First post, though I have been lurking here for quite some time.
First of all let me thank Rich for this site and all of you for wonderful insights.
Recent discussions on ROE and rentals as investment have triggered some thoughts, hence this comment.
One thing I have noticed is that we dont seem to be accounting for “accumulation” of cash flow over the years from the property.
Do we just “consume” it and ignore for next year’s calculation ?
I think this becomes a significant chunk over the years, as we can also consider the interest this earns.
Am I missing something ?
Also why are we thinking that ROE drops over the years.
If we define equity as “cash invested”, it actually reduces as the cash flow builds up (and we recover initial investment), may become zero and then negative.
In this case ROE goes up to infinity and then becomes negative.
Or is the equity defined as original investment ?
Or is it “paper” equity ? (current value – loan)
I hope the questions make sense!
Would like to learn some more.
