Purchasing real estate for investment purposes is considered to be a business.Â A real estate investor differs from a normal home buyer because there are less emtions involved in the purchase.Â They want to make sure all the numbers add up, the following components should be considered.
1) Tax Implications - Are there any incentives and future sale considerations.Â
2) Cash-on-Cash Returns - This is the rental income vs. operating expenses, relative to the amount invested.
3) Amortization - paying down the mortgage, if it's not an all cash purchase.
4) Appreciation - Are there any gains or losses in purchase price vs. future selling price.
Investors also need to keep in mind the costs of getting the property rent ready and also the underlying economy of the area.Â
The Wall Street Journalâ€™s real estate columnist June Fletcher suggests 1.1 percent of the homeâ€™s value up to about $100,000 or about $1,100 a month. After that demand and what the market will bear will affect values.
She points to rental sites as a good clue for someone setting prices, particularly VRBO.com, Flipkey.com and Craigslist. She also recommends Rentometer.com, which compares proposed rent with comparable rentals nearby.
For help calculating return on investment, try Rentalsonline.com.