Calculating the Value of Investment Property
For many, investing is an emotional business. If you doubt it, just watch what happens to the stock market after events such as 9/11. A terrorist attack did not suddenly decrease the value of the thousands of companies, yet people sold off their holdings for less than the stock was truly worth. Investing in real estate is no different. People purchase investment property for all sorts of reasons, but few understand the numbers that make the purchase a good investment. Terms such as Cap Rate, Cash on Cash, ROI, ROE, Cash Flow, NOI, depreciation, appreciation, and amortization can give you a headache. However, without understanding how the numbers affect your bottom line, you most likely are headed for heartache.
We have put together an Investment Calculator to make it easier to calculate your true return on investment. The Calculator should be used before investing in a new property. You make money when you buy the property. A property that is not purchased correctly, will most likely never make the investor money. Sure, you can get lucky. Even a broken clock is right twice a day.
The Investment Calculator can also be used for evaluating properties you already own. Because depreciation decreases and equity increases each year you should run the numbers once a year on each investment property you own to determine if it is still a good investment, or if you should exchange the existing property for one with a better return.