Cumulative Cash on Cash Return - Theoretically Speaking

[Jason Merchey]

I'm not the best finance mind. I got a calculator called Rental Valuator. I like it. It's a teenie bit above my head, but I think I get it. My question is, when I plug in a property purchased today for 25% down, 30 year term, fixed interest, 60% income/40% expenses, appreciating at 3% a year over 30 years, vacancy of 4%, and rent and costs of doing business rising concordantly (3% annually), I get a "cumulative cash on cash return" of 1000% before taxes. I take that to mean the value of the property in regard to cash flow and appreciation and debt paydown VS. my 25% down payment doubled (from 0% to 100%) then doubled again (from 100% to 200%) and so on to a factor of 10, which basically beats the pants off of say, investing that $50,000 in stocks and seeing a 5% per year increase, for a total of 150%, or a factor of 1.5.

My question is, am I misinterpreting something, or do leveraged returns really skyrocket like that even in a gently-appreciating housing market? It sounds almost too good to be true. My second question is, it would seem that any rent increases of 3% a year would be cancelled out by expenses increases of 3% a year (thus causing me to feel skeptical). Are those two percentages equal, in other words, will they cancel each other out, or do I have that wrong? You can't boast increasing rents 3% a year for 30 years if your insurance and roof and HVAC and so on all cost 3% more per year. Also I will have paid more than $100k to the bank just to finance it, so there goes that money. Also is it safe to assume that over 30 years one will see a doubling in property values, or is there something wrong with that assumption?

As far as the ease of ownership, yes, there is a lot of management and upkeep, and yes missed payments can lead to a foreclosure, but if I go all 30 years and can sell the $200k property that I paid $50,000 for up front for $400k, it seems like a bombshell of an investment. Well, minus taxes on income and taxes on the sale. Am I making any mistakes in my understanding?