The next question you should ask yourself is whether your potential rental property will cash flow. This is why you must understand what the debt coverage ratio is. The debt coverage ratio (DCR) measures the landlord’s ability to make monthly mortgage payments from the income generated from renting that property. It tells you whether a rental will generate enough cash to pay for its expenses. Ultimately, it helps you decide if it’s an appropriate candidate as along term or not.
real estate deals
In our previous real estate investment blogs on flipping homes vs buy-and-hold we talked about why different types of investors are better suited for each strategy. Choosing whether to flip or hold may depend on your financial situation, your goals, and the time you have.
On one side of the spectrum might be a young real estate agent who chooses to supplement her income by flipping several properties a year. She is well-positioned to find a good property by the nature of her business. Her current work doesn’t require her to be in the office from nine to five. In fact, it offers her ample opportunities to efficiently manage her rehab project. Her goals is to boost her income to enjoy a better life style. She also wants to accumulate capital to expand her rehabbing business.
To be a successful investor you have to be a good marketer. Being a good marketer might mean different things to different people. For example, in real estate investing it might mean that you are cultivating a network of agents to dig for deals that fit your criteria. Alternatively, you might be a real estate auction pro investing time and effort bidding against other investors on the court house steps – hopefully wearing thermal underwear in winter. You might specialize in HUD properties and score good deals by watching your prospective deals like a hawk. Regardless of what you do, the outcome needs to be the same. You need to have enough marketing skills and real estate expertise to generate a consistent flow of quality leads.
I am a private mortgage lender and as such I’ve seen successful investors draw on different types of skills. Some are handy and can build sweat equity by doing parts of their rehab themselves. Others are negotiators and managers extraordinaire. They are the ones who squeeze every penny, negotiate for every nail and breathe down the neck of their contractors every day. Working with them is not a picnic for contractors, but those investors do make money when their softer competitors don’t. Still, regardless of their skills, all of those investors share a single strength in common: an ability to find real estate investment opportunities. Identifying properties with money-making potential and putting them under contract is at the heart of real estate investing.
To be a successful investor, you have to comfortably wear different hats. You’ve got to know how to hire and manage people, and you need to know construction basics. You need to understand the local real estate market. You need to have excellent time and money management skills. Perhaps most importantly, you need to be able to find profitable real estate deals. As a private mortgage lender, we see our borrowers successfully employing many different strategies to do that. This article is Part 1 of our series on finding real deals. Before you begin, go ahead and check out the series Introduction published previously.
What separates newbies from weathered rehabbers? What are the key differences between investors who can consistently turn solid profits by flipping homes and someone who is chasing a dream, even if it’s a pipe dream? As a hard money lender, I have some telltale signs of a real estate investor who is still has some maturing to do.