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Updated about 6 years ago,
How do you factor interest into calculating net worth gain?
I’m new to investing and am researching and learning about REI before investing in my first property. I finished my first book on investing in multi family properties and am wondering how you factor in interest when using something like GRM to calculate increase in net worth.
The book uses an example like this:
Buy $200k quad property with 10 GRM, meaning income from rent per month is $1666.67 or an average of $416.67 per unit per month. After fixing up each unit, you might raise the rent to $500 each, bringing in $2k per month, $24k per year and using the GRM, the property is now worth $240k. So you increased your net worth by 40k.
But what about interest paid over a 30 year mortgage? On a 200k loan at 4.5%, that’s an extra $164,813 according to googles mortgage calculator.
I get that no matter how much you owe, 40k is always 40k, but where does the extra money owed over the course of a mortgage term come into play when doing things like refinancing, pulling out equity and buying another property? Or a 1031 exchange?