The real estate investment market can move very quickly. When an attractive investment property comes up, there will often be multiple offers in the first few days on the market. Therefore, as an investor, you need to be able to analyze the investment as quickly as possible to determine if it is right for you.
There are several rules of thumb that help you compare different investment properties. The perfect comparison would account for all factors involved in a real estate investment: rent amounts, purchase price, initial investment, appreciation, depreciation, expenses, loan amount, holding period, time value of money, exact future sales price, and tax liability upon sale. None of the following methods are “perfect” comparisons. They all have their advantages and disadvantages.