The Rate of Return from ONLY Principal Paydown

[Andrew Syrios]

I was curious on what the rate of return would be on real estate from nothing more than principal paydown alone. Turns out it's not that shabby. Using my trusty CCIM Institute financial calculator, if you get a 80% LTV loan with a 20 year amortization, then break even for 20 years while the property gains nothing in value (which never happens over 20 years), the rate of return is still 7.18%.

Yes, it's not a "cash return," it's just "equity and no, it's not incredible by any means, but nothing to sneeze at. The historical average for the stock market is about 10%. (https://www.nerdwallet.com/.../average-stock-market-return) And this is just principal paydown. It doesn't include the appreciation (like the insanity we're seeing now), tax advantages cash flow or the other advantages of buy and hold: https://www.biggerpockets.com/...

It would also be a lower return if you paid it off early as the early payments are mostly interest, but it still shows the power of buy and hold real estate.

Overall, another reason to love real estate.

[Joe Villeneuve]

I went back and read the posts here again. Somehow I got confused (I think) and I apologize. Somewhere I interpreted the paydown we were talking about as coming "out of pocket" and not exclusively coming from the normal mortgage payment that's paid by the tenant's rent money. Of course mortgage paydown is a gain, if the money comes from the rent and not the cash flow or the REI's own personal cash.

As a result, I fired my proof reader (that would be my body double).