Appreciation/Rates of Return
The fourth financial benefit of owning rental property is appreciation. Over the long term, a good investment property can be expected to increase in value. But be very careful here.
Many people, who call themselves property investors, have been burned by buying property that makes no financial sense (i.e.: negative cash flow, adjustable rate loans, etc.). They’re gambling on the property going up in value in the future.
If you’re counting only on appreciation in value to make your rental property a success, you are not investing in real estate . . . you are speculating in real estate. An investor buys a business that makes economic sense. A speculator doesn’t bother to take into account cash flow, principal reduction, tax savings, vacancy rates, depreciation rules, tax brackets, and so on. They simply count on the property going up in value to rescue the deal.
But if your property doesn’t make financial sense, how is it going to appreciate in value? In order to make money you’d have to find a buyer who’s even dumber than you are . . . who has money . . . and that’s hard to do!
So, bottom line, be sure to use the INVESTMENT PROPERTY WORKSHEET® to analyze each of the four financial benefits before buying the property. Use realistic, conservative data. Then summarize benefits to calculate the rate of return on your investment.
If the property makes no economic sense, then don’t buy it. It’s as important to know what not to buy as what to buy. The Worksheet will help you recognize the difference.
Let’s rejoin the seminar to learn more about appreciation and rate of return.
"Appreciation/Rates of Return"
(If you’ve already seen Tom’s introduction and want to jump straight to the "Appreciation” topic please fast forward to 2 minutes, 50 seconds.)
My Audio Seminars go into much greater detail. They include Worksheets, Case Studies with Answer Sheets.
® Copyright Tom Lundstedt Seminars. ALL RIGHTS RESERVED. No part of this program (except as noted) may be reproduced or used in any form, including electronic, without advance written permission.
This material is designed to provide information about the subject matter covered. The accuracy of the information is not guaranteed. This material is sold or offered with the understanding that neither the author nor the publisher is not engaged in rendering legal, accounting or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought.
Tom Lundstedt "Appreciation"
This hCard created with the hCard creator.
Mail this post