investment. • While leveraging can enhance returns, it also amplifies risks, including fluctuations in property values and changes in interest rates. • Investors should carefully evaluate their risk tolerance and financial capabilities before leveraging in real estate to ensure a balanced approach to investment. Now that you understand the principles of real estate investment. Let's compare investing in Single Family Home and multi-family homes:
Single Family Home:
Step 1: Property Details
• Purchase price: $800,000 • Loan-to-Value (LTV): 80% • Mortgage Interest Rate: 6% • Mortgage Term: 5 years
Step 2: Rental Information • Monthly rent: $2,500 • Vacancy rate: 5% Step 3: Gross Annual Rental Income After Vacancy • Gross Annual Rental Income = (Monthly rental income x 12 months) x (1 - Vacancy rate) • Gross Annual Rental Income = ($2,500 x 12) x (1 - 0.05) • Gross Annual Rental Income = $30,000 x 0.95 • Gross Annual Rental Income = $28,500 Step 4: Operating Expenses • Gross Annual Property management fee: 8% of gross rental income Gross Annual Property management fees = 8% x $28,500 = $2,280 • Gross Annual Property taxes: $3,000 51
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