Return on investment (ROI) is a term you hear frequently, usually in relation to business and finance. The goal is to maximize return on the money you invest. Return on investment is a popular metric because it is versatile and simple to use. If an investment does not have a positive ROI or if there are alternative investment opportunities with a higher ROI, the investment should not be undertaken. Return on investment is used in our situation to describe the monetary gain made by investing in some type of investment property. There are a variety of properties that can be used to gain a reasonable return on investment.

Return on investment isn’t necessarily the same as profit. ROI deals with the money you invest in the property and the return you realize on that money based on the net profit coming from the rent.

Real estate Investing is a serious endeavor. In a market climate that favors buyers, it’s tempting to jump in the wagon of real estate investors and join in the hunt for the best property. Potential investors must realize that the search will probably be long and hard to acquire the property most suited to their investment needs. To generate positive ROI, numerous offers will be made to sellers with most being objected, but the goal is to buy the investment property at a wholesale price, not asking.

Real estate markets around the world are experiencing challenges related to a property cycle slump. But with these challenges come the opportunities of a lifetime for investors who have clear understanding of finding the proverbial “diamonds in the rough”.

Selling a property will likely be a taxable event, so it’s important to be prepared with a strategy for this. Do you have an accountant, financial planner, and/or lawyer in place? Sellers expect to be negotiated down a little and they add that to the asking price in most cases, so smart investors should know to set their first offer BELOW what they are hoping to pay.

Return on a secure investment can be determined, but to do so, one must get the big picture and then drill down to the minutest detail. Remember, owning property will usually involve investing a large chunk of money, so best to check everything up front to avoid problems in the future. A simple example of ROI is say we invest 100 dollars in stock and we would be happy with a 15% ROI in the following year we would have $115, meaning the ROI was $15.

Costs and ROI present three effective calculations: the benefit-cost ratio, the ROI percentage, and the payback period. Costs and ROI include all the challenges and concerns regarding the use of ROI. Costs divided by monthly benefits yield the number of months to the initial payback.

Capital gains taxes become lower, if you hold an investment for more than one year. So if you are in the 35% tax bracket, you pay the same percentage tax on an investment, if you hold it less than a year, but if you hold it for more than a year, your capital gains tax is only 15%. Capital recovery horizon is the time that a project will need to generate enough benefits to recover the original investment. This is an often forgot cost in calculating the ROI of an investment property, so attention to detail must be maintained even until the property is sold.

In these days and times, there are many instances of people taking loans to buy property and being unable to pay back the mortgage. This is where the lenders are left with properties that they have to re-possess from the defaulting buyers and then sell it through a loss mitigation department. These repossessed properties are known as REO properties and cannot be auctioned openly on account of which these are sold at rates much lower than market rates. Given the vast selection and choice available, investors can have a gala time looking at acquiring such investment property.

While REO properties could be rather cheap, they are not for everyone as they are not sold in the open market through auctions. By definition, REO properties lack equity and also come with some built-in risks especially when one is buying a investment property in ‘as-is’ condition. Most lenders who are stuck with re-possessed property would be interested in getting rid of the property as soon as possible in order to recover part of the costs that remains sunk in the property. Similarly, lenders are not interested in paying management costs which means that they are willing to sell the properties at prices that are way below market rates.

REO properties are sent to the bank and generally do not carry a mortgage on them any longer. They are foreclosed in nature, but cannot be sold at an auction. These do not have any disclosure purposes that make them sticky as also the fact that they do not have liability releases too. While these are listed for sale with real estate agents, in most cases the fact that the lender has no clue about the home releases the person from all liability. The recession has hammered away at the prices of these properties and ensured that these are being sold at very reasonable and sometimes unbelievably low rates.

Banks have a responsibility of the upkeep of REO properties and are a drain on the finances of the back. This is one of the main reasons as to why banks are willing to sell them in as ‘as-is’ condition with the requirement that one thoroughly inspect the property to know the rehabilitation costs. It is true that for every single day that a property lies vacant, the bank has to spend on it, not to mention the opportunity costs involved.

Lenders are willing to set up special agreements for a buyer’s interest to purchase a ‘package’ of REO’s rather than a single property. Lenders have no interest in owning property, and thus usually opt to list their REO properties with a local real estate broker in hopes of a retail sale. Yet with increasing frequency, REO properties are being sold for pennies or dimes on the dollar.

Buyers attempting to buy foreclosed properties will need to understand a few basic principals, because the competition on a well-priced REO can be intense. A well-priced REO will draw multiple offers and your competition may well include professional investors. Buyers can either opt for direct loans or guaranteed loans here. Direct loans are funded directly by the government under its rural housing plan. Buyers are required to pay in cash at the auction and they have little chance to inspect the investment property before purchase, so REO becomes a better option. However the public auction presents the opportunity of some of the best bargains and saves you the trouble of dealing directly with the lender, jumping through their hoops.

Owner financing occurs when the owner of a property is willing to hold a note on a piece of investment property that he/she wants to sell. The financing can be for the price of the property in full or a part of it. This is based on the need of the buyer. In the normal course, most sellers would not like to carry a mortgage. But the eagerness to sell the property without much delay as well as preventing a fall in property value often compels sellers to offer owner financing to lure customers. Consider this a Beginners Guide to Investing of sorts.

There is no rule or restriction that owner financing be limited only to traditional residential investment property. Indeed, a vast host of property types including land and real estate, commercial property and what have you. Some of the conditions under which owner financing may be concerned include situations when the property is not moving fast in the market or if it is in a rather dilapidated condition. Owner financing is the process where the owner extends credit to the buyer without the intervention or involvement of banks or financial institutions. It has been observed empirically that owner financing is more common among investors as compared to homeowners.

As far as interest rates applicable are concerned, these are generally 1.5% to 2.5% over the prime rate which in turn is set by the financial institutions. While interest rates vary with the institution, one can nullify the need for research to get lower rates as many sellers give at a percentage or more below the prime rate. Zero financing is also not heard of on some investment property gems.

If you want to sell off your investment fast and also get a high rate for it, it makes sense to offer owner financing. You may also be able to get first mover advantage and better prices as owner financing makes your investment property much more attractive to prospective buyers. At the same time, it could also mean that your property is one of the first ones to get sold in the local property market. All of which makes owner financing a very advisable and popular proposition in times like these.

Interest rates on investment property are variable, based upon the Prime rate, with spreads set by financial institutions. Typical spreads are 1.50% to 2.50% over prime, with lower rates to investors with stronger historic debt service coverage. Interest rates of these institutions vary. For getting lower rate, some research work becomes inevitable. Owner financing eliminates this research, as most sellers will agree to a percentage point or more below prime, with a few cases setting up zero interest financing.

Offering a prospective home buyer seller financing is a great way to sell a home. You typically get top dollar and sell the home much faster. Offering terms generates a lot more buyers looking at investment property, and can sometimes make the difference of being the first to sell a property in particular neighborhoods.