Are you ready to turn the "bear" stock market into a personal win for your real estate career? If so, learning the ins and outs of real estate investment can open up a whole new way to increase your profits in 2001. To take advantage of this great opportunity, you need to know the types of investments, how to quickly evaluate an investment, as well as where to find potential investment clients. What are the different types of real estate investments? What are some quick guidelines for analyzing investment property?

The types of income-producing real estate investments fall into four broad categories:

• 1-4 units: Lenders treat these properties the same as a "single family residence." In other words, they look at the borrower's ability to pay rather than looking at the property's ability to cover expenses. Lenders will often loan up to 90% on many 1-4 unit properties, especially if the property will be owner occupied. In addition to conventional financing, buyers can also often obtain VA, FHA, and/or HUD financing.

• 5 or more units: Lenders treat these properties entirely differently. First, many lenders simply don't make loans on this type of investment. Before showing 5+ units to prospective buyers, make sure you can obtain financing. Some lenders will loan on 16+ units and will not loan on 5-15 units. Others, will loan up to 8 or 10 units. Second, the lender will look to the building first and then to the borrower to make the payments. What this means is that the income from the building needs to be high enough to cover all expenses including loan amortization, taxes, insurance, utilities, maintenance, and vacancy. As a rule of thumb, lenders will generally loan about 60% of the property's value, but this number can vary dramatically based upon the income and condition of the property.

• Commercial Properties: These properties are generally rented to businesses. Commercial properties are often leased "Triple Net." What this means is that the lessee (not the owner/lessor) pays not only rent, but utilities and taxes as well. Commercial financing is much more difficult to locate. Also, due to the many complex Federal and State regulations on commercial properties, it's usually better to take the referral fee and give the lead to a commercial broker. Without adequate knowledge of these requirements, you ignorance can cost your unsuspecting buyer tens of thousands of dollars.

• Business Opportunities: This is a niche market that requires extraordinary attention to detail and is simply not appropriate for most residential brokers. Not only do you have to address "the books and inventory," you also have to worry about state sales tax, income tax, etc. Although the commissions are higher, the extra work simply isn't worth it.

Evaluating Investments: Quick Guidelines

Before you work with an investment client, you need to know what type of investment property they want. If the property is to be a home with some additional income units, you may be more concerned with the property's amenities rather than the income. Most sophisticated investors are looking for at least "10% cash on cash." In other words, if they buy a property for $100,000 and pay cash, they expect the property to return a minimum of $10,000 a year in profit. Thus, the income must cover the amortization, taxes, insurance, utilities, maintenance, and vacancy and still have $10,000 left over.

Some investors are happy with "break even" properties. These people look at the property like an annuity—i.e. it pretty much pays for itself over the years they own it and then will produce additional income when they retire the debt. As a rule of thumb, 25% down, 10% annual interest, and 10 X gross, "breaks even." 10 X gross means you take the gross annual income, prior to expenses, and multiply it by 10—this is the price of the property.

Where to find investment clients?

Begin by checking local tax records to see who owns multiple unit properties. Design a marketing campaign to reach these individuals for potential listings. Another excellent source is tracking rented single family residences. Often times absentee owners have a change of circumstance that causes them to list their rental properties for sale. Also, close knit families often are eager to be in the same neighborhood together. For example, 2 brothers may only be able to afford a $80,000 house each in an area where the homes sell for $120,000. Yet, they can take that same $160,000 and buyer a duplex or a triplex. Conducting a first time buyer's seminar is a great way to locate potential buyers for both single family as well as residential income property.