I think you are clearly seeing that analyzing real estate as an
investment is a fuzzy picture.

Figuring out the rate of return using the net present value of a series
of discounted future cash flows is mathematically nice. Works pretty
good for predictable return investments.

Unforntunately for real estate, you end up with very precise equations
with wild guesses as parameters. What is the rate of inflation in the
future? No one knows for sure. What will be the rent increases in the
future? No one knows for sure. What will be the appreciation in the
future? No one knows for sure. Will the Fed Chairman's wiife's health
affect these? The price of copper in Peru? Maybe. Maybe not. It's
those exogenous variables that kill you.

Return on investment comes in two flavors: recurring (rent) and
non-recurring (appreciation).

In general, rental real estate is a terrible investment for the first
five years or so. (Unusally high appreciation would be an exception.)
After that it looks better and better as an investment. Rents are up,
appreciation is up and inflation makes that fixed mortgage payment seem
smaller and smaller.

As a simple rule you can compare CAP rate to mortgage rate. CAP =
NOI/Purchase Price. NOI is money you have left over after all expenses
EXCEPT the mortgage payment (debt service). If your CAP rate is higher
than your mortgage rate, you are getting a return on money higher than
the cost to borrow it. As rents go up over the years, this could
easily happen. If your CAP rate is lower than your mortgage rate, you
are getting a return on money lower than you cost to borrow. This is
certainly annoying. Better hope appreciation makes up for this.

You have "dead money" tied up in the downpayment. Luckily you can
think of appreciation as return on investment on down payment. Because
of leverage you can usually show a good rate of return as long as there
is reasonable appreciation (1 - 2X inflation).

The really simple analysis is to look at CAP and Mortgage Rate (over
time).

On Fri, 2 Jun 2006 13:56:02 -0500, Dimitris Mexis <m65[at]vivodinet.grwrote:

- quote -

Do a google search for the website of this fellow John T. Reed; he's a
real estate investor and publisher and exposes phoneys in the real
estate business (the "no money down" types). Offers some real sound
practical advice on buying rental properties and figuring out
profitabilty, etc. I've bought a few of his books. Well worth the
investment.

Dimitris Mexis wrote:

- quote -

If you are actually considering a rental property, why not post the
numbers so people can help with your situation?

There's a short list of the things that are upfront, such as the price,
mortgage, taxes, monthly upkeep, and rent, and then the unknowns, such
as future increase in value, and future rent increases. No matter how
well you screen for a tennan, there's the chance they stop paying rent,
and you have an eviction. You must be ready for this possibility.The
chance is real, owning four rental properties over a 15year period I had
two evictions. You may be luckier than I or worse off, just be prepared.

JOE

On Fri, 2 Jun 2006 13:56:02 -0500, Dimitris Mexis <m65[at]vivodinet.gr> wrote:
- quote -

It is present value of the rent, minus present value of your payments,
minus present value of the taxes due.

- quote -

???


- quote -

You are trying to use gobbledygook as input to your projections.


- quote -

That's a good start, but do not forget taxes.

i

I'd like to set two questions

1) What is your saying about Saxo bank?

2) Can someone help me, in this problem
say you have an amount X for buing a property, and you need Y from a loan...
The property has a price of F...
a) How can I see if it's profitable this investment...Should I use the
Present Value of the hypothetically rents I could get?
b) Having X money and Y loan, should I notice something to take care? I
mean I have expences for the loan...
c) How can I find the property's market achievement ratio? I know CAPM,
but where I can see the average market achievement so to handle the risk
premium?
In any case I did, the calculation of the present values of all the rents
for the next 30 years( which is the loan period ), the present value of
the loan itself...and compared it...