Quote:
Originally Posted by Piotrsko
Is this still true with the higher mortgage levels of the past couple of years?
I suppose the 3.5% doesn't include the value escalation on sale? I know several that don't make money until the eventual sale
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No, I'm not including potential property value increases in my ROI. Those are not guaranteed and I've seen first hand property values plummet twice. Once to due a industry leaving town and again back in 2008. I will not buy a property that doesn't have positive cash flow on day 1.
We paid $95,000 for our rental duplex in 2020. It sold for $98,000 in 1999. 20 years and a loss even before adjusting for inflation.
My parent's house is worth $100K less than when they bought it when adjusted for inflation.
We paid cash but if we had a mortgage it would be about $450 a month on a 30 year. The rent is $700 per side.
To date we made a 5.4% annualized return on that $95,000 investment. The drumbeat that property owners are screwing over renters gets really old when you look at the financials.
EDIT: Another thing to factor in when talking about the appreciation of a rental property is that that gain is taxable. Property owners are also allowed to depreciate a property at 3.63% per year for 27 years but if you take that option you are reducing your cost basis. So if I depreciate my rental to $45,000 and sell it for $145,000 I have to pay taxes on a $100,000 gain not the $50,000 from the original purchase price.