First, we definitely shouldn’t be making this decision based on the media headlines, as they definitely do not represent the facts about the housing market. Real estate investment has once again become a hot topic around many water coolers and dinner tables, I believe because of the volatility and uncertainty in the stock market. Chasing returns on the stock market can be very stressful and requires a lot of time and knowledge, and even then the returns have not been great. Today many people are looking into the less glamorous, but also less volatile world of real estate investing.
The challenge with real estate investing is, it requires a larger amount of capital and is viewed as a longer term investment. The minimum down payment on a rental property is 20% of the purchase price, so on a $500,000 purchase you need $100,000 and this is a large cash outlay for one investment. That being said, if house prices increase by even 1% per year over the next 10 years, and we assume that the rent covers the carrying cost of the mortgage and property taxes, you can get a pretty nice return. Your equity will increase by $124,554 just by paying your monthly mortgage payments that the rent will cover, and then add $52,311 in property appreciation and in 10 years you will have turned $100,000 into $276,865 for an annual rate of return of 10.72%.
If you are interested in taking a look at the real estate investment market or for any mortgage questions Call Daryl French today at 250-470-8843.