Loan Reduction is the amount of interest that you save by paying back a portion of the principal. So basically multiply the principal paid back in one year with the interest rate. Made an error in that post above, the LR should only be about $110. So the ROE above is actually 13%.
I usually set LR at 0 anyways. It’s so low.
Yes, the more price drops you see, the better it becomes as an investment. Rent will usually go up about 4% or 3% a year though so you usually have to run the numbers once a year to see how it’s doing.
Regarding the difference between an SFH and a condo, there are advantages to either properties. SFH usually appreciate better than condos (being the first to rise and the last to fall). SFH’s are also easier to sell. Condos usually appreciate last and fall first in prices. Condos are also harder to sell, because you are competing with every other condo owner next to you. Because appreciation is what most real estate investors are after, condos don’t do as good of a job appreciating than SFH’s.
It looks like you want to look into real estate investing. You should start reading up on it so that you can position yourself well into the next few years. I recommend Lisa Vander’s book “The Real Guide to Making Millions in Real Estate” but most real estate investor beginner books will do.
I definitely agree with SD Realtor where most of the seasoned investors have left California or at least stopped buying. I still see a lot of novice investors running around buying $600k homes because they thought it was a good rental property (yikes!). I really don’t think San Diego and parts of California will ever really cash flow from now on (but I reserve the right to be wrong).
From my research, North Carolina is actually a negative cash flow location and you will make most of your money from the high appreciation. The real estate cycle there is near the top if not at the top from my observations. Still, it is a lot easier to buy an investment property in North Carolina (where prices are around $200k to $300k) whereas California has comparable prices of $800k. North Carolina still has a decent amount of growth left in it.
So from what I’ve seen:
High appreciation but low to negative cash flow: North Carolina, South Carolina (I have a four-plex there), Georgia, Texas.
Avoid!: California, Nevada, Florida, New York, New Jersey, Arizona (these are the bubble areas).
Cash flow but low appreciation: Alabama, Tennessee, Missouri, Idaho and some parts of Texas.
I’ve been trying to buy some four plexes in Huntsville, Alabama for the past month now, but my realtor hasn’t been sending me any properties (he’s probably keeping the good ones to himself, dangit). The ROE’s I’m getting for area is running around 30%.
But as 4plexowner will tell you, owning out of state is a PITA…
