People love to complicate things. Especially the gurus. After all, they do have two hours to fill when they are trying to convince you to purchase their book and tape systems. Knowing your investment property has profit potential is very important. Measuring it against every other property within a 20 mile radius, isn’t.
- Cash Flow Before Taxes
- Principal Reduction
- Depreciation
- Appreciation
You hear about cap rates and gross rent multipliers and internal rates of return and the list goes on. But figuring your total rate of return doesn’t have to be rocket science.
Figure your 4 Benefits and their total revenue and divide that by the amount of cash you have invested. There is your return. Then you can compare property to property.
Or, you can do what I hear so many of you do. Put down as little as you can on the purchase and trust that the rents will cover the house payment along with escrows. If that works then buy it! (Not necessarily the strategy I recommend. But it beats not doing anything at all. So long as it works out…)
BBQ Capital | Kansas City Real Estate Investing 