Second, invest in five $100,000 rental properties with 20% down or $20,000 each. 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.
$1,200 cash flow per year for five units over 30 years is $180,000.
$100,000 annually appreciated at 3% over 30 years is $242,726 x 5 is $1,213,630. Add $180,000 cash flow for total of $1,393,630.
$100,000 annually appreciated at 4% over 30 years is $324,339 x 5 is $1,621,695. Add $180,000 cash flow for total of $1,801,695.
I bought 2 houses, a condo, and 4 Plex in Vegas 2010-2012. On paper the 4 PLex looked like the best investment, but in practice it was a nightmare, finding tenant who actually paid rent, so I sold it a small loss cause price in Vegas have skyrocketed the last few years The other 3 have all had issues but have all appreciated and are currently rented, at least today.
First your profit is highly dependent on your cost of funds. The $100/month profit on your properties disappears entirely if the interest rate rises 1.5%. There is a big difference between the 4% I'm paying, the 6-7% a typical non owner occupied loan is going and a 12% hard money loan. My understanding is now days banks want 25-30% down for rentals.
Second there is even larger difference in profit from a absentee landlord like myself and hands on property manager like Calmloki or FishingNM have.
FishingNM, gets a 3% discount being a realtor. I'd be willing to bet that both Calmloki and FishingNM with more experience and being more hands on get better deals say another 3% lower price.
My property manager takes 8% (which is lower than more typical 10%)
It cost me 1 month rent to find a new tenant (and another 1-3 month of no rent while it is vacant), if I managed them myself it would be only 2 weeks so 2% lower income/year.
For logistical reasons I am stuck with my property managers list of approved repair guys other than move out clean up, where I have a team of inexpensive folks. I bet I pay 30% more than Calmloki or FishingNM for repairs so another 5% a year less income.
All in all I figure I get for a property that rents for a $1,000 being absentee cost me $150/month
I should add even being absentee doesn't mean no hassle. I still spend an inordinate amount of time, responding to HOA violations, tenant complaints, and taxes are a pain. Real estate is about 10% of my net worth but easily 1/3 of the time I spend on investments.
Finally, there is no guarantee that RE will go up or that you can increase rents. (I finally got my first rent increase this year of 3%) As much as complain, my bitches are nothing compared to the folks before me. Each property I bought the previous owner paid three to four times more, and they all lost every dime they put in and their credit ratings.
On the other hand, real estate certainly can be very profitable. There is only so much you can learn about being a landlord, from books, seminars, forum etc. But be very cautious before diving in.