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Updated about 14 years ago on . Most recent reply

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Bryan Hancock#4 Off Topic Contributor
  • Investor
  • Round Rock, TX
4,382
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8,794
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Choose That Investment

Bryan Hancock#4 Off Topic Contributor
  • Investor
  • Round Rock, TX
Posted

Which investment would you rather have?

Investment 1 - 50% Rule Candidate
Year 1 => -$10,000 + $1,200 = -$8,800 ($10k investment, $100/month “cash flowâ€)

Years 2 – 29 => +$1,200/year ($100/month “cash flowâ€)

Year 30 => +$200,000 + $1,200 = +$201,200 ($200k sale with debt-free product, $100/month “cash flow†and no REAL appreciation)

Or

Investment 2 - “Speculative†Small Appreciation Case
Year 1 => -$10,000 - $1,200 = -$12,200 ($10k investment, -$100/month “cash flowâ€)

Years 2 – 29 => -$1,200/year (-$100/month “cash flow)

Year 30 => +$484,452.50 - $1,200 = $484,252.50 ($484kish sale with debt-free product, -$100/month “cash flow†and 3% REAL appreciation)

?

What say you?

How about the choice between these two?

Investment 3 - 50% Rule Candidate With Short-Term Hold
Year 1 => -$10,000 + $1,200 = -$8,800 ($10k investment, $100/month “cash flowâ€)

Years 2 – 4 => +$1,200/year ($100/month “cash flowâ€)

Year 5 => +$200,000 +$1,200 – 199,000 + $10,000 = +$12,200 ($200k sale with debt amortized $1k, $100/month “cash flow,†no REAL appreciation, and $10k investment back out)

Investment 4 - “Speculative†Small Appreciation Case With Short-Term Hold
Year 1 => -$10,000 - $1,200 = -$12,200 ($10k investment, -$100/month “cash flowâ€)

Years 2 – 4 => -$1,200/year (-$100/month “cash flow)

Year 30 => +$231,854.80 - $1,200 - $199,000 +10,000 = $41,654.80 ($232kish with debt amortized $1k, -$100/month “cash flow,†3% REAL appreciation, and $10k investment back out)

What say you?

So you have to choose either Investment 1 or 2 AND Investment 3 or 4. Afterwards you can choose between all four of the investments for your top choice. Please explain your reasoning ;-)

Disclaimer: I typed this out quickly so I may have fudged the math somewhere. I think it is right though. There are some things glossed over (imperfect) because I didn’t want to type a 10,000-word post so please don’t pick it to death.

Most Popular Reply

Account Closed
  • Landlord
  • Seattle, WA
1,839
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Account Closed
  • Landlord
  • Seattle, WA
Replied

Bryan,

I agree that purchases can seem similar up front and may have considerably different appreciation potential. I tend to like to buy property that has other value add potential or other features that could lead to greater appreciation.

All other things being equal it makes sense in my mind to consider non-numeric features that could contribute to appreciation. I don't actually consider this speculation sense I'm considering the cash flow first, the appreciation is gravy.

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