We build a home purchase price calculator (excel template included) that helps us estimate the fair market value of a home based on the rent and the cap rates in the surrounding area. We also discuss how to compare real estate vs. the stock market vs. bonds as asset classes.
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Many people try to understand whether or not they should invest in real estate, just by looking at the mortgage rates and the home prices in the surrounding areas. These methods don't give us enough information to really determine what is a fair price to pay for a house.
The low-interest rate environment in many countries has recently driven home prices up significantly, and people wonder if they can still invest in real estate at these valuations.
In this video, we walk through an example of how to determine the fair market value of a home using the rent of the property and the cap rates (comparable sales) in the surrounding market. We build a home purchase price calculator that we can plug assumptions into to calculate the home price.
We then compare real estate vs. stocks vs. bonds as investable asset classes and how to figure out which asset classes are the best value.
We also then calculate the mortgage payments as well as net operating income of the property to look at the cash-on-cash returns, as well as the overall ROI potential of the investment.
By the end of this video you will feel confident calculating fair home purchase prices, and understanding more about if the price is excessive or fair. If you have questions (I'm sure you do) - please leave comments below and I'll try to help. Cheers!
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