The title of this blog paraphrases a line by Steven Covey “begin with the end in mind”.

As a potential investor perhaps you should consider a potential real estate opportunity on three levels.

Can you think of any others?

1. How can you add value to the property along the way?

What can you renovate, improve, or change to increase the intrinsic value of the real estate?

2. How easily will you be able to liquidate the real estate when the time comes?

In other words, is there going to be a wide market and plenty of interested buyer candidates for the real estate when you decide to sell?

3. And finally, how much should you pay for the real estate given the rental constraints of the market?

Here is a simple step by step method to calculate an appropriate price.

1. Estimate the monthly rental

2. Discount it by 10% to cover maintenance

3. Discount it by 5% (or some other suitable measure) to allow for gaps in rental income i.e., vacancies.

4. Estimate what the net rent will allow you to borrow from a lender

5. Add your down payment, for example 25%

6. You will arrive at the maximum amount you should pay

Here is a working example:

Estimate of rental income                   $1500 per month

Property tax (varies)                           $200 per month

Net of maintenance allowance           $150 per month

Net of 5% vacancy allowance            $75 per month

Net Rent                                              $1075 per month

The net rent would support a mortgage of around $185,000, (at 5% over 25 years).

If we add a 25% down payment ($62,000), the most you should they pay for this particular investment would be $248,000.

If you need further assistance with the selection of investment opportunities, please contact us. We have a team of REALTOR® real estate investment experts standing by to advise.

To shop for ALL investments & homes in the metro Edmonton area please go to our website

About the author:

You can read more about the author of this blog by clicking this link - Stuart Neal, Broker, REALTOR® & Team Lead.

For a personal consultation, call our broker owner Stuart Neal at: 780-760-2014.

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