I’m not talking about committing hundreds of thousands of dollar and every weekend of your time. I’m talking about owning one, two, five or maybe as many as ten homes for investment purposes. Too hard? Well, start with one. If that does it for you move on to another. When you reach your limit, you’ll know.
But here is what owning just one income property can do for you over the next fifteen years of your life. And if you think that is too long, how old are you and what is your life expectancy?
This example will not be all inclusive and I simply don’t want to write 10,000 words showing how I arrived at all of this. You are welcome to call or
email for details.
Buy $175,000 duplex with 25% down at 7.12% interest. Monthly rents at $1,475. Now, I’m going to take into account 5% vacancies and other expenses like insurance, taxes and general maintenance. Also, there will be 5% risers on the income and property value figured in. Here we go;
Year 1 – Income of $17,700 minus expenses of $6,800 minus debt service of $10,608 equals $292 yearly income. House value still $175,000. (To account for slow growth this year and as a cushion. – Hey, I’m being ultra conservative here to make a point.)
Year 5 – Income of $22,500 minus expenses of $8,315 minus debt service of $10,608 equals $3,577 yearly income. House value is now $210,000.
Year 15 – Income off $34,500 minus expenses of $13,750 minus debt service of $10,608 equals $10,142 yearly income. House value is now $319,500.
Note: There were a couple years in there I did not count or did not count in full 5% risers. Again, just being conservative.
So let’s look carefully at this. And we are not going to discuss all the
4 Benefits that we know we have when investing in real estate. We are
only going to consider the net equity of the house after 8% sales costs. (You know, the real estate agent, title company and the like.) We’re not even considering the cash flow you had and can see for yourself. Because you probably spent that on your kids’ education or a BMW or
another rental property.
House value is now $319,500 minus the $25,560 in sales fees minus the remaining loan balance of $97,600 equals $196,340.
Chris, what about capital gains taxes? What about state capital gains taxes? What about, what about, what about?
To be fair, cap gains taxes are 15% for the feds and vary state to state. But you want to count those? Okay. But to get the details you also need to go back and adjust your yearly income by adding in depreciation. Ah, oh. Now we have depreciation recapture to worry about.
Listen, there are a lot of things going on here. This is an overly simplistic way to get you to stop and think about your
Retirement Worth Having and how real estate investing can be a valuable tool in the box. Obviously, you are going to need to work with a professional to counsel you through the landmines and pitfalls to maximize your benefits.
Just stop though, for a minute, and think about the retirement you want to have. How will it look? Where will it be? What amount of money do you need to make that happen? Would another $196,000 help?
What are the real rents?
BBQ Capital | Kansas City Real Estate Investing 