Is this a fair way to value the future potential of an investment property

[David Ackerman]

Hi all. I was just wondering if this is a fair way to value the potential return on an investment property. Let me know what you think.

I purchased a $143,000 townhome with 20% down & a 30 year fixed @4.6% right outside Raleigh, NC. My closing costs were about $5,000. My initial investment was around $33,000.

STEP 1: Being extremely conservative, I figured in 1% price appreciation per year for 30 years. So, in 2042, when my loan will be paid off (of course, this only assumes I never pay down my mortgage) I value the town home at $194,658

STEP 2:I calculated the cash flow for 30 years. Right now I am clearing around $200/month. I figure rents will rise over the 30 years. Being extremely conservative, I estimate my average cash flow/month with be $250. If I multiply that by 12 I get $3,000 in cash flow per year. If I multiply $3,000 X 30 years I get $90,000 in cash flow over 30 years.

Now I have to calculate for REPAIRS and VACANCY. I will use 50% of cash flow for REPAIRS and VACANCY. So, now I am left with $45,000 in cash flow after 30 years.

STEP 3:Not including taxes, in 2042, if this scenario plays out, the value of the townhome will be $194,658 + $45,000 =$239,658.

STEP 4:I calculate the total return on my $33,000 investment to be 724% over 30 years ($239,658/$33,000)

**this does not include the potential of pulling out equity to buy more units and it doesn't include the tax benefits.

Does this calculation make sense? Am I looking at this investment in a fair way?

I look forward to hearing comments,

thnx,

Dave