There may not be a better time than now to invest in real estate. Vacant inventory, bank owned inventory and many buyers priced out of the 'financial' picture to purchase. Enter the Real Estate Investor.
"Bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price. Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors."
Warren Buffett, "Buy American. I Am" - New York Times - 10/16/2008
Back to the basics ~ The basis of choosing a property is, location, location, location, AND the potential investment return generated from rental income (net of all rental-related expenses).
Capitalization Rate Computation
This formula provides the basic evaluation tool to determine the investment value of a given piece of property. Though some investors in the past like to use Gross Rent Multiplier (GRM), this is a more effective indicator of the true investment value.
Capitalization Rate (Cap Rate) = Net Operating Income (NOI) / Selling Price
NOI = Annual Gross Rent – Total Expenses (including property taxes but excluding debt services)
Example:
If the selling price of a property is $400,000 and the NOI is $30,000
The capitalization rate = $30,000 / $400,000 = 7.5%
7.5% is then the expected rate of investment return from the property.
Note ~ to get the true CAP rate of your real estate investment, you need to get the actual current annual rent, NOT the projected rental income.
Food for thought ~ while some brokers may encourage you to use the projected income. I discourage this concept. You're buying the property at today's dollar, not a projected amount. Don’t spend what you have not yet earned to measure against monies you have to pay today!
Call me today to discuss your real estate investment goals. I'm happy to help you identify potential Portland area and Oregon investment property to enhance your portfolio!