Your 2017 Investment Goals, Part III

February 1, 2017 - 3 minutes read

As with the other investment goals parts, we’ll start with assessment.  Today’s question is what were your total returns in 2017?  Was it as high as you would have liked?  Have you accounted for all of the parts of your return picture?  While most people consider cash-on-cash in their returns assessment, it’s clear that they miss other pieces of the puzzle.  Your 2017 investment goals part III will examine all of the return components and set you off on the right foot in 2017.

Total Return Components

First of all, we’ll identify the return components:

  • Cash-on-cash return
  • Tax benefits
  • Asset appreciation
  • Principal pay down

This list is tailored to real property assets, which is most noteworthy if you are assessing the returns of other asset classes as well.  Especially relevant is the fact that real estate is the only asset class to afford this combination of return metrics.

Next, let’s define what each of these components mean:

  • Cash-on-cash definition:  Typically calculated annually.  Cash received from investment divided by cash invested.
  • Tax benefits definition:  Tax provisions used for the benefit of the investor.  Examples include:  depreciation, loan interest deduction, etc.
  • Asset appreciation definition:  An increase in the value of an asset due to market conditions or as forced by investor actions.
  • Principal pay down definition:  Used in connection with real property loans and asset rented out to paying tenants.  Each payment made by a tenant pays down a certain portion of the real property loan.  Taken collectively, these payments amount to a certain percentage of a loan’s principal balance being paid down annually.

Your 2017 Investment Goals Part III

Assessing using this criteria will help highlight weaknesses in your investing strategy.  While these are not the only criteria we can use to evaluate our investments, making adjustments here will payoff in the future.

Furthermore, you may find concentrated weaknesses and therefore specific areas needing attention.  Almost certain, you’ll note weakness in your tax position.  In addition, you’ll more than likely see problems with consistency in asset appreciation.  Finally, without real estate, principal pay down will be blank.

As a result of your analysis you may want a new solution.  If real estate is not part of your portfolio, add it.  And while any real estate is better than none, commercial real estate can fill in more of your return blanks for 2017.


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