What NOT to do when you invest in Real Estate

Real Estate investing can be done two ways - correctly, and incorrectly. Most people, unfortunately, choose the latter.

Jerry Buss, the late owner of the Los Angeles Lakers, amassed a great fortune in real estate, enough so that he was able to buy the LA Lakers and the Kings in the 80's.

Many people jump into real estate without knowing the basics. Big mistake.
Firstly, there is a thing called "return on investment" or "ROI". It is the money you make divided by the money you invested. Let's say you invested $10,000 and get $500 return annually on it. Your ROI is 500/10000 or 5%. Not bad, already beat inflation.

Secondly, caprate. Caprate in real estate is defined as rent you receive divided by the cash price of the purchase. If you buy a house for $100k and receive $1,000 a month in rent, your caprate is $1,000 * 12 (months) / $100,000 = 12%. That is a solid caprate. Not all caprates are 12%, however, most apartment buildings hover in the 5-6% rate.

Financing: it is better to finance properties than to pay cash for them. Why? For one, you can get more houses for your money. When you finance at 20% down, you can get about 4 times more houses than if you paid cash. For 100k houses - you can buy 1 house cash or 4 houses financed at 20k each. However, to qualify for financing, you have to have taxable income and you have to find a good lender. 90% of lenders are a pain in the butt to work with.

Serge Bronstein
Sebron Real Estate Investments

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