How can I tell if this is a good investment?

[David K.]

How do investors determine if a rental property is a good investment? I have an opportunity to buy a townhouse that's in good shape. $155k, with 20k down, 4% interest on a cd. It should cash flow $2-3k a year including tax impact.

My question is really about how to determine if this is a good investment? Would I look at my cash return on the down payment? Or take a longer term view, factoring in appreciation? Then I would also have to factor the opportunity cost of my down payment.

I'm wondering how other investors look at this?

Thanks!

[Sky Mikesell]

Hey david, my name is sky-mikesell...  good question. 

an evaluation by any investor just should be an honest one... meaning looking at all true cost involved.  prop. tax, insurance, prop. mgmt,  maintena. and vacancy. 

appreciation is a speculative number bc none of us have a crystal ball. 

to answer your question how can you tell if this is a good investment.  this is only something YOU can answer.    as long as the numbers on the property work you have to figure out if you have something better to do with your money. 

I like to explain it that i have a set amount of money to invest .. i prefer to evalutate all my option based on NET ROI or some people refer to it as cash on cash return

... my options on WHAT to to do with my money range from putting it in a savings account for less then 1%, stock market 6-8% (historically),  i could loan it to someone who will pay me a set interest rate... or i could invest into a rental property... 

so figure out what opportunities you have out there... what ROI would you have in those opportunities and is this your best option?