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Today we'll be looking at investments, and we'll be comparing a condo investment with a home investment. We'll be using the cap rate to determine which investment is better than the other.
Let's say that you purchase a condo for $500,000 and have a monthly payment of $2,500. This is $30,000 per year, so you would take $30,000 plus all expenses related to the investment and divide it by $500,000. Let's say that your return each year on the investment is $19,000, so you would divide that by $500,000 and get about a 3.8% cap rate. This is pretty low, but pretty average for someone who would buy a condo and rent it out for some supplemental income.
For a two family home that costs $500,000, there would be a monthly payment of $4,000. That's $48,000 per year, and that would give you a 6.8% cap rate. That's almost double the payout when you're spending the same amount of money.
This is incredibly important when you're investing. There are a lot of ways to invest your money, but you want to make sure that you're doing it intelligently. If you have any questions, please don't hesitate to contact me!
