| As you might imagine, becoming a landlord involves a bit more than just plunking down little plastic houses and waiting for someone to land on your square, a la Monopoly. If you overpay for your property, you'll have a hard time recouping your investment. When you pay too much, you'll immediately find yourself in a money-losing hole from which it could take years to recover. Even worse, you might never get back your money at all. First, do the math. The main factor to determine is whether you're overpaying for your property. Pay the right price and you'll see the benefits for years. On the flip side, if you're overpaying, not only will you never profit, but you'll actually start bleeding money as your costs outweigh your income. That's a scary thought. Luckily, finding out how much to spend when evaluating property requires using just two simple yardsticks. The first down-and-dirty metric to determine is something called the gross rent multiplier (GRM): Gross Rent Multiplier = (Selling price) / (Gross Annual Rental Income) When calculating your GRM, make sure that for your gross annual rental income you factor in not only what your tenants will be paying you, but any incidental money that you may receive, such as payments from vending machines, parking spaces and laundry facilities. Coin-op cash can go a long way. Although the GRM doesn't tell you much about an individual property, use it to compare several similar properties in the same area. Look for a smaller GRM in comparison. Here's a rule of thumb for evaluating an individual property: If your prospective property's selling price is more than seven times your gross annual rental income, you will end up losing money. Your income from the rental won't be enough for both your mortgage and your operating expenses. And forget assuming that by paying more as a down payment you can improve your cash flow. You'd be better off putting that extra money into safer investments such as Treasury bonds. The other yardstick to use is the capitalization rate: Capitalization Rate = (Net Operating Income) / (Total Investment) Determine your net operating income by subtracting your operating expenses from your prospective property's yearly gross income. Make sure that you count any costs you'll pay while you own the property - maintenance charges, insurance, utilities, property (but not income) taxes, etc. - in your operating expenses. It's crucial that you determine the capitalization rate on a given property because this will let you know how quickly a rental property investment will pay for itself. A property with a capitalization rate of 10% will take 10 years to pay for itself. It's a good idea to keep this rate at around 8%. When calculating your metrics to evaluate a property, make sure that your numbers are as accurate as possible. It's very common to be so excited about a potential real estate deal that you even lie to yourself to see the numbers you want. But that won't do you any favors. Also remember that your best bet for investing in rental estate is by purchasing multifamily houses or multi-unit apartment buildings. You'll get way more bang for your buck than you would from a single-family home or condo unit. As you can see, becoming a landlord could be the smartest, safest investment you ever make ... as long as you follow my simple guidelines There's ANOTHER way to generate gains… Maybe buying rental property just isn't your thing. Or maybe you're intrigued by the idea, but still want addition sources of income. Consider the booming marijuana industry. | 
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