In Part 11 I promised you more information on rate of return. When we talked about Rates of Return before we were looking at what the experts call First Year Rates of return. First Year Rates of Return represents a fairly static number and I think it is one of the best tools available, but we live in a dynamic economic and tax environment.

Although I will not go into specifics other methods involved in the evaluation of an investment is Multi-year rate of Return, Internal Rate of Return, and Financial Management Rate of Return. The key issues with all of these is trying to project the long term value of money, the value of other investments, and the investment potential of other options for your money. You need to understand the Time Value of Money. In short a $1,000.00 today is worth more than it will be worth next year and a lot more than it will be worth in 10 years.

These kinds of projections take a good understanding of long term economic trends, both locally and nationally; both for the real estate market and general financial figures. Although I am bullish on long term real estate investing long term economic trends are hard to predict and you should do you own research. The only thing I see is the experts and the newspapers are frequently wrong; newspapers like to print negative news or give it a negative slant.

For the small or first time investor without an army of advisors I suggest you just be aware that your investments in real estate and other things is a dynamic investment. Continue to watch trends in rents, real estate prices, inflation, tax laws, and other investments. This will give you an idea of how good your investment is doing.

Real Estate is not liquid asset in that it is not usually quick or cheap to dispose of, at least when compared to stocks. So do not jump on every band wagon or minor change in trends when making a decision about real estate investing. Pay attention to how the trends look long term when considering your real estate investment.

Real Estate does offers some fairly predictable factors for an investor:

If you have a fixed rate loan your payments are known. Your cost in this regard are fixed until the loan is paid.
In California your maximum property tax rate is fixed at the basis (Purchase amount) plus 2% a year maximum.
Your loan will gradually shift more to principal payment and less interest, lowering your interest deduction; but this is a predictable and manageable factor.

The other thing about real estate is they are not making anymore of it. It is a limited investment opprotunity. Finally, barring some huge major disaster your land will always be there; some other investments can completely disappear.

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