Quote:
Originally Posted by imperiouskitten
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whats a CAP rate
also, i'd reconsider mortgage for house if kids were involved btw but breederism is its own discussion
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CAP rate is basically the ratio of profit to purchase price (usually discussed in real estate). If you get 12k in rent, spend 2k in operating costs, on a rental property you bought for 100k, it would be (12-2)/100= 10% CAP rate. It is basically the profitability as an investment. It is just another (not so fancy) finance term for rate of return after costs.
The main reason a mortgage is a good investment for the average person is because the average person is terrible and saves almost nothing... the mortgage is like a forced savings plan that reduces in cost over time. However, the opportunity cost of a mortgage compared to simply renting a cheaper place and throwing surplus in a broad market stock index like VTSAX or SP500 is shocking.
Also to those above who suggest leveraging mortgages... tread lightly!