Does the house cash flow? 3 Questions.

I wrote earlier about Robert Kiyosaki’s belief that a house is not an asset but a liability. In that article, I mentioned that his question led me to change the way I looked at housing, emphasizing this question as the prime question: Does the house cash flow?

This is one of a series of questions I ask when I am evaluating a home.

The first question is: can I reasonably expect the 7 to 10% appreciation I need to break even on the sale of this home in the time I intend to hold the home? If you use an agent, the approximate cost of the sale and the associated costs is around the above percentage. This is negotiable but it is a good measure to start with.

To calculate this, take the cost of the home plus any closing costs being rolled into the loan and multiple that number by 1.1. E.g., a $300,000 home with $7,500 in closing costs multiplied by 1.1 equals $338,250. This is your breakeven point, where breakeven is defined by not having to bring money to the table at closing. This does not factor in maintenance you did, upgrades you made or anything of that nature.

The second is this: am I ready and willing to be a landlord? I ask this question even if the intent is to ‘owner occupy’ a home. Life happens. The job may move you, the spouse may leave you, you may leave the spouse. Babies happen. Kids come home. Kids leave. That forever home may not be so.

What happens if you have to sell in two years? Three? What happens if you can’t sell? Some will…