Looking for a Good Deal? Let Tigrent Help!
So, what is a good deal in real estate? Basically, any deal that makes you money on your investment is a good deal. And how does an investment make money for you? There are two ways that a property can get you great returns on your investment: by generating cash flow and/or by appreciation. Let’s look at both these ways in a little detail.
Cash flow means the income earned from a property after taking out the expenses incurred on it. For example, if the net annual income from a property that cost $50,000 to buy is $5000, then the return from that property is 10%.
On the other hand, appreciation of a property is determined by many factors, like the location, neighborhood, economic conditions, etc. If the economy is on the upward swing, then it can be assumed that the property will also appreciate. So, if the property’s value grows based on other properties in the area and a positive economy, then it can be assumed that the property’s value will continue to increase year on year.
Appreciation also comes in two forms. One being market-driven appreciation as discussed above, and the other is forced appreciation. Forced appreciation is where you add value to the property by making changes and modifications like a fresh coat of paint, an addition of a room, remodeling a bathroom or the kitchen, etc. By making physical improvements to the property, you’ll bring its value up to its true market value.
Supposing that your initial investment in a property is $50,000 that covers your down payment, repairs and other costs, what would make it a good deal for you? The answer to that would depend on the annualized returns from your investment by way of cash flow and/or appreciation. Say, that in this particular investment, you generate an annual cash flow of $5000, and the property also appreciates by $5000 in the year, then you would have made $10,000 in one year on an investment of $50,000, which is more than just a decent profit at 20%.
So, when you are faced with an investment option, it is always best to do some number crunching to determine the potential returns on it before deciding to go ahead.
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