In commercial real estate properties are sold based on a cap rate.
Example: Income is 10,000 a year on a 100,000 property purchase with all cash = a 10% rate of return. So its easy to figure out your ROI
How do you evaluate a residential rental property from purely a cash flow perspective? (not a flip or any appreciation)
Do you look at return on your equity?
example: $20,000 down on 100,000 purchase. Let say net rent is 5,000 a year after mortgage and repair expenses 5,000/20,000 = 25% rate of return. (I guess I would have to factor in closing costs too somewhere so maybe the 1st year Return on equity is more like 15% if you assume 5,000 in closing costs)
What say ye my cash flow investors?