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If you’re serious about building wealth through real estate, today’s episode is a must-watch. We’re breaking down the essential terms every real estate investor needs to know!

Before you make your first investment, you need to understand how to measure profitability, assess property value, and manage risk. These foundational terms are the blueprint for success.

Cash Flow. This is the net income your property generates after covering all expenses and mortgage payments.
Cash Flow = Rental Income – Operating Expenses – Mortgage Payments
✅ Positive cash flow means you’re earning money every month.
❌ Negative cash flow? That’s a sign your investment is costing you more than it’s making.

Return on Investment (ROI). It shows how profitable your investment really is.
ROI = (Net Profit / Initial Investment) x 100

Evaluating Profitability
Equity. The difference between your property’s market value and your remaining mortgage balance.
Equity = Property Value – Mortgage Balance
✅ Your equity grows as the property appreciates or as you pay down the mortgage, helping finance future investments.

Capitalization Rate (Cap Rate). Helps you evaluate a property’s return based on its income potential.
Cap Rate = (Net Operating Income / Property Value) x 100
🏡 Example: A property earning $50,000 in NOI and valued at $500,000 has a 10% Cap Rate.

Net Operating Income (NOI). Your income after operating expenses but before mortgage payments and taxes.
NOI = Gross Income – Operating Expenses

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Understanding Leverage and Risk
Leverage. Using borrowed money to purchase a property.
✅ Leverage helps you control larger properties with less of your own money but increases financial risk.

That’s why the Loan-to-Value Ratio (LTV) is important.
LTV = (Loan Amount / Property Value) x 100
🏡 Example: Borrowing $160,000 on a $200,000 property equals an 80% LTV. The higher the LTV, the more risk.

Debt-to-Income Ratio (DTI). Lenders use this to evaluate if you can handle more debt.

Looking for a hands-off investment? Consider Real Estate Investment Trusts (REITs)—they let you invest in real estate without becoming a landlord.

1031 Exchange. This strategy lets you defer capital gains taxes when you reinvest profits into a similar property.
✅ It’s a powerful tool for building wealth tax-efficiently.

CapEx. Major property upgrades like new roofs or HVAC systems.
CapEx = Major Property Repairs/Upgrades
✅ You need to budget for these big expenses.

Managing Vacancy Rates is also key. High vacancies drain your cash flow and hurt profitability.

🏡 Buy-and-Hold for long-term gains or Flipping for quick profits—choose your strategy wisely!

📢 So, make sure to like, subscribe, share, and drop a comment below. Tell us what topics you want to hear next!

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