While the example mentioned is just a simple mathematic calculation, it does not take considerations into the complexity of real estate as a business nature.
The price we are paying for a house is just a beginning of other underlying cost that followed. Take an instance, legal fee, stamp duty, loan processing fee, management fee are few examples. How to find people to rent out the house? Will they pay the rental promptly? Are they a good tenant? If a current tenant left the house, how short a laggard period? Will the interest rate maintain the same throughout the period of financing? What happen if the price of the house depreciates instead of appreciation? There are too many questions that lie after you sign on the Sale and Purchase Agreement. It’s simple to drop a signatory on the S&P Agreement, but there are too many headaches afterwards. There are too many uncertainties that beyond our control: when the interest rate will be increase? Does the price of the house appreciate over the time? We do not know whether the tenant will default their rental payment or not? The uncertainties could be infinite.
Uncertainty actually is the friend of the buyer of long-term values, only when you are buying an investment that creates a long term value.
Remember: “Price is what you pay, Value is what you get.”
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