I was recently speaking with a potential joint venture partner. When I showed him the expected returns, he said 10% ROI sounds too good to be true!
Have to admit, I was unprepared to answer him. I guess as a real estate investor, and doing this for several years, double-digit ROI has become the norm for me.
I have spent some time thinking of an example to best illustrate this, and the best example comes from real life.
Consider your own home if you are a homeowner. You likely purchased it with 25% down or less, and used a mortgage for the rest.
DOWN PAYMENT + 25 YEAR MORTGAGE PAYMENTS(average length of a mortgage) = FREE AND CLEAR HOME
25%(down) + 75%(principal)+ 50%(bank interest) = 100% free and clear
To calculate ROI:
- 100% free and clear – (25%down + 75%principal+ 50%interest)
- (25%down + 75%principal+ 50%interest)
Assuming home values did not change in 25 years, purchasing a home and living in it costs far more than what it is worth. NOT a good investment.
Now consider the formula for an investment home:
25%(down) + 0%(principal and interest thanks to tenant) = 100% free and clear
So ROI formula:
- 100% free and clear – (25%down + 0%principal+ 0%interest)
- (25%down + 0%principal+ 0%interest)
On this rental property, you made %300 ROI. Divide by 25 years to pay off mortgage and you have 12% ROI per year. So there you have it.
With real estate investing, double digit returns are not only possible, they are INEVITABLE.
If you want double digit returns to become a normal part of your life as well, please give me a call, private message, or leave a comment below :).
Until next time,