Investing in property has always been and will likely always be a good use of your money. That being said, I want you to know how to buy and sell investment properties the right way so you don’t waste your time and money. Let’s dive into the ins and outs of cash on cash returns, return on investments (ROI) and cap rate before moving on to learning when to sell real estate property.
Cash on Cash Return
Cash on cash return is one of the more formulaic methods of buying a property. Simply put, your cash on cash return is your yearly tax before your cash flow divided by the amount of your investment. For instance, if a property you’re considering has an annual before-tax cash flow of $80,000 and you pay $500,000 after securing a loan. Your cash on cash return would be 16 percent. The cash on cash return formula is a good way to determine which investment properties are worth your time, money and energy.
If you’re investing in a Philly rental property, don’t forget to consider the yearly cost of repairs and maintenance as well as insurance and property taxes. Finally, the more you’re able to finance your investment property, the bigger your Return on your investment will be.
The way to determine your property’s cap rate is to divide the yearly net operating income by its purchase price. I’d also like to point out here that cap rates are determined by estimates of income you have yet to receive. The lower your cap rate, the less risk you’re taking.
Selling Your Investment Property
Now that you know a bit more about buying investment properties the smart way, it’s time to learn when to sell them for the highest ROI. If you’re simply flipping properties, you’ll likely want to put the property on the market ASAP after remodeling it. Should the market not be in the best condition when you decide to sell, you have the option of wholesaling the property to an investor.
Another route to take is to wait until there’s no more depreciation to write off on your property. No matter what, it’s always best to keep an eye on Philly’s market to see when it peaks to determine when you should sell your property.
I know that buying and selling investments properties isn’t always as seemingly clear cut as I’ve outlined above, but cash on cash return, ROI and cap rates are great places to start. If you have been considering investing in your first or next investment property I’m here to help guide you through the entire process. We work with countless investors in the Philadelphia area. While everyone’s investment goals are different we can put together a strategy that works best for you and your situation. Don’t hesitate to contact me if you’re in need of more investment advice and guidance.