One key to successful investing is a balanced portfolio. Most financial advisors recommend that investors have some liquid savings, some fixed-return instruments and investments with equity growth potential. Real estate, as one element of an investment portfolio, offers the potential for equity growth as well as monthly cash flow. Reflected below is a comparsion of the before-tax equity accumulation potential of three investments:
Once the decision has been made to invest in real estate, it is important to analyze the return you expect to receive. Some common methods for comparing value are shown below:
Until recently, more investors had to either learn complicated formulas, purchase sophisticated financial calculators or hire the services of a professional advisor to evaluate their investments. Now there are many investment analysis software programs available that analyze data and provide many useful statistics and graphs to determine actual returns.
In addition, many software programs provide the ability to analyze “what if” scenarios by giving the user the ability to change the mortgage payments, operating expenses, rent increases, cash flow, etc. and study either projected returns and even arrive at an ideal point for selling, or better, exchanging the property.