Why Invest in Real Estate?

With all the fervor about real estate volatility, the high number of foreclosures and the inability of many homeowners to sell their houses, investing in real estate right now might seem laughable. However, real estate still, and will always, offer a way to generate a passive income stream. Owning a rental property will allow you to receive a monthly income without being actively involved. Let me modify that by saying you will have to be involved at certain points with renovations and fix-ups, but you are able to have a day job and be a landlord simultaneously.

Passive income only comes from rental properties, but of course there are many kinds of real estate investments that can also turn a profit. Flipping properties, retail/rehab, and wholesaling are all actively involved methods for earning money in real estate. Holding properties is a much more laid-back approach to real estate with occasional periods of active involvement.

The key in holding properties is knowing the Net Operating Income, or NOI. This is the total amount that you will make on a monthly or yearly basis, and the objective is to have a high enough NOI to cover all expenses plus your debt service and still have enough money to put in your pocket. It is calculated by taking your total income and subtracting your total operating expenses, but excluding your debt service. The amount of NOI should cover your debt service plus all expenses of operation. If you do not have historical operating expenses to go off of, then error on the side of over estimating your expenses and under estimating your income. The concept is simple, but the execution at times can be a little more challenging. Special consideration needs to be taken to ensure an accurate representation of the future, specifically, determining the occupancy rate and how many of those tenants will pay rent on time. The NOI is useful in single family buildings, multi family buildings, and commercial properties.

Of course, there are many other ways of investing that will give you a passive income stream and do not involve real estate. Real estate is just one of those ways, but it is a good one. Long-term investing in real estate can help you to provide for your family, retire early, or create a vacation fund. Learn more about how rental properties can generate income and get started today!

Jay A. Redding
President
JMJ Services, Inc.
Phone:260-440-7443
Fax: 800-706-3479
www.InvestmentPropertyMadeEasy.com
www.BuyHotPropertiesNow.com
www.FastHomeSolutionsNow.com