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How To Buy A Rental

When it comes to investments, it is all about Return On Investment (ROI).

Hypothetically speaking, if you invested $100,000 in say stocks, mutual funds, bonds or rental property for one year and your $100,000 became $105,000, the $5,000 return (or 5.0% per annum) is what we call the ROI.
When it comes to rental properties, the Return On Investment is derived by simply dividing the property’s annual cash-flow (NET income) by the total cash invested.

For example, if you bought a property for $250,000.00 and it is providing a positive annual cash flow of $18,000.oo, you’d simply divide $18,000  by  $250,000 and you’ll come up with a 7.2% ROI.

What is CAP rate? Cap rate is short for capitalization rate. And it is derived by simply dividing the Net Annual Operating Income of a property by its price. Cap rate is a good starting point when shopping for a rental home or commercial property to buy. Initially, you can gauge whether a property is over-priced or not by just comparing its Cap rate with the average Cap rate in the area. Sellers and Listing Brokers alike will easily divulge the Net income of the property they’re selling.

A property with a higher-than-average Cap rate however, doesn’t always translate into an acceptable ROI. Cap rate doesn’t incorporate nearly all of the other financial factors that should be considered when buying an investment property.

ROI calculation seems simple in the example above. But there are intricate details that should not be overlooked when calculating the ROI. This is where your knowledgeable real estate broker comes into play. Not all real estate Agents/Brokers have the knowledge in properly calculating a property’s ROI based on each individual buyer’s unique financial situation.

There are inherent advantages that are unique to investing in real estate over other investment vehicles. Most notably is the yearly depreciation deductions. Another is the property appreciation over time.

In the real world, most buyers will need a purchase loan when buying a property. This is where calculating the ROI gets a little complicated. When an investment purchase is financed, stealth cash-flow (as I like to call it) should also be taken into account.

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Decisions, decisions: To Sell or To Hold onto a Rental    
... article to be published soon. 


Simple:  When the average Cap Rate in the surrounding area where the property is located is at an all-time low, it is a good time to sell!  J

This simply means that property values have gone up drastically that the rental market has not caught up or it has lagged behind. This could stem from migration into the area in which buyers would rather buy than rent.

Sometimes selling an investment to roll-over into another investment that provides a better return might just be the right recipe. Circumventing capital gains tax via a 1031 Tax Exchange is the answer.

 What is a 1031 Tax Exchange? Stay tuned for the next post...

We’re here to earn your trust and we’d like to see you succeed. Contact us at (425)444-1010.


What our clients are saying  

Carlo, Thank you for helping us finding our dream home. Your professionalism and honesty are greatly appreciated. We look forward to doing more business with you in the future.


~ Annie & Jonathan

I just wanted to thank you for all of your help in finding a home for my family. We've gone through this process for almost nine months and you've stayed patient, positive, consistent and worked hard for us through this whole process. Lynn and I are very thankful that you were able to save us from the many pitfalls we could have fallen into such as the new construction property in a flood zone that the builder didn't even know about, many overpriced homes and homes in general that you didn't think would be a good fit for us. One thing I know for sure is that I won't ever be using another agent for my future real estate purchases because your overall level of service and expertise is above and beyond everyone else in my opinion. CONTINUED...


~ Andrew & Lynn B.

Finally, I don't know how you managed to do this in this crazy sellers market but THANKS for negotiating our home pruchase down over $40,000 which is over 8 PERCENT of the sale price!!! Your negotiating skills are beyond exceptional! Thank you again for getting us into our dream home at the dream price. You've got a customer for life.


~ Andrew & Lynn B.

Carlo has helped myself and my family find the right home for the right price; and had gone above and beyond what was expected of anyone. I got sick during the process and was not able to complete many of the necessary steps in the home buying process. Carlo spent countless hours of his own time helping my family through those rough times and I would recommend him to anyone. He is very thoughtful, friendly and most of all honest. I also consider him my friend. Thank you Carlo,


~ The Lockwood Family

After renting an apartment for 2 years and looking for a house for 1 year, we finally get the right house for us. The whole home buying experience was great because of our very hard working property broker. We got exactly what we are looking for in our 1st home! We are now officially home owners!!! We are so excited and happy. Stay tuned for our house warming soon!


~ Renee Ashley

We are officially home owners!!! Thank you Carlo for helping us get our first home. ...I just knew you would be the one that can help us get a great home. All your hard work and experience is very much appreciated. You made the whole experience enjoyable.


~ Jade A.

Carlo, Thanks for everything! I had more than a satisfactory experience and I would for sure recommend you to anybody that I know in the Seattle area whose either buying or selling. ~ Dante


~ Dante D.

Carlo, Thanks for being an awesome real estate agent! The condo is amazing and look forward to working with you again in the future! I hope that you enjoy this rye as much as I do! It is my favorite!


~ Jonathan M.

Hi Carlo, Thank you so much for all your help and patience with working with us to short sale our home. You have done an awesome job and we will definitely recommend you to any one we know. All the things you have said has happened. Can you come out to dinner with us after this is over to celebrate? Have you been to the Crab Pot in Bellevue? Thanks


~ M. & L.

Hi Carlo, Thats really great news, You are a superhero!... Thank you so much for your hard work and patience.


~ M. Villasin

Carlo, There aren't enough words to express our gratitude! You were very thorough and kept us in the loop through the entire process. We were amazed how on point you were with EVERYTHING, even down to the week we would close on a deal. Everyone we told were amazed about how fast and smooth everything went. Your knowledge and expertise is top notch. You have truly exceeded our expectations. We will recommend you to everyone! Thank you for everything!


~ M. & A. Bauer

No words to say but " THANK YOU! ", will pick the keys soon and leave some thing for you at your office. I am not well lately, so moving slowly. Take a good care of yourself and wish the BEST to your BUSINESS!! God bless your parents.


~ S. Chen

Carlo, Greg and I would like to take this opportunity to properly thank you for representing and even advancing our interest to the best you could. We could not ask for any broker as knowledgeable and as professional as you are. We are forever grateful! If your website has a page for testimonials, we would not hesitate to put in good words for you. Nonetheless, rest assured that we will never hesitate recommending you to any one needing of your expertise.


~ Mr. & Mrs. Pangilinan

Congratulations on your 100% Club award! Thank you for being a part of our team, we are honored to be a part of your success. Keep up the great work!


~ David Milot, Owner of RE/MAX Metro Realty Inc.

Thank you for taking the time to explain everything to me. Thank you so much for all your help. We can finally move on.


~ Mai P.

(via Facebook timeline) Best agent!!! Thank you!!!


~ M. Capiral

(via e-mail) Hi Carlo! ...I really appreciate the patience you have with us all the way through the process. We need to take you to dinner!


~ H. Nguyen

Dear Carlo, Thank you for taking so much time showing me properties and helping me learn. I appreciate your knowledge and professionalism. I am looking forward to working with you again. Sincerely, Joyce Pier (425)486-XXXX


~ Joyce Pier

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