Analyzing Investment Properties

When considering the purchase of an investment property, you ought to account for the following investment benefits:

• Cash Flow Before Taxes - if your rental income is $900 per month, and your expenses (mortgage, etc) are $800, you have positive cash flow.
• Principal Reduction - unless you have an interest-only loan, each monthly rent payment helps to reduce the principal balance of your mortgage.
• Tax Savings - this can vary significantly depending on your individual financial situation, but the "loss" (including depreciation) on your investment property can be used to reduce your tax liability.
• Appreciation - though our current appreciation rate is somewhere between -1% and 2%, this is (in a longer timeframe0 an important investment benefit.

To help my clients understand these benefits, and to better understand the investment property that they are considering purchasing, I use the investment analysis worksheet below. 

Click on the image for more detail.