Mastering Real Estate Math - Secret To Your Success In Property Investing
You have to understand the logic of real estate math to make money in real estate. You will struggle if you do take the trouble of understanding the numbers. Even if you rely of a good software program to analyse your deals you have to become familiar not only with the vocabulary but how the calculations are made.
Robert Kiyosaki of Rich Dad, Poor Dad fame rightly put it, “The numbers tell a story”. He is absolutely correct in that assessment, but the million dollar question is ‘Do You Understand the Story of the numbers behind an investment property?
You have to constantly educate yourself on the basics of analysing investment properties even if you are not in a position to buy at present. You will be surprised to know that a large number of so called investors can not crunch the numbers. It is of paramount importance that you learn how to do it.
Some of the vocabulary that you should familiarize your self with is listed below. Please also click on each link to see how the real estate math works.
- Net Operating Income (NOI)
- Debt Service
- Cash Flow
- Cash-on-Cash Return
- Capitalization Rate (Cap Rate)
Once you fully understand and internalize the real estate numbers you will be in a position to make use of real estate investment software effectively.
Why you need a real estate calculator or software even though you have mastered the real estate maths is primarily because you will need to compare numerous investment properties to decide which is the most suitable for you. It will be very tedious for you to make all the calculations and input the data on spread sheet to make a comparison. Even if one parameter changes you will need to do all the calculations all over again.
A good real estate investment software will instantaneously produce results as soon as you have input the data. You may like to alter input parameters to study the investment from a different perspective.
However it must be understood that software’s are only as good as your inputs into them. I am sure you have heard the term ‘ Garbage In Garbage Out.’ You have to feed accurate data to get good analytical results. You have to research the data and be dispassionate when analysing it. Therefore understanding the real estate math behind the software calculations is essential to your success in real estate investing.
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