Examples of Return on Investment on Rental Property

The Beauty of a Paid Off Investment
By R Scott Corbridge, MPM, RMP

Based on actual properties listed on the MLS, current rental values as of 2010 and assuming a 20% down payment.

In this property the cash flow of $201/month can be used for repairs, maintenance or paying down the mortgage in 20 years. Based upon these assumptions (which are designed to be conservative), your initial investment of $20,000 is now worth $223,000. which is a 55% annual return on your original investment. This does not take into consideration tax deductions along the way.

It’s important to note that even if there was 0% appreciation, with the property now paid off and worth what you paid for it, you would still have a 20%/year return on your investment! What is your downside risk? Real estate has never gone down in value over a 20 year period.

It gets even better; Once the property is paid off, it is now throwing off cash which I call a Forever Annuity. If rental rates increase just 2.5% per year over 20 years, this property could become a cash cow earning $1450/month. Again, based upon your initial investment of $20,000, this income of  $17,400  would be a return of 87% per year for as long as you own the home (and while it continues to increase in value).  Is this a great country or what?

Here are some more examples taken from the current MLS:      

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*Based on Constant over 20 years
**30 Year at 6%
***Management + Leasing (prorated monthly), (goes down on renewals)
**** Based on 4% annual (NAR average nationally is 6%)

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