Speculating in real estate is a bet that the prices will continue to rise. When you are right you look like a genius but when you are wrong you are the fool and must lick your wounds or hang on for deal life hoping to recover over time.
All markets cycle and here’s a rule for you to follow if you are going to get into the appreciation game now or in the future.
Long Term Appreciation Rule:
When buying for appreciation if you have negative cash flow the amount of the appreciation must exceed the amount of negative cash flow.
For example if you bought a property worth $200,000 that had a $500 month negative cash flow you are losing $6,000 per year. If the property appreciated 3% you would be breaking even. If the property appreciated 6% you would be $6,000 ahead in equity.
If you are going to play the appreciation game be sure to run the numbers to see if you expectations are reasonable.
Most speculators lost because they did not run the numbers and expectations for a market to appreciate at 8% or more on a continued basis is a fools folley.
And while speculating can be inviting because of the tremendous profits others are making it is much better to learn sound investing principles and be prepared for any type of a real estate market.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment