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Cash Flow vs. Return on Value of Property

Cash Flow vs. Return on Value of Property


If you are an international buyer interested in Miami, one of the things you need to decide is what is more important for you: annual return on investment or return on the value of the property? What is the difference? Well, if you are buying an investment property and you want to rent it, the income that you will get from the rental, less expenses (taxes, insurance, association, et al), will be your yearly return on investment. But if we talk about return on the value of the property then you have to take how much you paid for it versus how much you sold it, minus expenses.

Some of you are looking for properties that provide good cash flow as a rental and a positive yearly return on investment. Some buyers care more about covering the monthly expenses and waiting for the return at the time of selling the property.

With the recent prices increases in Miami, rent prices are in most cases below 1 percent of the selling price of the property. For example, if you buy a $200,000 condo the rent could be anywhere between $1,200 and $1,800 a month. Of course, there are exceptions. But this is what is happening in most cases, so in order for you to have a positive return of investment from your rental you have to buy either with cash or consider a loan for a small percentage or you might end up putting money in every month to cover your expenses. If you are looking for a long term investment that provides cash flow, then you will have to consider all the factors as expenses--mortgage, vacancy rates, commissions, repairs and collateral expenses that will affect your income and can take you from positive to negative cash flow.

I have had many international investors looking for monthly income and they eventually realize that what matters most to them is covering the expenses until the increase on the value of the property gets to the point that it is worth selling. But every case is different.

We can still find great deals in Miami, but you get what you pay for, so sometimes "great deals" come with additional expenses that increase your final cost and in the end affect your cash flow and return on investment at the time of selling the property.

Valeria Grunbaum is the founder of The International Real Estate Academy and a Realtor specializing in international clientele in Miami. Her Web site is InvestinMiamiFlorida.com.

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