Real Estate Investment-2
One needs to look at three key figures when considering an investment. Cap rate, is the first of these tools.
Cap rate is simply the annual net income divided by the price of the property. For years investors have been using the “1% rule” which simply states that the monthly rental income for a property should be roughly 1% of the price that you pay for the property.
Some markets have moved away from this ratio due to rocketing property values, but in others you can still find properties that fit the 1% rule. Something that you should keep in mind, though, is that the 1% rule of thumb is a fair indicator of whether or not the property is going to generate enough cashflow on an annual basis to cover mortgage payments plus expenses.
There, of course, are a lot of variables that go into this (from taxes, to interest rates to the percent down payment that you pay) but it’s a starting point.
