Is it Wise to Invest in Real Estate
in today’s HOT MARKET?
FREE REPORT
How to turn $30,000 into $100,000 in
10 years by
Investing in Real Estate.
Myth: Cap
Rates determine values in investment real estate.
Question: Do
you mean todays cap rate, or the cap rate 10 years from now?
Answer: The goal is to get started in investment real estate to realize big returns over time.
Yes, even
though today’s prices do not seem like it’s the right time to buy, my years of
real estate experience have showed me two things…
1. Prices do
not ever go down; they have stabilized but never drop.
2. You cannot find a safer or better return for
your money than real estate.
Data shows that home prices over the
last 25 years have increased on average 5%
per year and more in recent years.
The average price of a home in the
United States 50 years ago was $24,000 and today it is $278,000 nationally and
$240,000 in Lancaster county.
Average rental income on a two-bedroom
unit in Lancaster: $1091 per month.
What looks like a low return today
can turn into a huge profit in just 10 years.
If you are you looking for a safe way
to invest your money,
then please see the examples below:
Two-bedroom
house on the market for $90,000 with a rental income of $750 month.
At first
glance this may not seem like a great investment offering only a 6% cap rate,
but after a closer look over a 10-year return, things may look different.
Cost to
purchase:
Home Price: $89995.00
25 % down
payment: $22500.00
Closing Cost
(approximate): $ 5000.00
20-year
mortgage at 4% interest for 20 year term: $409.00
per month
20-year
mortgage at 3% interest for 20 year term: $375.00
per month
(Lets be
conservative and use the 4% interest rate):
Cost to
own:
RE taxes $2313.00
per year $193.00 per month
Property
Insurance (est) $ 650.00 per year $ 60.00 per month
Management
fee 8% $ 720.00 per year $ 60.00 per month
Tenant pays
$750.00 per month rent and all utilities – lease ends 5/2021. Current rent is
under market value.
Summary:
Monthly
Income from tenant: $750.00
per month
Monthly cost
to own: $722.00
per month
Positive
cash flow: $336.00 per year or $ 28.00 per month
At first glance
this deal really makes no sense and this is why most never realize the benefit
of owning investment real estate – but please read on.
Here is why this property is a great
deal – even with only a $28.00 per month positive cash flow in its first year.
There are many factors that can get
overlooked by even the most seasoned investor.
As we mentioned earlier, the average
rental income for a two-bedroom unit in Lancaster county is $1091.00 per month.
Remember also that home prices
increase on average 5% or more per year.
Taking those two factors into
consideration – lets take a look at a 10 year plan for owning this property
with a current $28.00 per month positive cash flow and how you can turn your
$30,000 into $100,000 profit owning just one property.
Image if you could do this just once
every year for the next 10 or even 20 years.
Let us
first look at conservative rent increases over the next 10 years.
Current year
1 $750 x 12 =
$9000.00 or $28 x 12 = $336.00
Year 2 $850 x 12 = $10200.00 or $128 x 12 = $1536.00
Year 3 $900 x 12 =
$10800.00 or $178 x 12 = $2136.00
Year 4 $925 x 12 =
$11100.00 or $203 x 12 = $2436.00
Year 5 $950 x 12 =
$11400.00 or $228 x 12 = $2736.00
Year 6 $975 x 12 =
$11700.00 or $253 x 12 = $3036.00
Year 7 $1000 x 12 =
$12000.00 or $278 x 12 = $3336.00
Year 8 $1025 x 12 =
$12300.00 or $303 x 12 = $3636.00
Year 9 $1050 x 12 =
$12600.00 or $328 x 12 = $3936.00
Year 10 $1100 x 12 =
$13200.00 or $378 x 12 = $4536.00
Total positive
cash flow over 10 years while your tenant pays the bills: $27660.00
Granted
some costs will increase slightly and you may incur some maintenance along the
way but at nowhere near the rate of rent increases.
Plus, you
will realize the appreciation of the home and profits from the sale – see more below:
Current
Home Value: $90,000.00
We will look
at a conservative 5% a year increase in value, the average for our nation:
2020 $90,000.00
2021 plus
$4500 $94,500.00
2022 plus $4725 $99,225.00
2023 plus
$4961 $104,186.00
2024 plus
$5209 $109,395.00
2025 plus
$5469 $114,864.00
2026 plus
$5743 $120,607.00
2027 plus
$6030 $126,637.00
2028 plus
$6331 $132,968.00
2029 plus
$6648 $139,616.00
2030 plus
$6980 $146,596.00
Mortgage payoff in 2030 if you only
pay the original mortgage payment of
$409.00 per month = $43,094.00
Let’s now look at the facts
Original
investment $30,000.00
Positive
cash flow over 10 years $27,660.00
Equity in
home after selling in 2030: $146,596 - $43,094 = $103,502.00
**Your
positive cash flow covers your original investment and the sale of the home
nets you $100,000.00 in real cash profits.
This
assuming a very conservative increase in value and a still under market monthly
rent.
Versus
earning 1-2 % bank interest on your original $30,000 might equal $6000 total
return.
**Your
actual results may vary and are not guaranteed.
Yes, there are many variables in Real Estate investing:
1. Location
2. Condition
3. Property
management
4. Knowledge
of the industry
5. Finding
good tenants, etc.
One thing is
certain however, hands down real estate has been the number one wealth producer
over time and there are professionals that are willing to help you along the
way.
If any of
the above information seems of interest or value to you, or if you just have
questions, feel free to call me anytime. I can help you through the process and
help you find the right property for your needs and budget.
Call or text
today, I would love to help open the world of real estate investing to you.
Jim Bull
– Realtor
Lancaster
office: 717.553.2500
Cell
phone: 717.951.5620
Home
office: 717.584.3296
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