Ed Neuhaus After a lot of positive response from my post last week “The tortoise wins every time” I decided to see what other theories we could test out. My business partner Stephen Smith suggested we look at something simple like a $100,000 property purchased every year for ten years.
The Plan
We buy a $100,000 home every January. We put 20% down so we can avoid paying PMI. Because we are “investors” our rate will be a little higher than if we were owner occupants. For simplicity sake we are going to assume that rent covers all carrying cost of the loan, not a penny more or a penny less. We will assume that these properties appreciate at an average rate of 3%.
The Results
Years 1-3: Each year we are saving up $20,000 to buy a new property. If we have just purchased property #3 we now have put $60,000 into our investments. Combined property value is now $309,030. After we paid the debt on the property we will have a profit of $72,272.
Year 7: We have invested $140,000 in 7 years. That is $766,244 worth of real estate. If we sell everything today and pay off all the loans we will have around $239,722 left—about a 12% ROI each year.
Year 15: We have purchased all ten properties as planned, investing $200,000 in ten years. That is $1,234,420 worth of real estate that we only paid $200,000 for.
Summary
You don’t have to buy anything “special” or at a great price to make money in real estate. Sure those things help amplify the results, but nothing does more for real estate than time. Time is the greatest creator of wealth in real estate. The longer your time horizon the less critical it is to buy the “right” property. Making sure you buy a good rental property that will stand the test of time is job one. Everything else is just a bonus.
Originally published on LinkedIn December 29, 2014
