Posted by Ronald * Starr on July 06, 2001 at 13:07:06:
JT-IN----------
I like your answer to this question. Short, clear.
I think that we could add that the cap rate is only a measure of the cashflow, relative to the purchase price of the property. But the quality of the deal may depend upon more than that. The second economic benefits of owning rental properties are the potential appreciation – and you mention that. The third economic benefit is the tax savings. You don’t mention that. But these days, the tax savings probably don’t vary a lot from property to property, so it is probably not as important in evaluating a property.
You mention the work required to manage a property. I hadn’t expected that as part of your answer so was pleasantly surprised. I think you have pointed out an important variable in what makes a property a good deal.
It seems to me that the question really could be rephrased to be: what is a good investment? Then the cap rate becomes less important in the decision-making about what property to own.
Then there are a lot of other variables to consider: style of property, age of property, location–especially conviently near or not, the types of renters, and many more.
Good Investing and Good PostingRon Starr**