Eric McCormick specializes in rental and investment properties.
Rental Income Property Fresno
In recent years, there has been a lot of press given to “flipping,” the practice of buying a property, making improvements, and then reselling it quickly for a profit. Just like day-trading has its place in the stock market, flipping has its place in the real estate market. Flipping however, requires skills, resources, and investment acumen that are quite different from traditional investing. For that reason, it is not for everyone. Rental income property which is long-term investing, is something that anyone who can buy a house can do. It doesn’t require any special skills, and maintaining an investment property is really no different than maintaining your own home. In addition, long-term investing has stood the test of time.
In the big picture, and for most situations, long-term investment really is the best kind of investment. One has to be willing to purchase, rent, and maintain a property for a number of years in order to make a success of the investment. With due diligence, however, that time can provide a nice little annuity each month while the property is quietly appreciating. This is known as “passive income.” Basically that means that you don’t have to do anything but you still get paid.
Real Estate Investing
Choosing the Right Property and Cap Rate
The methodology of determining what would make a good investment property is very much like that of finding the right house to live in. Even though buying a home is often emotion-driven, one nevertheless wants to make sure it is a sound investment. Most often that is done by performing a market analysis and determining the CAP rate, which is used to determine the annual return expected on an investment. It is a relatively simple calculation, but it does require a little work. First of all, you need to determine the expected annual net income. To do this, you take the annual gross income (the rent paid) and subtract from it the total anticipated annual expenses such as taxes, insurance, utilities, repairs, and vacancy rate. Dividing the net income by the asking price of the property gives you the CAP rate. It is important that you compare apples to apples when shopping CAP rates. A good CAP rate in one part of town might be considered overpriced in another.
Real estate has always been a sound investment. It has weathered the worst of markets. It has proved through decades and generations of investments to ultimately come out on top. And whereas there is nothing wrong with making a quick buck with an occasional flip, the real strength and foundation of real estate profit-making has always been the long-term investment.