An agent in our office was tryingto sell an investment property in Kansas City to her client. Now this agent isn’t up to speed with investment analysis but that is a whole other topic that I’ve ranted on before. What caught my attention was that she took an 8% cash on cash deal to her client who then took it to her CPA. The CPA said that he had another investment (not real estate) that returned 10% and the lady went with that and not the real estate.
Apparently the main argument was that 10% was better than 8%. And I guess that is true. But as my friend Jeff Brown at BawldGuy likes to say it’s what you don’t know that kills you. For the newby real estate investor to not know that apples were being compared to raisins is one thing. For a licensed CPA to simply ignore the other three benefits of real estate investing and the working in of those calculations into the return is either ignorance or dishonesty (since he had a stake in the other investment vehicle).
Now, when you add 8% cash on cash onto your return for depreciation and principal reduction and, well yes, appreciation, the returns aren’t even comparable. But heck, throw out the appreciation and you still have a real estate return of 15%-18% over the 10% the CPA was tallking about.
You may very well determine that the extra return is not worth the additional risk of credit or commitment of time. That’s a decision only you can make. But you can only make that informed decision if you know what to ask or if you actually work with someone who is knowledgable and will lay out ALL OF THE OPTIONS.
There is my five minute rant for the day. 😉