Analyzing Rental Property Investments
Analyzing a rental property investment is the thing I want to talk about next. And I will say at the very start that there are a couple of reasonable ways to do this.
In the paragraphs that follow, I describe a method that everyone can use, the income capitalization rate. But there's another, even better way to analyze real estate investments-and that way is by using a discounted cash flow analysis that calculates very precisely how good (or bad) a potential real estate investment really is.
Note: I describe how to do discounted cash flow analysis in "Appendix A, Using Discounted Cash Flow Analysis for Real Estate Investments" of the ebook (available for download for $10.95) and also provide a Microsoft Excel workbook with the e-book download which you will need to do the discounted cash flow analysis.
But back the discussion of the simpler analytical approach, the income capitalization rate...
With an income capitalization rate, you estimate the net income generated by a property, express this net income as a percentage of the property value, and then adjust for expected appreciation. This sounds complicated, but let's break the process down into five steps to show you how this all works:
- Step 1: Estimating Net Income of Short Sale Investment
- Step 2: Calculating Short Sale Property's Value
- Step 3: Estimating Cap Rate of Property
- Step 4: Determine Overall Property Rate of Return
- Step 5: Assessing Effect of Financial Leverage
Additional Information for Shortsale Investors
If you want additional information about how tax laws work for a short sale investment or for an individual running a business based on short sale investing, you may also be interested in one of my downloadable e-books shown below:
Tax laws provide active real estate investors with giant tax planning loopholes. A little upfront planning on your part could save you thousands a year...Read More
One of the most powerful tactics for saving small business taxes is maximizing your deductions. You can literally save thousands in taxes each year.Read More
Using an S corp for your real estate investing? To maximize savings, you need to minimize the salary paid to shareholders. But this decision is tricky.Read More