While television, infomercials, and internet advertising assures us of overnight riches in Real Estate Investing, the true power comes from holding property for the long term.
I recently interviewed Tom Latimer, former President of the Metrolina REIA and one of the most seasoned landlords I know. I asked him for specifics on the two properties he’s owned the longest and still owns. Notice the primary advantages: rents appreciate over time, while mortgage payments stay the same, and real estate is the only investment that you can finance and have someone else (your tenants) pay off for you.
First up is a duplex on Columbus Circle in Charlotte, NC. It was purchased in 1975 for $18K, and has a probable market value today of around $75K, though he has no intention of selling. The original mortgage payment was around $177 per month, including taxes and insurance, and the original rent for both sides totaled $280. Fast forward 35+ years, the mortgage is paid off, but even if it weren’t, with increased taxes and insurance, the probable monthly payment would be around $250 per month, but the total rent is a staggering $1225 per month! The payment grew 40 percent, but the rent grew over 400 percent!
The second property is a single-family house on Ravencroft, also in Charlotte. Original purchase price was $19K, with a similar probable current value of $75K. It had a very similar initial mortgage payment of $177, and the initial rent was just below $300. Fast-forwarding to the present, even if the mortgage still existed, only the taxes and insurance portion would have increased, making a probable monthly payment today of around $250-300. This property is now rented for $700 per month (duplexes tend to yield a much higher cashflow).
The math on these examples is mind-blowing! Yes, today’s rent is not all profit, as responsible landlords escrow a monthly amount for potential vacancy, maintenance, replacement of major items, etc. as well as taxes and insurance. Adding the income together we get $1925 per month, and conservatively we’ll figure that $600 per month should be set aside for expenses. That’s a net profit of $1325, month in and month out, from an investment made when Gerald Ford was President!
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