Making Money In Real Estate Investing: How To Calculate Profit

By: Chris Thomas1

There are many things that can affect your profit margin when investing in real estate. Being knowledgeable about all aspects of making money in real estate and learning to recognize all of the costs that you could incur with any given real estate investment will help you to choose good investment properties and avoid those that are more trouble than they are worth.

By now you probably already know how to calculate how much gross profit a property can potentially earn. To do this all you have to do is take the market value of the home and subtract your purchase price to see how much profit the property could potentially make you. But this is only a skeleton glimpse into the potential of the property, making money in real estate requires that you know every hidden cost, no matter how small, that could reduce your profit margin.

Some of the most obvious costs to flipping a property and making money in real estate include any repairs and remodeling that need done to the house before you can resell it. Make sure that you account for every repair. Get estimates and price supplies. Don't guess. Attention to detail will make it more likely that you will be to stay on budget during the construction phase of your project. Oh, and don't forget about building permit fees.

You will also need to account for any liens that you will inherit with the property. Liens can include arrearages in property taxes or any other bill that has been attached to the property for collection purposes. Being able to find these hidden costs is key to making money in real estate.

Carrying costs will also need to be subtracted from the gross profit potential of the investment. These include any taxes, loan payments, interest payments, and insurance costs that you will have to pay while you own the property. These costs will continue to mount as long as you hold the property. That is why it is very important to move a property quickly when making money in real estate.

You will also need to take into account inspection fees, brokerage commissions, legal fees, and advertising costs that you will have to cover when it comes time to sell the property. Include everything that you can think of. This will help you avoid any hidden costs and give you a clearer picture of what you stand to earn on each and every property investment that you make.

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