Thanks to the Four Profit Centers, Real Estates Investing has created more millionaires than any other investment vehicle. In part 2, of a four-part series, we discussion appreciation and how to calculate it as part of your return on investment.
4 Part Series - 4 Profit Centers
- Cash On Cash Return
What is Appreciation?
- Long-term real estate appreciation rate in the U.S.
- 3-5% annual
- Do we care?
- Do you invest for appreciation? What's your investing goal?
- Know your market – wild swings, or slow & steady?
- Use it to your advantage – time the market or build equity to refinance out of balloon or seller finance deals
- Flipping – deal can change while you own it
- House Purchase Price = $100,000
- Down Payment = $20,000
- Monthly Rent = $1,000/mos
- CapEx = $400
- Mortgage Payment = $400
- $1000 - $400 (CapEx) - $400 (mortgage) = $200 Monthly Cash Flow
- Annual Cash Flow = $2400
- $2400 (annual cash flow) / $20,000 (down payment) = 12% Cash on Cash Return
Assuming appreciation of 4%
- Year 1 value after appreciation = $104,000
- Year 2 value after appreciation = $108,160
- Year 3 value after appreciation = $112,486
- Year 4 value after appreciation = $116,985
- Year 5 value after appreciation = $121,664
$21,664/$100,000 all cash purchase = 21.7% over 5 years
Annualized to approximately 4% ROI
$21,664/$20,000 down payment = 108% over 5 years
Annualized ROI = 21.7%
Lesson of the Week – REI specific
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Follow Josh Koth and Jack Hoss on their journey towards financial freedom using the power of Real Estate through the REI Rookies Podcast (Real Estate Investing Rookies Podcast). We share our experiences as we acquire rental properties, build net worth, and work towards financial freedom. We are focused on creating wealth through conventional and creative real estate investing while improving our financial education. If you are a fan of Rich Dad Poor Dad by Robert Kiyosaki and Millionaire Real Estate Investor by Gary Keller or are looking for an alternative to the Dave Ramsey, Jim Cramer, Motley Fool or Suze Orman shows we invite you to subscribe today!