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The specific measure of a property's profitability depends on who is doing the analysis. How do you get beyond the hype being spouted by the sellers or their agents? Sometimes you get the same hype from your own agents, especially if they are more concerned with closing a purchase (and collecting their commission) than they are with forging a long-term relationship with you.

For lenders, the bottom line often focuses on the Debt Service Ratio (DSR). With larger investors, the focus is normally on the anticipated return on investment (ROI) and the capitalization rate. If you are serious about real estate investing, you must understand the key financial and analysis terms involved with real estate investments.

Fortunately, they're not difficult to understand. They are, in many ways, common sense. These terms are not accidental concepts. They were developed as a way to gauge the subject property's chances for success. Many beginning and novice real estate investors feel overwhelmed when these terms and figures are thrown at them. To avoid that feeling, you need to recognize and understand the following concepts:


Operatinq expenses


Carrying costs


Net operatinq income


Debt service ratio


Capitalization rate


Return on investment


Development market's cycle

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