Just what makes a "good" real estate investment?
A “good real estate investment” can mean different things to different people. But, when you're talking money at least, you're looking for a reasonable return on the money you put up.
What that means is that if you're going to put your cash (which includes your down payment and closing costs as well as reno expenses) into real estate, your net worth should improve by a greater amount than if you invested in a similarly risky asset, says Leonard Baron, author of Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate.
And simply hoping that markets will go up and up doesn't always work out, he caustions.
For example, if your property rental income minus expenses produced $250 per month positive ($3,000 per year); and your invested cash equity was $50,000, that’s a cash on cash return of 6.00% ($3,000/$50,000) and you'd be doing pretty well.
If the net rental income is very low compared to the purchase price, however, you run the risk of negative cash on cash returns over time. Even if it appreciates 2% per year, you're typically just breaking even or worse ... not a deal most experienced investors would take, he declares.
When it comes real estate, do you crunch the numbers this way? Or are you just hoping that price appreciation over time will do the job? Or is it the tax breaks that appeal to you?
By Gordon Powers, MSN Money