Quote:
Originally Posted by retiredguy123
Maybe I didn't make it clear that my example of a 5 percent return included selling both the bond and the rental house at the end of a specified time period and then calculating the total return on both investments. If you only make 5 percent per year on the rental house, all of your work effort and risk was wasted. But some people will consider the rental house to be a success.
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The key to making more than general inflation is to increase price 1-2% higher than inflation, and the expenses go up at the rate of inflation. . . that builds economic value. .
BUT when your rent is about 10% higher than competing rents in several years, tenants will revolt. .
The other way to look at the decision value is with a discounted cash flow analysis, and see if the gain on the sale of the house after 5% per year exceeds your cost of capital, which is a dependent formula. RE guys shorten this calc and call it cap rate, which is the purchase cost per square foot. If too high, won't make money, if too low, great as long as you know why the caprate is so low. . (the cap assumes alot of long term cost and income assumptions though)