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5 Must Know Concepts For Boston Real Estate Investors

There are five basic real estate concepts every investor must understand and I’ve outlined each of them in the video below and text below.

 

Appreciation:
When an asset increases in value it is said to have “appreciated”. The opposite of appreciation is depreciation, which is the decrease in an assets value. I concept of appreciation is important to the “buy and hold” real estate investors because (typically) the longer and asset is held the higher it value. The increase in real estate values has usually kept pace or grown faster than the US rate of inflation, hence why it’s known as one of the best hedges against inflation. You can estimate your property’s future value by using a “compounding calculator” and choosing a rate of inflation. I like to use the rate of 2.5% which is relatively conservative.

Amortization (Debt Pay Down):
Amortization is the systematic decrease in your investment property’s debt. When you make your mortgage payment each month a portion of those payments decrease the principal balance of your mortgage and a portion will go to the bank in the form of interest payments for the use of their money. In the first 5-10 years of a 30 year mortgage the majority of your mortgage payments will go toward interest. You start to pay off more of your principal balance toward the middle and end of your amortization period. You can calculate your principal balance at a future date by using a mortgage calculator with an “amortization schedule” attached.

Equity Spread:
Your equity “spread” can be calculated simply by taking the value of the property at any given point and subtracting the debt on the property at that same point. When you first buy an investment property your equity spread is equal to your down payment, assuming you purchased the property at market value. To find your equity position at a future date in time, calculate your future value and your future principal debt on the loan and subtract these two number.

Cash Flow:
Cash flow is the money left over after you’ve collected all your rental income and paid all your rental expenses. If you’re renting two 3 bedroom condos and collecting $2000 from each unit, you have a monthly “gross income” of $4000 from your rental portfolio. If your mortgage, taxes, insurance, water and repair expenses total $3000 per month you have a surplus or “cash flow” of $1000 monthly or $12,000 annually.

ROI (Return on Investment):
ROI is a measure of your investment performance. For example, if I have a stock investment and it provides me with and ROI of 6% and a rental property that give me an ROI of 10%, than my rental property is providing me with a better return on the money I invested. The higher your ROI the better.

Did you find this video and blog post helpful? Please follow our blog for more real estate investment tips.  Drop your email address at the top right hand side of this page!

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Installing hardwired smoke detectors are as easy as twisting a wire. Follow these step by step instructions on how to do it yourself.

Step 1:

Purchase compatible smoke detectors.  It’s best to stick with the same brand.  It’s imperative that they use the same wiring.  Incompatible smoke detectors will not work with each other.  If there is a fire, one smoke alarm will go off  but will not trigger the other detectors, leaving some tenants unaware of the potential danger.  Incompatible smoke detectors will show a red glowing light.  They may also sound randomly and trigger the other alarms to do the same.  You may be able to silence it temporarily but they will continue like this until the incompatible detector is removed or replaced with one that’s compatible.

Step 2:

Pick a time of day to work when you know you get great light in the stairwell windows if there are any.  Bring a flash light if you need it.

Step 3:

Make sure your tenants are aware of the work being done.  Let them know they don’t need to be alarmed if detectors start going off during a certain period of the day.  You’ll need to test the alarms to make sure they’re working.  Since this is your first time you might want to do so more than once as you go.

Step 4:

Turn off the power to smoke detectors.  This will likely turn off the power in the stairwell as well.  The stairwell window light or flashlight will come in handy.

Step 5:

Remove smoke detectors and smoke detector mount from stairwell wall.  You may want to dispose of the old smoke detector, but if you should consider saving the newer ones that simple aren’t compatible with the detectors you are installing.  If you manage more than one property, you might be able to use them elsewhere. Hold on to all screws use to mount the detector.

Step 6:

Remove old smoke detector wiring. There will be 3 wires red, yellow and white connected to the other wires in the wall with caps on them not always indicating the color of the connecting wires.  Remove the caps and then unwind the wires until all 3 smoke detector wires are free. Replace this wire with the new smoke detector wires.  The white and black wire power the detector.  The red wire connects that smoke detector to others on the property.  If there are no other hardwired smoke detectors present connecting it may not be necessary. The red wire often comes with a covering for this reason.  Be sure to put caps back onto all the wiring.

Step 7:

Add new detector mount to the wall.  You should able to use the same screws from the older detector.  Mount the smoke detector, turn the power back on and your mission is complete. Well, depending on how many you have to install.

Step 8:

Take a look at the detectors and make sure they’re all glowing green after you’ve completed your work. If you want to check your work before installing all the new smokes, try detaching the older smokes and then turning back on the power.  If the newer smokes are glowing green and not sounding you know you did the job right. If they are glowing green, but still sounds there may be an older detector you’ve have not removed, possible in the basement or somewhere else you forgot to look.

This is easy work that just takes a little time and patience. Feel free to call me anytime with questions.  617-818-0408. I’m always happy to help where I can.  I’m your Boston Rental Property Specialist!

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So you want to invest and build wealth in real estate huh? You’ve heard stories about other people who’ve purchase rental real estate and made a good living and now you want to do the same? I can tell you that getting started in real estate isn’t difficult it just requires the right state of mind and a prolonged focus. There are many very intelligent people that completely understand real estate and the benefits of investing but avoid the venture due to lack of patience. These people are looking for instant gratification and that’s not something real estate can bring. Success in this business require a long-term mind set and the ability to see into the future. It requires a sacrifice of time, energy and money today for a greater amount of all three down the road.

Answer the questions below to gage whether you’re ready to dive into the world of investing.  There are no right or wrong answers and no grade, but this quick test will help you understand whether investing is the right path for you.

1. Are you a patience person? When you decide you want something do you go after it aggressively?

2. Do you tend to get discouraged when things do go exactly as planned?

3. Do you take rejection to heart? When someone tells you “no” do you ask someone else?

4. Can you picture the life you want 5-10 years from now or are you more focused on today?  

5. Are you willing to give up some of your time and energy today and become a student of the market?

Real estate investing isn’t for everyone and not everyone that enters this industry will make it down the path to wealth.  It’s a tough road but for those who can stay on it long enough they’ll be able to build the type of wealth they’ve only heard about in those above mentioned stories.

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CLUE stands for Comprehensive Loss Underwriting Exchange. A CLUE report is similar to a credit report for your home, and contains all the pass insurance claims taken out against the property over the previous 5 years. The report will show the reader if a particular property owner has filed a claim for fire, water damage, mold and various other types of potential lose.

Why should you care about this report?

More and more buyers are requesting that home sellers provide CLUE reports as a contingency to the purchase contract. These buyers want to get a better picture of the homes insurance history and any potential problems that may be lurking if they were to purchase the home. Having this record of the property’s past insurance claims is also a good way for buyers to determine the future insurability of the home.

As a seller, the last thing you want is anything to snag the sale of your home once a potential buyer is on contract. A good idea would be to proactively obtain this report before a buyer request is made. Promptly providing this information to the buyer also makes the home more attractive and gives a potential buyer a certain level of comfort to know that nothing is hidden.

Every homeowner may request one free report per year is and can be ordered online from www.choicetrust.com.

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