An Objective Approach to Value

 Buying with an objective eye when purchasing income property is essential. You cannot afford to fall in love with a property if it does not benefit you after you buy it. Always use a financial analysis on the property to determine whether you can afford to own the property you are interested in.  

The one method of analysis income property is to utilize a Gross Operating Income Statement.  This is a statement that will help determine a property’s net income after all expenses are paid.  If the property you are analyzing does not generate enough net income to pay the mortgage payments and generate some extra available cash flow than you should not buy it.

Be realistic when structuring and analyzing any debt.  Develop a debt service structure that can be satisfied by the property’s cash flow.  Determine a monthly mortgage payments with an amortization calculator or mortgage factor chart. Remember if the net operating  income does not cover the total debt service than you have a negative cash flow.  Negative cash flow means you will have to come up with the extra cash out of your pocket.  If this is the case, than you  must ask yourself as an investor  ”is it worth it” for me or more importantly, can I afford to supplement the investment each month  until  the property produces an income.

By taking a hard look at the gross operating income  statement and analyzing the property to see if it can service the debt, you can buy according to your individual needs and assets and know objectively if you can afford it!