By Indhira Desangles
There are multiple ways to evaluate the performance of your real estate investment, so it's important to choose the most appropriate analysis method.
And how can you tell if the property appraisal you're going to do is appropriate? What methods can help you?
Don't worry, below I will share some common strategies for evaluating the performance of your properties when investing in real estate, so that they can serve as a guide for you to make your decision.
When an investor determines the future value of a property, this is known as compounding. It represents money that is deposited and earns interest. This interest then remains in the account and generates further interest, thus compounding the money. This process can occur monthly or annually.
Now, when an investor is going to determine the current price of an asset based on the income they will receive in the future, they use the discount rate, and this process is simply reducing the value of the amount to be received in the future to a present value that reflects the opportunity cost.
For investors in rental properties, this rate is important to know how much they can pay for the future cash flows that the property will produce during the time they own it.
Once all sources of income have been identified (annual income over time + selling price = rate of return or yield) and properly analyzed, the investor will be able to see what their rate of return is if they buy at the list price and thus see at what price they should buy according to the desired yield.
In turn, the rate of return will be compared with other investment options available at that time with similar risks in the market.
As I mentioned at the beginning, we have the responsibility to determine how good the investment agreement that comes with buying a particular property will really be, and we should always be prudent in estimating expenses because forecasts allow us to manage variations with respect to the future.
Now you have a better understanding of the main methods available to you to determine your return on investment in real estate.
Starting to invest in real estate is always an important decision. If you want to get started the right way, I invite you to contact me at +1(809) 669 3063
or idesangles.com
