Return on Investment via real estate
Make A 5-7% Return On Investment (ROI)
January 2009
Why would you buy a revenue property now when you feel the market is not going anywhere fast? Well, how about starting an investment now where you get a 5-7% return per year?
When I started in the business, history has told me that when the market peaks then experiences a recession, it takes an average of 7.5 years before the peak property price is surpassed. This happened in 1981 to 1988 and in 1995 to 2001. The smaller recession in 1990 took 2.5 years for the peak property price to be surpassed. These time perods may be shortened if the property is in a premium location. Due to the low mortgage rates currently available to the home buyer, each mortage payment made will pay off 30% to 40% of the principal owed or in other words, increase your equity just like an automatic savings account with a return on investment of 5% to 7%.
January 2009
Why would you buy a revenue property now when you feel the market is not going anywhere fast? Well, how about starting an investment now where you get a 5-7% return per year?
When I started in the business, history has told me that when the market peaks then experiences a recession, it takes an average of 7.5 years before the peak property price is surpassed. This happened in 1981 to 1988 and in 1995 to 2001. The smaller recession in 1990 took 2.5 years for the peak property price to be surpassed. These time perods may be shortened if the property is in a premium location. Due to the low mortgage rates currently available to the home buyer, each mortage payment made will pay off 30% to 40% of the principal owed or in other words, increase your equity just like an automatic savings account with a return on investment of 5% to 7%.
Here is an example:
Purchase Price: $300,000
25% Downpayment: $75,000
1st Mortgage: $225,000 @ 4.5% (25 year amortization) = $1,250.62 per month
Property Transfer Tax: $4,000
Legal Costs: $1,000
Total Amount Invested: $80,000
The rent is $1,500 per month which covers the mortgage payment, maintenance fees(if applicable) and the property taxes.
Your amortization schedule will show that after the first year $4,984.43 of the principal has been paid down or your equity has just gone up $4,984.43.
To calculate your basic Return On Investment(ROI)
$4,984.43/$80,000(Downpayment or Amount of Investment) = 6.2%
With a lower mortage rate and/or higher rent you will get a higher return or ROI.
Every year your yearly equity increases. By the 5th year you would have paid off a total of
about $27,319.66 = 27,319.66/80,000/5 years = 6.8% per year
November and December 2007, about 1 year ago, we hit the peak price and the market has since gone down 15-20-25%. We may have another 5-6 years before the peak price is surpassed but in the mean time get your money working for you. We are either at or approaching the bottom in early 2009. So in this new year start or continue your Real Estate Investment Property program. Time to LOOK, BUY & HOLD.
1st Mortgage: $225,000 @ 4.5% (25 year amortization) = $1,250.62 per month
Property Transfer Tax: $4,000
Legal Costs: $1,000
Total Amount Invested: $80,000
The rent is $1,500 per month which covers the mortgage payment, maintenance fees(if applicable) and the property taxes.
Your amortization schedule will show that after the first year $4,984.43 of the principal has been paid down or your equity has just gone up $4,984.43.
To calculate your basic Return On Investment(ROI)
$4,984.43/$80,000(Downpayment or Amount of Investment) = 6.2%
With a lower mortage rate and/or higher rent you will get a higher return or ROI.
Every year your yearly equity increases. By the 5th year you would have paid off a total of
about $27,319.66 = 27,319.66/80,000/5 years = 6.8% per year
November and December 2007, about 1 year ago, we hit the peak price and the market has since gone down 15-20-25%. We may have another 5-6 years before the peak price is surpassed but in the mean time get your money working for you. We are either at or approaching the bottom in early 2009. So in this new year start or continue your Real Estate Investment Property program. Time to LOOK, BUY & HOLD.
By the time I retire, I hope the mortgages to be paid off and the rent will be my retirement income. Yes, I've started my Real Estate Investment Properties (REIP'S) journey 10 yrs ago and it's been a plan that lets me sleep at nights even when the stock market collapses 35%-65% ie. 2001 and in 2008 depending on which global market you invested in.
Contact me at 604-412-5860 or tinamak@tinamak.com if u like to join my REIP program.
