Property evaluation is a cornerstone of successful property investment. Getting the purchase numbers right is absolutely crucial.
This is a simple example:
- You see a property valued at roughly $1 million. You will require a mortgage of $700,000 to secure this asset.
- You estimate costs of renovation and repair at $200,000.
- The net cost so far is $1.2 million, and $500,000 above mortgage value, which has to be in hard cash.
- You estimate annual operating expenses on the asset at $50,000.
Based on rentals for similar properties, you can reasonably expect to get $250,000 per year in rent after tax.
Your net cash outlay for the first year is:
- $500,000 above mortgage including renovations and repair
- $80,000 on the mortgage
- $50,000 operating costs
The total upfront cash cost is $630,000 on an asset worth $1.4 million after renovations.
Estimated income will return the outlay in less than 3 years at approximately 20% of total purchase cost, well above the accepted 10-12% benchmark bracket.
This is a demonstrably good investment- If you have the cash upfront. If not, it’s a risk of 50% of the purchase price and mortgage costs. Nobody ever said property investment was easy!
Source: http://www.ehow.com/how_4876619_evaluate-property-investment-potential.html
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