The Beauty of a Paid Off Investment
Based on actual properties listed on the MLS, current rental values as of 2010 and assuming a 20% down payment.
Property Description | Price | Rent* | Mtg** | T&I | Mgt*** | CF | Apprec. Year 20**** |
Southgate 3 bed, 2 bath home | $100,000 | $950 | $480 | $136 | $133 | $201/mo | $223K |
In this property the cash flow of $201/month can be used for repairs, maintenance or paying down the mortgage in 20 years. Based upon these assumptions (which are designed to be conservative), your initial investment of $20,000 is now worth $223,000. which is a 55% annual return on your original investment. This does not take into consideration tax deductions along the way.
It’s important to note that even if there was 0% appreciation, with the property now paid off and worth what you paid for it, you would still have a 20%/year return on your investment! What is your downside risk? Real estate has never gone down in value over a 20 year period.
It gets even better; Once the property is paid off, it is now throwing off cash which I call a Forever Annuity. If rental rates increase just 2.5% per year over 20 years, this property could become a cash cow earning $1450/month. Again, based upon your initial investment of $20,000, this income of $17,400 would be a return of 87% per year for as long as you own the home (and while it continues to increase in value). Is this a great country or what?
Here are some more examples taken from the current MLS:
Property Description | Price | Rent* | Mtg** | T&I | Mgt*** | CF | Apprec. Year 20**** |
Vamo area 3 bed, 2 bath home | $94,900 | $900 | $456 | $130 | $117 | $198/mo | $212K |
Ridgewood 3 bed/ 2 bath home | $109,250 | $925 | $524 | $148 | $130 | $123/mo | $244K |
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*Based on Constant over 20 years
**30 Year at 6%
***Management + Leasing (prorated monthly), (goes down on renewals)
**** Based on 4% annual (NAR average nationally is 6%)