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to rent. He plans to hold on to it for 10 years and he figures it will appreciate at about 5% per year conservatively.

Compare prices, resale value and rental income for the 3 main types of properties before you make the leap into an actual purchase.

A trusted financial advisor told me there's no reason to take on a rental property that has a negative cash flow. Not all investors agree, however.

The novice real estate investor shouldn't plan on purchasing more than 4 units since the loan requirements are completely different and the necessary cash reserves may be much greater than 4 units or less.

SPREAD SHEET FOR ROOM-BY-ROOM EXPENSES
A person who's going to help me remodel the house we've purchased to "flip" is working with me to create a simple spread sheet to determine remodeling costs room-by-room. This way, we have a total budget we're working within and it will help us know our asking price if we go to resell.

We already have a good idea, but making a spread sheet provides a good working budget to see where the money is most likely to flow.

PROFIT AND COST SCENARIOS
The house I'm purchasing with both the loan and fix-up costs will end up being about 25% to 30% below market giving me plenty of room for a profit if I turn around to sell it. However, if I decide to rent it out longer term then I should also have plenty of appreciation in the next 3 5 years.

I have room to be flexible in my goals.

In my very first real estate investment, I foolishly bought at market value based on the advice of someone I did trust. We were both "bullied" by the agent representing the sellers. I purchased almost as a matter of pride, and though I didn't lose any money when tax write-offs are factored in I also didn't gain any profit despite my efforts in a 2-year period.

The more realistic numbers you can put down on paper relating to projected profits and costs, the more prepared you will be as a real estate investor and the more likely you will be to succeed.

Learn more about this author, Don Simkovich.
Click here to send this author comments or questions.

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