Reply to What a self made multiple millionaire would do in your shoes to increase your net worth.

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[quote=Anonymous][quote=Anonymous]OP I saw your respnse to 21:38, not sure I understand.  Can you run through that with an example? TIA[/quote]

OP here.  Yes.  In fact understanding it is really important.

I live and know DC very well, so my example will be in DC.  Bedrooms are very important as they drive up rental income.  I look for the lowest bedroom to sales price.  I just did a search on the MLS and see that 207 R STREET NW Unit# 7 was listed as a short sale at $299K.

You can get an investor loan at 20% down.  Accordingly a $240K loan, $60K down.  I would write an offer for $299K with seller paying all closing costs.  $158K at 4% for 30 years is $1145 (I use mortgagecalculator.org to check quickly).  Add $201 for taxes and $310 for condo dues and $10 for insurance you get $1667.   It is a 2 bedroom and you should be able to rent at $2200+ per month.  $1100/bedroom should not be hard including utilities.  It is a condo, so it should be easy to manage.

$2200 x 85% = $1870.  $1870-$1667 is $203 x 12 months is $2426/year.  $60K down payment divided by $2426 results in a 4.04% cash on cash rate of return.  If you factor in the amount you are paying down the loan the total rate of return is increased $217/month for a total rate of return in excess of 8%.  If you manage it yourself you only need to multiply times 90% (management should be easy because it is a condo).   Total return is increased to 10% (6% cash on cash and another 4% loan pay down).

The above is an illustration only.  This is not a property I would buy.  I think the cash on cash return is too low, but the return is better than most people on here are currently getting.  What I like a lot is that the rents in this area are going up.  The property is a condo and easy to start with.  Mortgage rates are very low now and there is a lot of logic in locking in long term low interests rates.  Property value should increase (but I never count on it).  I could buy this property, hire a property manager and ignore it for the next 30 years.  I would in 30 years time be receiving after expenses a minimum of $1350 per month (inflation adjusted).  It would take the equivalent of 405K in the stock market to get the same return (and to get that same return in stocks you would not be able to take cash of $217/month, inflation adjusted).

Does that make sense?  You have to check scores or hundreds of properties to find ones that work, but they exist.[/quote]

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