Now more than ever, it is critical to understand and analyze your financial liabilities prior to real estate investing.  The process of real estate investing in rental property can be exciting, but it is imperative to project some groundwork numbers to help ensure that you have a winning investment.

Here are some key concepts to consider:

*Carefully inspect the property and the surrounding area.  Run comparisons for both price point and rental rates.  If the home has served as a rental, do your due diligence and find out the rental history.  This can be a great tool to project future value of a property.

*Know your financing.  What are the current mortgage rates for investors?  What type of mortgage product is in the market place and does it work for your strategy?

*Taxes are a key component.  It is safe to assume that property taxes will rise each year.  Research the last five tax years to project the annual percentage increase, so that you can add this into your analysis.

*How much will this property cost you if it is vacant?  How long can you tolerate a vacancy and what would be your exit strategy if necessary?  What is your risk tolerance level?

*What costs can you project to incur when you have renter turnover?

*What reserves are you holding back for repairs?  I strongly advise have a home warranty protection in place along with a reserve fund.

*Hire a qualified, licensed home inspector to evaluate the property during the due diligence phase of your purchase.  The home inspection and the home warranty protection can save you a significant amount of money over the long term.  Knowing the potential problems prior to purchase is another key element…knowledge is power.

*Know your insurance costs.  Have your insurance agent run a report for claims against the property.

*Research and project utility costs.  If you are new to an area, you need to know these costs and understand how they fit into the profile of what is included in a rental agreement.  Does the landlord or the tenant pay?

*Interview 2-3 property management companies.  Know their fee structure.  Do they only charge monthly, or are there fees for move-out…move-in?  Do they mark-up the repair bill?  How do they handle the paperwork?  Do you get monthly statements or is there a web portal where you can see everything in real time?

*Make sure that you keep accurate records.  Keep a projected balance sheet.  Watch your costs and revenue.  If you plan to keep your rental properties in a separate entity (an intelligent move), get this entity set up first.  Discuss this with your legal adviser on the best strategy for liability and tax protection.

Real estate investing can be a profitable and exciting venture.  If you are investing for the long term, now is a fantastic time with interest rates at record lows and property values having dropped significantly.  Know your real and projected costs…know your projected revenue.  Make empowering decisions and stick to your strategy.