Good comments all.
Kip, Welcome to the world of investing. I think its a good idea to start with the end state in mind. What are your goals? Once your goals are determined, you can start strategizing. Personally, I prefer a buy and hold strategy. This is basically buy a property, rent it out for a few years, and sell it at a later time if necesary.
Having said that, for the reasons mentioned already, I think homes are the better investment: they generally appreciate faster and are easier to get financing for. Another decision to take into account are the numbers. The whole point of investing is to make money in some form or fashion. Here's a formula I currently use for determining if its a good investment:
annual net operating income (NOI)/ down payment = percentage return
What is â€œannual net operating incomeâ€? This is basically, income minus expenses or in other words, cash flow. Letâ€™s look at an example to see how it all breaks down.
Subject home: $160,000
Required down payment: $40,000
Amount Financed: $120,000
Property tax: 83
Add this all up and you have a monthly NOI of $725 or annual of $8,700. Getting back to our formula (NOI / down payment), it would look like this:
$8,700 NOI / $40,000 DP = 21.75% return
Not too bad. I usually try to shoot for 15% or greater.
Hope this helps. Good luck!
John Mondello, Realtor
â€œI find the house, you make it home.â€