I have discussed before the 4 benefits of owning residential investment property. And today I had a little fun with a stock broker from Kansas City that was, well gloating I think would be the term, on the fall of real estate as an investment vehicle.
Really?
I know I shouldn’t do these things, but I decided to have a little fun with him. Here is some simple math;
$100,000 invested in the stock market returning 10% a year (his number) will give you a $10,000 increase in your portfolio after one year. Not too bad, actually.
$100,000 invested in real estate, however, should net you around the $20,000 in the same period of time. Is that better? Let me explain.
Take the $100,000 cash and purchase $400,000 worth of real estate (4 $100,000 houses, 1 $400,000 apartment…really doesn’t matter) with a historical appreciation rate of 5%. That leads to a $20,000 increase in property value after one year.
Now you may want to say what if houses don’t appreciate 5% this year? Good question. But if you are holding for 6-8 years, does it matter for any one year what appreciation is? Remember, historical appreciation in Kansas City is 5% on average. Some years have been 10%-12%. Other years, like last year, were -2% to +3%. Heck, my zip code was 6.6% last year.
“Wait. We’re not done here yet,” I told him. “Remember, real estate yields four benefits; cash flow before taxes, principal reduction, depreciation and appreciation. We’ve only discussed one of the benefits!”
You MUST know your numbers when you are going to purchase investment real estate here in Kansas City. Or anywhere, for that matter. Here in Kansas City, I feel like I’m alone in this proclamation. And as I look around the country, I find very few professional real estate agents who truly work with and understand the purchase and management of rental property.
BBQ Capital | Kansas City Real Estate Investing 