Real estate investments differ from many other investments in the fact that there are multiple ways to calculate possible Saratoga real estate investment returns. If you are interested in making an investment into real estate it is important that you are familiar with the options and how they work.
There are many recommendations out there on which way is the best way for determining Saratoga real estate investment returns, but it can be different for each investor.
Calculating anticipated the cash-on-cash return for a Saratoga property is a wise thing to do before making in investment. To complete this calculation you first need to determine what your cash flow will be for the year. To determine this number you take the amount of total rent that you receive for the year and subtract any expenses. The resulting number is your cash flow. To determine the cash-on-cash return you divide your cash flow by the amount of your investment (cash equity) into the property.
These are important numbers to pay attention to because there are Saratoga properties on the market that will have a negative cash flow. This means that each year you are investing additional money into the property because the rent is not covering the expenses. These properties can become profitable over time, but it can take a long time and is not guaranteed. Typically properties in highly desired areas, like near the water or downtown, are negative cash flow properties.
Appreciation in value is one of the most commonly known reasons to invest in Saratoga real estate. People expect the value of real estate to go up over time. Looking for properties that will appreciate over time is a smart invest strategy, but it remains important to consider the cash flow along with it.
Net Value Present and Internal Rate of Return
While these two strategies are frequently used with commercial properties they do have a common flaw: both of these options are calculated by estimating what the future sale price will be on the property. If there is one thing that the crash of the housing market has taught us, it is that we cannot accurately trust our predictions for the future of the market. Investors can easily get caught up in setting high estimates for the future, but the possibility remains that it will not pan out. If you are going to weigh these options before investing it is important to use conservative numbers that are backed by research.
Gross Rents Multiplier
Determining the Gross Rents Multiplier (GRI) on a property will help you compare it with options in the area. To perform this calculation you need to determine the total rent that the property can generate in a year. Then you take the total price of the property and divide it by that number. This results in giving you the GRI. You can calculate the GRI on multiple properties to give you a basis for comparison.
One issue with this calculation is that it makes no consideration for the expenses that come along with the property. Some Saratoga properties have expenses that are much higher than others, so if the properties are very different the GRI may be skewed.
You can choose for yourself which option you think is best for calculating Saratoga real estate investment returns. You can also perform all of the calculations to get a complete picture of the investment you are looking to make. While the other calculations can be helpful, determining cash flow will help you see if your real estate investment returns can provide you an immediate return on your Saratoga investment.