Originally Posted by cscott711
... Assume 6% cash on cash return, which is $100/month net cash flow or $1,200/year per unit. Calculated with 4% average annual appreciation based on historical data. 3% appreciation also calculated in case future trends are below past trends.
Math looks fine (though I didn't calculate). We know many folks love real estate and have got very good returns from real estate... while many have not. Leverage just makes it better... or worse.
IMHO the word assume
should have a red flag, as anyone who suffered $$$ from real estate probably contravened one of those little assumptions. You can hardly argue with cashflow and
The skill and trap? is in the execution:
Finance and find 5 properties that gives $100/month net (while paying for $400k mortgage and maintenance) and give 3% or 4% appreciation.
When you do that more detailed math, don't forget to allocate a decent chunk of rent to expenses outside the mortgage (some advise as high as 50%). This will provide safety in your estimate of $100/month.
Another appreciation warning to add to CalmLoki's. I find the appreciation impossible to quantify - except in hindsight, I am pretty good at that! I wish I had been like Fishingmn and bought 10 over the last 4 years
I am seeing that places which were outstanding buys in 2009 or OK even in early 2012 are a lot worse now.
IMHO 20% deposit and some cash buffer sound like an improved (lower risk) plan for a first time purchase, than personal debt and 100% financing.