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5 Mistakes in Real Estate Investing

March 30, 2009

by Anne Lackey

As a real estate investor, you likely have visions of a life filled with easy income and plenty of free time for travel and leisure. Although real estate investing can certainly bring you wealth and a lifestyle most people only dream of, you need to be aware of common mistakes made by new investors. Being aware of these errors can help you avoid them, and build a profitable investing business that will support the lifestyle you desire.

The single biggest mistake made by new real estate investors is lack of planning. Many new investors fail to develop a long term strategy, instead choosing to plan as they go along. Without a clearly defined set of goals and a detailed plan for achieving them, you will likely make investment decisions that are not optimal for long term profitability. The properties you choose for purchase should fit your investment strategy, not the other way around.

The second mistake make by many investors is failing to properly account for cash flow. While you are the owner of an investment property, you are responsible for not only the mortgage payment, but also the property taxes, insurance, maintenance, association dues, and other expenses that come with owning that home or apartment building. If you find that your rental income is not covering your expenses, you may find it difficult to raise your rent without losing tenants. If you are renovating a home for resale, the property may sit on the market for several months before you locate a qualified buyer. Make sure that you have adequate cash flow to cover expenses during this period.

A third common mistake new real estate investors make is planning for only one exit strategy. If you buy a property with the intention of renovating and selling it, you will need to develop another exit plan if the house doesn’t sell. You could rent the house out until market conditions improve, or offer a buyer a lease-purchase option. Your back up strategies might be less than ideal, but they can keep you from losing money on your investments.

The fourth common mistake is thinking that real estate investing is a ticket to fast wealth. Unless you realize from the beginning that investing takes hard work, patience, and a long term plan, you are likely to become discouraged and give up before you start seeing the kinds of profits that will allow you to live a life of freedom.

Finally, the fifth mistake made by many new investors is deciding you can handle all of the aspects of investing yourself. It’s impossible to be an expert at every facet of real estate investing, so a smart investor will develop a “team” of professionals, such as an attorney, an accountant, property manager, a real estate agent, and several remodeling and maintenance professionals. This will ensure that all aspects of your business are handled correctly, and free up your time so you can continue to develop your real estate empire and long term wealth.

If you are interested in getting started in real estate investing and are interested in Georgia properties, we would appreciate the opportunity to serve you. Find out more about us at http://www.AtlantaHousingSource.com.

About the Author

Anne knows Atlanta and the Gwinnett County real estate market. She works with first time buyers and families wanting to move up to a larger home or down size. She has helped hundreds of people with their housing solutions. For more information go to http://www.AtlantaHousingSource.com

Filed Under: articles

The Difference Between USA and Canadian Mortgages

March 24, 2009

The major difference between how mortgages are calculated in the US and Canada rests solely on the way compound interest is calculated.

To understand the difference between US and Canadian mortgages, however, we should start at the beginning.

Compound Interest

The underlying assumption of compound interest is that interest is earned on interest. Therefore, with compound interest you apply the interest rate to the original principal as well as to all accumulated interest. This is different from simple interest, where the interest rate is applied only to the original principal amount.

Hence, the higher the compounding rate and the more frequent the compounding (known as the compound period), the larger the resulting mortgage payment.

For example, assume a loan amount of $100,000 at 7.00% interest rate amortized over 25 years. The monthly mortgage payment is $706.78 when compounded monthly and $700.42 when compounded semi-annually. As you can see, the payment is higher when the compound period is monthly rather than semi-annually because monthly compounding is clearly more frequent than semi-annual compounding.

Okay, let’s consider the difference between US and Canadian mortgages.

Mortgages in the United States are compounded monthly whereas mortgages in Canada are compounded semi-annually. This means that monthly mortgage payments on identical loans are higher in the United States than they are in Canada because the number of compounding periods per year is higher (as our example above reveals).

The Formula

To calculate the mortgage payment in either country correctly, you must first calculate the interest rate per payment. Here’s the formula:

((1+interest rate/compound period)^(compound period/periods per year))-1

For example, assume an annual interest rate of 7.0%, and twelve periods per year. The calculation for the interest rate per payment for semi-annual compounding (as in Canada) is:

((1+0.07/2)^(2/12))-1 = 0.575%

The calculation for the interest rate per payment for monthly compounding (as in the USA) is:

((1+0.07/12)^(12/12))-1 = 0.583%

Are you able to see the difference? With semi-annual compounding, the compound period is 2 (twice annually) whereas with monthly compounding the compound period is 12 (twelve times annually).

Okay, now let’s calculate each country’s loan payment where:

rate = interest rate per month (0.575% or 0.583%)
loan amount = $100,000
nper = total number of payments for the loan (300, or 25×12)

Formula: -PMT(rate,nper,loan amount)

Canada: -PMT(.00575,300,100000) = $700.42
USA: -PMT(.00583,300,100000) = $706.78

How to Make the Calculation

There are several ways to compute mortgage payment. You can use a mortgage calculator, a spreadsheet program like Excel, or in some cases, real estate investment software.

Whatever method you use, though, hopefully by knowing the difference between how mortgages are treated here in the United States versus those in Canada, as well as how to compute them, you will get the results you desire.

Filed Under: analysis

ProAPOD Releases Canadian-version Real Estate Investment Software

March 23, 2009

Although ProAPOD has been a leading real estate investment software provider to real estate agents and investors since 2000, it has not had (until now) a “Canadian-friendly” version of its software. ProAPOD 6.0 has just been updated and now includes “semi-annual” compounding (the compounding period used to calculate loan payments in Canada).

The main difference between a US and Canadian mortgage is the compound period. Whereas the compound period for US mortgages are monthly, Canadian mortgages are semi-annual. This difference results in a slightly lower monthly mortgage payment for Canadians.

Take for example, a loan amount of $100,000 at 7.00% interest rate amortized over 25 years. The monthly mortgage payment is $706.78 when compounded monthly (as in US mortgages), and $700.42 when compounded semi-annually (as in Canadian mortgages).

How it Works in the Software

After the user opens the V.6.0 real estate investment software, he or she simply opens the loan form and under the heading Type of Compounding, selects either “Monthly (USA)” or “Semi-annually (Canada)“. ProAPOD does the rest. All the monthly and annual mortgage payment calculations used throughout the real estate analysis from that point forward reflects the compounding period selected by the user.

About ProAPOD 6.0

This is our real estate investment software solution for residential agents looking to service multifamily property occasionally, as secondary part of their business, with less effort devoted to commercial real estate. This flagship solution provides everything agents require to make rock-solid buyer and seller presentations, including a wide range of essential calculations, crucial rates of return, printable reports, and outstanding time-saving features, but without the consideration for the elements of tax shelter.

At just $149.95, it is the ideal software for real estate agents-both in the US and in Canada-who want to make rock-solid buyer and seller presentations but do not plan to service more than two or three investment real estate transactions a year.

Filed Under: software insights Tagged With:
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