I’m a big fan of listening to different people on a subject, considering what they have to say, then making up your own mind. Violent Acres (a really funny, evil blog!) recently posted an article “Formula For Calculating the Profitability of a Rental Property“. Its definitely worth reading over for anyone who’s interested in real estate investing.
I think her approach of working out market rent then working backwards from there in order to determine a “fair price” for a property is great. My gut reaction would be the $50 / month / unit profit is on the low side (it wouldn’t take much to get $50 in unexpected costs or miscalculations), but she seems to acknowledge that there’s actually a potential for profit in some of her other factors (such as assuming 1 month per year vacancy, increasing equity, tax write-offs and increasing rents). Also the $50 profit seems to be “cash in your pocket”, whereas I prefer to consider it “equity + cash in your pocket” (paying down a liability is as good as saving in my book).
Great post, great ideas and definitely something worth reading (and re-reading if any part doesn’t make sense) if you’re thinking about getting into real estate investing.
Canadian Dream originally posted a link to this and helped me re-discover Violent Acres (thanks!).