The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: 9ft5wt on December 10, 2014, 07:05:04 AM
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So, let's say that I've got $50,000 that I can either invest in a taxable account or use as a down payment on my first rental home. This is Baltimore City, btw, and an overly simplified situation.
If I'm placing the down payment, I have a nice safety margin in 'oh-shit' money and mortgage for both the rental and my current home, which is nearby.
In a taxable account, $50,000 @ 7% for 15 years comes out to roughly $138,000.
For the rental, the $50,000 is transformed (over 15 years of the rent covering and completing the mortgage) into a $1000/month net for me, (after maintenance costs, taxes, etc) which is equivalent to 4% of $300,000 in a taxable account.
It seems that the rental unit will generate significantly more cash for me to use in my retirement than investing the $50,000 in a taxable account.
I feel like I'm missing something. Am I even remotely close to reality in this approximation?
Thanks!
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You'll need to provide much more information on the rental numbers.
But yes, it's certainly possible a rental can yield more.
(Especially on paper when your comparison handicaps one (by comparing it to a 4% WR) and not the other.)
Your rental will rent for ~2k/mo.? (Assuming you'll net 1k/mo. after the mortgage is paid off, and the 50% rule)?
If so, that's a great deal, it hits the 4% rule. If not, I'm skeptical your numbers are accurate.
Run the actual numbers. :)
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Thanks Arebelspy. Can you point me to other threads or resources where I can learn more about real-estate math?
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Thanks Arebelspy. Can you point me to other threads or resources where I can learn more about real-estate math?
He might have more places to look, but biggerpockets is a good place to learn some basics:
http://www.biggerpockets.com/renewsblog/2010/06/30/introduction-to-real-estate-analysis-investing/ (http://www.biggerpockets.com/renewsblog/2010/06/30/introduction-to-real-estate-analysis-investing/)
50% rule: http://www.biggerpockets.com/renewsblog/2013/06/14/50-percent-rule/ (http://www.biggerpockets.com/renewsblog/2013/06/14/50-percent-rule/)
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Buying a rental=running a business. Mutual funds=investment. So don't forget you're running a business with a rental property. Even if you do hire a manager to run things, you still have decisions to make, manage your PM, make upgrades and repairs etc. Mutual funds pay dividends and there is nothing to do-no missed rent payment, no toilets that get clogged, no evictions etc.
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If your rent isn't 1% of the purchase price or higher, you will almost certainly not beat index fund/stock returns once all the overhead/maintenance, transaction costs, and cost of your time/effort is accounted for.
As A-spy said, post the complete numbers. There's a sticky at the top of the forum on how to do it.
-W