Real Estate Investors - When Should You Sell Your Investment Property
JoJo on May 10th 2007
The question as to when to sell an investment property depends on many factors, including: the likelihood of future appreciation, the cash flow it produces, the ease or difficulty of managing the property, and the property’s fit in an investor’s overall investment portfolio.
When investing in real estate, a real estate investor should not overlook a simple measure to determine how hard their invested dollars are working: the property’s “Return on Equity.” By analyzing, an investor can compare a particular property with other potential investments in an effort to maximize the return on their investment equity.
Example: A small fourplex was purchased several years ago on very favorable terms. It produces a nice cash flow that resulted in an extraordinary 20% return the first year. Even with the following assumptions, which would produce a high return on equity, the return falls to less than 5% after 7 years.
- 10% down payment
- 90% Loan-to-Value (LTV), 7% fixed mortgage over 30 years
- Appreciation at an average of 4% per year
- Annual net income increasing by 2% per year
In this case you should consider exchanging this one investment property after 5-7 years in order to obtain a much better return on equity.
To read the full article and see the return on equity chart, click on the following link: http://www.apiexchange-enewz.com/www/enewz/newsletter.php?id=27&dm=1
