Buying an investment property can be a surefire way to build long-term wealth. But so many people don’t move forward because they aren’t sure how to choose the right property, aren’t sure what expenses they will have, are not sure about the tax implications, and are not even sure about how the investment will pay off. There are a few different ways you can analyze a property’s potential and we would be happy to sit down with you and explain more if this gets you thinking! 

Appreciation

How much is that property going to be worth in one year, five years, ten years or more? Let’s say that an investor wants to buy a property worth $400,000 and he or she puts down $100,000 (or 25%). The appreciation gained is on the whole property, not just 25% that the investor owns. If that investment appreciates at 5% per year, in five years, it will be worth $513,343 and the investor will have gained $113,343 on their initial $100,000 investment.

Cash Flow

 Each property will have income and expenses. Income includes rent while expenses include any utilities paid by the owner, property taxes, HOA or condo association dues, insurance, and property management fees (if the owner is not managing on his or her own). Some people include “debt service” (mortgage payment) in expenses and some don’t. Repairs and maintenance should also be part of this equation.  

Cap Rate

Cap rate is a tool that investors use to determine how quickly they can expect a return on their investment. It is calculated by dividing the net operating income by the value of the property. 

Multi-Use for Multi-Benefits

When choosing an investment, we encourage investors to think about not only how the property can be used today, but what about tomorrow? Can you move into it if need be? Do you want to vacation there? Is this somewhere your kids could live one day? Would you want to retire there? Think of all the different angles and we can help you analyze whether it makes sense for your entire life’s big picture. It’s more than dollars and cents!  There may also be more creative options for financing depending on use. Let’s strategize! 

Assembling Your Team 

It’s not just about finding the property. It is about choosing your team of professionals from property managers to contractors who can work on-demand to accountants who truly understand how to make the tax advantages of an investment property work for you. We can help you build your team so you can invest with confidence.  

There are other ways as well to evaluate an investment property. Don’t let opportunity to build your investment portfolio pass you by. Download my Guide to Buying Investment Property and set up a free consultation.