Is a Real Estate Investment a Good Deal? 8 Numbers to Know

When it comes to investing in real estate, the listing price of a property is an essential factor to consider, depending on your financial capacity. For a standard owner-occupied home, lenders often prefer a total debt-to-income ratio of 36%, but some can go as high as 45% depending on other qualifying factors, such as your credit rating and cash reserves. This ratio compares your total gross monthly income to your monthly debt repayment obligations. For housing payments, lenders prefer a gross income over total housing payment of 28% to 33%, depending on other factors. For an investment property, Freddie Mac's guidelines say that the maximum debt-to-income ratio is 45%.

None of the down payments or closing costs for an investment property can come from gift funds. Individual lenders will determine how much you must deposit to qualify for a loan based on your debt-to-income ratio, your credit rating, the price of the property, and your likely rent. The total cost of the property includes the purchase price, all closing costs, and renovation costs. A more valuable number than gross rental return is the capitalization rate, also known as the maximum rate or net rent return because this figure includes the operating expenses of the property. This can be calculated by starting with the annual rent and subtracting the annual expenses, then dividing that number by the total cost of the property and multiplying the resulting number by 100 to get the percentage.

Total property rental expenses include repair costs, taxes, landlord insurance, vacancy costs, and agent fees. When it comes to assessing an investment property's potential, it's important to consider long-term trends such as the price to income ratio of housing (26% in the US and UK). Before you make a 20% mortgage down payment, it's important to understand all eight real estate investment numbers you should know how to calculate and use when evaluating a potential investment property. Additionally, understand the time involved in different types of real estate investments so you can plan your schedule based on your investments. The best way to start your investment search is to look for an area worth investing in and then find a home there that meets your criteria. Real estate investment isn't “unique” - what's a good investment for you may not be good for the next person.

Harvey Billa
Harvey Billa

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