Does it make sense to buy real estate as an investment?  Consider the example below using the following:

  1. $80,000 purchase price for property                     3.    $700/month rent + 3% annual rental increase (historical average)
  2. $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 Â