Hi been studying RE as an investment option and trying to figure out the numbers. Could someone check with my numbers to see whether I'm thinking about REI correctly? I can't seem a large benefit of REI in a case where you have to put 20% down in an average market.
Ex:
20% on $500k move-in ready duplex where about $1k cash flow (ideal scenario)
Assumptions - 6% housing appreciation, Stock 6% appreciation (conservative estimates)
Profit
- - House appreciation 6%/year
- - Mortgage paydown and it's 6% appreciation/year
- - Cashflow invested back into mortgage paydown
- +/- tax deductions
Expense
- - interest payment, taxes, home insurance, maintenance ~ roughly 1k a/f deduction (conservative est, probably alot more)
VS
Opportunity Cost
- Down payment 20% = 100k in mutual fund 6% return/yr
- $1k/month expenses that could be contributed to mutual fund
Yes there are still alot of variables
- housing and stock appreciation/return will vary depending on location/time/stock
- did not exactly calculate out the tax deductions / expenses but made a conservative estimate in favor of REI
- did not include time and fees dealing with REI transactions vs just working a few more hours at my job
What i'm seeing is that in a scenario where someone will not be building sweat equity or finding a crazy discounted deal on a property and going through a conventional 20% in an "average market", the argument doesn't seem as strong for REI vs mutual funds/stock - they seem to be pretty close if you take into account the variables mentioned above. However, I can see it being a fair investment if you wanted to replace your income and slowly retire from working.
I know this forum is mostly filled with REI enthusiast but I wanted to find a realistic picture of REI for the average person in an average market who will not be fixing up any houses.
