real estate and how to invest in property, keeping you up-to-date on anything and everything real estate! Click here to receive our blogs and offers.