Gross income is the total amount of money the property will bring in in a year, including rent, laundry income, garage rentals, vending sales, and anything else. This is often referred to as the “gross scheduled income” or GSI.

Although determining the GSI should be a pretty straightforward matter, one issue sometimes arises when the current owner has underrented some or all of the units. This is a surprisingly common issue with smaller units, for many passive investors get happy with a certain, reliable level of profit and don’t want to risk rocking the boat by attempting to raise rents.

How is this issue handled? Typically, appraisers will make an allowance for market rents, while bankers don’t; and investors look for underrented properties, for they can mean lower sales prices but potentially higher profits down the road.

While in general we have a lot of control over our assets, we have relatively little control over our liabilities. In many parts of the world, it is impossible to fix the interest rate on your mortgage for more than a handful of years. Where you can, make sure you fix the interest rate!

One of the huge advantages of the real estate market in the United States relative to many other countries is that it is possible to obtain mortgages—even 30-year mortgages—where the interest rate is fixed. I am astounded at the number of investors who choose not to fix the rate. For the sake of perhaps a 0.5 percent lower initial interest rate, they are willing to risk interest rates going through the roof in the future. It is a folly not only committed by legions of otherwise sane investors, but also aided and abetted by armies of mortgage brokers who no doubt get a better commission on loans that turn out to be more lucrative for the banks.

Furthermore, you should avoid any requirement for a personal guarantee on any real estate loans. The reasons are twofold.

First, a real estate investment should stand up on its own two feet. The risk of having a personal guarantee is that it may be called up, and you would be forced to pay off principal on a loan taken out by an entity with limited liability. Signing a personal guarantee, of course, breaks this liability fire wall.

The second reason why you should avoid any personal guarantees is that when you apply for future loans, banks will often ask for a list of your contingent liabilities—these are liabilities that may end up on your shoulders. The more items in this list, the more reluctant a bank will be to lend you any money.