I’ve made enough mistakes in real estate that I really advise not “cooking” the numbers. Those guidelines I put in the calculator are really for your protection. If the property doesn’t even meet those rules, then you really have to ask if the property is a good buy, even if it’s dropped 30% to 40% (and it also shows you how out of whack our fundamentals are). I admit that a property fitting those rules is a very good property, but do you really want to go against the rules and get a less than terrific property?
Now I’m not saying you shouldn’t buy the property. Will the Mira Mesa market bottom out and start shooting up more than the 4%/yr. appreciation I’ve assumed today? It’s certainly possible, but it’s still a big risk.
Anyways, I put up the rules because certain people always asked what criteria I looked at in order to choose properties. The rules are a beginning, not an end. The ROE calculator incorporates many principles that are basic for real estate investing, but it is not a substitute for your research.
Still, if anyone does not know how the ROE works, a lot more research needs to be done.
