Principals of Investment


Fundamental Principals of Real Estate Investments
Note by scottcno, updated more than 1 year ago
Created by scottcno over 10 years ago

Resource summary

Page 1

When purchasing real estate, remember that you are only buying houses for other people to live in, not yourself.  


This principal will help us to avoid the pitfalls of default thinking, which would have us believe that bigger investments, or nicer properties, are better, when in fact they usually aren't

IN FACT, Increases in rent don't keep pace with appreciation in value.  

In other words, as property values increase, returns diminish 

This means that you can make more money off of rent from two $250,000 houses than you can from one $500,000 house

The only thing worth considering when evaluating a potential investment property is how much money your investment will make (=,%) compared to how long it will take to earn it, and how much risk there is that you will loose it. 

Develop clarity of exactly what you're looking for as an investor. The more specific you can be while searching for an investment, the more time you will save, which ultimately translates into money made.

Figure out what kind of profit you want to make from an investment

The more specific you can be about what you're looking for, the better chance you'll have of finding it

Create a profile of your ideal investment Ex. 3 or more bedroom, 2 bath, 1850 SF, etc. 

Loc. 845 (0-130 properties in 3.5 years)

Use formula's to determine acceptable purchase prices

Ex. Take the probable weekly rent and work backwards from there

Property Inspection Templates

Use templates when inspecting new properties  Make sure to find a good one

Possible Resources -  0 - 130 properties (Loc 880) Bigger Pockets Phelps Reality  Iphone Aps

Example of Cost/Return Calculations

Purchase Price  Solicitor's Costs (Current) Solicitor's Costs (Prior) Bank Cheque fees Rate Adjustment Stamp Duty Fee Titles Office Fee Misc. Transaction Charges Deposit Paid  Balance (required to settle) Total

$44000.00 $375.55 $200.00 $18.00 $14.46 $856.00 $204.00 $36.77 $45704.78


Purchaser's Settlement Statement

Purchase Price  Deposit (20%) Closing Costs Loan Establishment Initial Cash Needed Loan Principal  Type Term Rate Weekly Repayment

Return Calculation 

$44 000 $8 800 $1 705 $714 $11 219 $35 200 Principal + Interest 25 Years 8.05% $62.82

Rent Per Week Annual Cashflow received Loan Repayment Management Costs Rates Insurance  Repairs Budget Total Cashflow Out Annual Net Cashflow / Initial Cash Needed Cash-on-Cash Return

$120 $6 240 $3 267 $840 $690 $200 $200 $5 197 $1 043 $11 219 9.30%

Annual Cashflow Received 

Loc. 963 (0 - 130 in 3.5)

Different Variables of Owner Financing 

Vendor is willing to accept terms of Owner Financing  House to Sell Buyer willing to Purchase at Vendor's Terms (Must be legal in applicable State/Country/District)

Loc 1112 (0 -130 in 3.5)

How the Transaction Benefits the Seller

Primarily used when Buyer cannot acquire financing on his/her own

Seller increases the sales price of the home slightly above what he paid for it   Paid $200 000 Sold $220 000 Seller increases the percentage of the loan offered to the buyer to a number SLIGHTLY over original loan percentage Original Loan 6 % OF Loan 7-8 %

Result is a substantial positive cashflow each month

Example of Owner's Financing Calculations

Purchase Price Deposit (20%) Closing Costs Initial Cash Needed Less New Buyer's Deposit Net Cash Needed Bank Loan Interest Rate Loan Term Weekly Repayment 

Owner's Purchase Terms

Owner's Selling Terms

$44 000 $8 800 $2 419 $11 219 ($1 000) $10 219 $35 000 6.55 % 15 Years $70.81

Sale's Price Deposit Closing Costs Total Net Cash Needed Vendor's finance  Interest Rate  Loan Term Weekly Repmt Yr. 1   (higher rate for lack of downpayment) Weekly Repmt Yr. 2-15

$65 000 $1 000 $500 $1 500 $1 500 $64 000 7.55% 1 year / 15 years $234.92$125.19

Example Newspaper Add Offering Owner's Financing 

Loc 1098 (0 - 130 in 3.5)

Finally, A Family Home That's Warm, Affordable and Convenient

Relax with the family in this WARM and well-maintained 3Br family home. Enjoy the quiet yet convenient location by walking to shops, schools, bus and parks.  Sunny lounge area with gas, heater, tidy kitchen, spacious bathroom (sep. bath and shower) and enormous backyard.  Owner can help with finance.  Call Steve today on [mobile]

Owner's Financing Refined 

Require Higher Down Payments so more of the original purchase costs are recouped  Advertise for Clients in advance and empower them to find a house in advance that you can buy and then resell to them.  

Owner's Finance Completely Refined 

Sign a contract to buy a home, leaving the lowest possible deposit. Arrange for Vendor's finance paperwork during settlement period The Week following the purchase of the home, sell to the new buyer and receive the deposit back from the original purchase.

General Principals

Searching for Investment Property

Searching Contd.

Buying a New Property

Owner Financing

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