2015 BUYER CONSIDERATIONS
The Fast Track to Financial Security (part 2)
We know from the savings chart you recently received that putting a little money aside every year by itself won’t cut it. If you have a pension, that could make a big difference. If Social Security doesn’t go bankrupt, or they don’t change the benefits age to 80, it could also help with your retirement finances. But what about real estate???
Appreciate is a given as the population has continued to increase, lots of new households have been created, and the demand continues to increase. Compare the real estate investment examples below on returns based on just 5% appreciation, to the returns projected at 5% per year in Part 1 of our Financial Security Cup O’ Joe.
Let’s say with some good research and a lot of patience, you can find a home worth $100,000 that can be bought for $80,000. Let’s look at what happens over the next 20 years to your real estate investment:
- Initial Purchase
Purchase Price $80,000
Down Payment $20,000 (Investors must put 25% down)
Balance Financed $60,000
2. Annual Carrying Costs
Principal & Interest $3,437.00 ( 4% Mortgage)
Taxes & Insurance $1,500.00
Reserve for Repairs $1,000.00
Annual Carrying Costs $5,937.00
x20 years 20
Total Carrying Costs $118,740.00
3. Annual Rental Income (Rent starts at $700.00 per month and increases annually at national average of 3%- No vacancy factor or property management fees)
Year Rental Rate Increase Income
2015 N/A $8400.00
2016 $252.00 $8,652.00
2017 $259.56 $8,911.56
2015 $267.35 $9,178.90
2016 $275.36 $9,454.26
2017 $283.62 $9,737.88
2018 $292.13 $10,030.01
2019 $300.90 $10,330.91
2020 $309.92 $10,640.83
2021 $319.22 $10,960.05
2022 $328.80 $11,288.85
2023 $338.66 $11,627.51
2024 $348.82 $11,976.33
2025 $359.29 $12,335.62
2026 $370.06 $12,705.68
2027 $381.17 $13,086.85
2028 $392.60 $13,479.45
2029 $404.38 $13,883.83
2030 $416.51 $14,300.34
2031 $429.01 $14,729.35
2032 $441.88 $15,171.23
Total $240.881.44
4. Total Net Annual Income Over 20 Years After Expenses
Total Income as in (C) above $240,881.44
Less Total Expenses $118,740.00
Total Net Income (20 years) $122,141.44
5. Annual Appreciation at 5%
Year Value Appreciation Appreciated Value
2015 $115,762 $5,788.00 $121,550.12
2016 $121,550.12 $6,077.50 $127,627.62
2017 $127,627.62 $6,381.38 $134,009.00
2018 $134,009.00 $6,700.45 $140,709.45
2019 $140,709.45 $7,035.47 $147,744.92
2020 $147,744.92 $7,387.25 $155,132.16
2021 $155,132.16 $7,756.61 $162, 888.76
2022 $162.888.76 $8,144.44 $171,033.19
2023 $171,033.19 $8,551.66 $179,584.84
2024 $179,584.84 $8,979.24 $188,563.64
2025 $188,563.64 $9,428.18 $197,991.82
2026 $197,991.82 $9,899.50 $207, 890.79
2027 $207,890.79 $10,394.53 $218,285.32
2029 $218,285.32 $10,914.26 $229,199.58
2030 $229,199.58 $11,459.97 $240,659.55
2031 $240,659.55 $12,032.97 $252,692.52
2032 $252,692.52 $12,634.62 $265,327.14
6.Total Return Over 20 Years
Total Net Income (D above) $122,141.44
Total Appreciation (E above) $265,327.14
Less Balance of mortgage ($31,463.07)
Total Return $356,005.51
In Cup O’ Joe Financial Security Part 1, an investment of $200,000 made over 20 years, put into a 401k or other retirement programs earning 5% per year, netted you as an investor $347,192.51. So, in 20 years when you retire, you now have about $1,500 per month to live on. (Keep in mind, you had to come up with an additional $10,000 every year!)
In Cup O’ Joe Financial Security Part 2, discussed above, the total 20 year investment was just $20,000.00. The initial investment of $20,000 yielded $356,005.51, as compared to just $347,192 with you contributing $200,000. This is what the experts mean when they say you “Leverage your investments”!
Conclusion — Which would you prefer, $20,000 becoming $356,000, or $200,000 becoming $347,000???
Perhaps it would be a good idea to get a few more of these investments over the next twenty years so you have complete financial security in your retirement!