Conservative calculations in your real estate investments can bring rewarding returns.
Last month’s article left you wondering about maintenance and vacancy and how that impacts the numbers discussed. If the investor as the CEO of their new real estate investment firm makes the right decision with respect to buying the right property, and working with the right property management, is it reasonable to think that such a property can be maintained and vacancies weathered with 40 percent of the acquisition price?
That is $41,980.00 to take care of these contingencies for the 30 years discussed. Many say that can be on the conservative side and the figure is much lower than that. So be it…Let’s be conservative. Subtracting the $41,980.00 from the $221,407.16, the remainder is $179,427.16. That is a great return and that figure does not include the $5,500.00 put back in the investor’s pocket, the $20,990.00 initial investment (still belongs to investor), rent raises, appreciation, tax benefits, or hedge against inflation. When you plug in these figures to evidence, the return any calculator will show is the sum of “ridiculous” as a final figure.
Since I like to play in the conservative waters, we can beat on these numbers a little more and see what we get. Let’s estimate that the monthly cashflow after the principle, interest, tax, insurance and property management is $250.00. That is a somewhat unsexy number for a $104,950.00 property. Especially when maintenance and vacancy are not part of the equation yet. It’s time to calculate:
22-month recovery at $250 per month
338 months left to cashflow (360-22 = 338)
$84,500.00 cashflow ($338 months X $250.00)
$168,460.00 income ($84,500 cashflow + $83,960.00 paid off loan)
$41,980.00 contingency for maintenance and vacancy for 30 years
$126,480.00 total income subtracting the contingency fund of $41.980.00
All together =
$5,500.00 paid back
$20,990 still invested in the property
$126,480.00 clear profit
So, we see at even a small income of $250.00 per month this one investment can generate $126,480.00 of profit on top of paying the investor back their $5,500.00 and holding their $20,990.00 in a secure place where their Mr. Hyde consumer cannot take it and buy a depreciating toy.
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