Because buying a piece of real estate as an investment is all about making money, you want to get into a
number crunching mindset from beginning to end.
An investment property offers two opportunities for direct financial gain: rent collected that can
provide ongoing income, and appreciation of equity that can result in a sizable profit when the
property is sold. Choose the right property, and your investment can yield both, income and equity
over the long term.
The main advantage of buying real estate as an investment over buying other investments, such as stocks, is
leverage. Relatively speaking, you can buy an investment property with a relatively small amount of
out-of-pocket money. For example, if you wanted to buy $100,000 of stock, you would need $100,000.
If you want to buy $100,000 of real estate, all you would need is 20 percent down, or $20,000.
That’s leverage. (There may be circumstances when you can purchase a home with even less than 20 percent
down. Ask your Realtor.)
Evaluating the investment potential of a property is all about the numbers.
Basically, the goal is to estimate the monthly mortgage payments, maintenance fees, taxes and insurance and
determine if those expenses can all be covered with that income the unit or home provides in rent. If there
is money left over after all the expenses are paid, that is a positive cash flow. If there isn’t enough
money from the rent to pay all the expenses, that is a negative cash flow.
To get a realistic idea of potential rental income for a neighborhood, check the For Rent section of
the local newspaper or CraigsList.
Consider if the property needs to be repaired or renovated before a tenant can move in, how much the
monthly maintenance fee is (if there is one), or how much utilities, taxes and upkeep will deduct
from the bottom line. Ask your Prudential Locations agent help you with this.
Remember, the same tried and true strategies that got you through the process when you purchased
your primary residence, apply when you’re considering an investment property. Know how much you can
afford to spend. Get pre-qualified first.
Finding a good rental property is the key to making a good investment. And your Prudential Locations
agent can help you do the homework, crunch the numbers and evaluate the findings. Our real estate
professionals have built a business around educating clients on market conditions and strategy —
they know what works and can share with you what other investors are doing.
Our agents are licensed by the state of Hawaii and are members of the Honolulu Board of Realtors and
the National Association of Realtors, adhering to strict guidelines on business ethics and a code of
conduct. In addition, they are highly trained in the subjects of first-time home buying, investing,
foreclosures, financing, and rely on the company’s Research Division to continually track sales and
trends around the island. They have many tools at their disposal that are not commonly available.
Investing in real estate does not mean throwing your money willy-nilly at any deal that comes your
way and waiting for the cash to come rolling in.
If, however, you want to become a serious investor, there is a method to the madness that will
allow you to understand how to make good real estate investments — no matter what the market
is doing. Talk to your Prudential Locations agent who can help
you create a customized plan of action.
This site was designed to introduce to you some of the basics about investing in real estate, answer
some of your questions, and serve as a resource for you to learn about 1031 exchanges, criteria
used to evaluate a good investment, the benefits of using a property manager as well as tips and
common mistakes made. There is even an article in the Related Content on how you can use your IRA or
401k to buy real estate.
Buying real property as an investment is a growing trend and provides a way to diversify your