This happens due to the shortfall between your monthly expenses and earnings. For instance, your insurance, maintenance charges, mortgage payments, and so on) and your actual rental income. Now, you will have to make up any shortfall with your own funds
Therefore, the REAL income property is one that provides you more income that the expenses you incur on it. This proposition is really exciting, as you will be left with sufficient money that you can easily spend as per your needs or reinvest in business.
Become financially free with an income property
Yes, it is true! You can become financially free with an income property, as it will generate passive income for you. As you will not be working hard to generate this income (you just have to rent out your property and receive weekly payments), so the money that you receive after your monthly expenses is your passive income from the income property.
If you can somehow build sufficient passive income by investing in various income properties that can easily cover your expenses, then you can consider yourself to be financially free and without any worries of earning money for living. This can be very beneficial for you as you can lead a stress free life without any pressures of earning money for living. Your investment in income property will pay for your mortgage, insurance, food, holidays and so on.
Income from your property will increase with time because your rental income will also increase with time, but your expenses will remain the same. Eventually you will be able to repay your mortgage without using any of your own money and can earn even more from your property. Every year there is an increase in the rental, so you will become wealthier as you receive more passive income.
Income property offers you an added bonus by generating extra money for you through capital gains. With increase in the value of your investment property, your equity will also move up. You can easily realize this equity by selling your investment property or even by borrowing against it. This can be helpful as you can buy more investment property that can generate even more passive income for you. Analyzing income properties is an art as well as science. It comes automatically with time.
Here are the few important things that you should keep in mind about the income property analysis:
1. Numbers are important- The exact value of income property will depend upon the income that it can generate for you. If there is a nicely built commercial property, but it is not generating adequate income, it will not work for you. You should insist on the property that gives positive Net Operating Income to you.
2. Ascertain the market cap rates- Market cap rates are indicators of the value of any property. You should find the capitalization rates of similar properties in area that you are considering. You can get this information from a reputable broker or a commercial property appraiser.
3. Purchase the property again in 4, 8, and 20 years- You should imagine the situation when you will be buying the income property again in few years fro now. Will this area show positive results or will it decline? What kind of development work is going on in the area? Are there markets and other public conveniences nearby?
All these are great questions that you should ask yourself when doing some income property analysis. This will provide you with an idea whether you should move forward on a particular income property or not.