Does it make sense to buy real estate as an investment? Consider the example below using the following:
- $80,000 purchase price for property 3. $700/month rent + 3% annual rental increase (historical average)
- $60,000 mortgage amount (with 25% down) 4. 5% annual housing appreciation (historical average)
*Annual cost for principal, interest, taxes, & insurance – $5,937.00 (30 year fixed rate at 4%)
Year Annual Carrying Cost Annual Rental Income Annual Appreciation Annual Net Gain
2013 <$5,937> $8400.00 $5,000.00 $7,463
2014 <$5,937> $8,652.00 $5,250.00 $7,965
2015 <$5,937> $8,911.56 $5,512.50 $8,487.06
2016 <$5,937> $9,178.90 $5,788.00 $9,029.90
2017 <$5,937> $9,454.26 $6,077.50 $9,594.76
2018 <$5,937> $9,737.88 $6,381.38 $10,182.26
2019 <$5,937> $10,030.01 $6,700.50 $10,793.51
2020 <$5,937> $10,330.91 $7,035.47 $11,429.38c
2021 <$5,937> $10,640.83 $7,387.25 $12,091.30
2022 <$5,937> $10,960.05 $7,756.61 $12,779.66
2023 <$5,937> $11,288.85 $8,144.44 $13,496.29
2024 <$5,937> $11,627.51 $8,551.66 $14,242.17
2025 <$5,937> $11,976.33 $8,979.24 $15,018.75
2026 <$5,937> $12,335.62 $9,428.18 $15,826.80
2027 <$5,937> $12,705.68 $9,899.50 $16,668.18
2028 <$5,937> $13,086.85 $10,394.53 $17,544.38
2029 <$5,937> $13,479.45 $10,914.26 $18,456.71
2030 <$5,937> $13,883.83 $11,459.97 $19,406.80
2031 <$5,937> $14,300.34 $12,032.97 $20,396.31
2032 <$5,937> $14,729.35 $12,634.61 $21,426.96
2033 <$5,937> $15,171.23 $13,266.35 $22,500.58
Total <$124,677.00> $240.881.44 $178,594.88 $294,799.76*
* In 2033, the remaining mortgage balance = $26,342, creating additional equity of $33,658. This amount should be added to the total annual net gain amount above, increasing it, to $328,457.76. This amount excludes tax benefits, cost of repairs and maintenance, and cost of rental management fees, if any.
- In the above example, a $20,000 down payment in 2013 would yield $328,457 by 2033!
- If a $20,000 down payment in real estate could result in $328,457 in value, should purchasing real estate be a top priority for your future financial security??
Example for illustration purposes only