@Brian Kilpatrick
The concept you're reaching for is annual Cash-on-Cash Return.
Here's a scenario to follow along with with your calculator.
Say for example you find a single-family house for $50K, buy it for cash and renovate it for an additional $25K. You have $75K of cash in the deal. You find a tenant for this house who rents it for $1300/month. After taxes, insurance, maintenance, management, vacancy, and capital expenditures, let's say you're putting away $800/month, or $8400/year. For the $75K you initially invested in the deal, you're getting back 11.2% per year. This is an exciting return on invested capital in real estate, but not an extraordinary one.
However, let's say you manage to get the place appraised for $140K. A lender allows you to borrow 75% of that sum against the property for 20 years at 5% interest. That's $105K. $105K-$75K (your initial investment) comes out to $30K extra in your pocket. Well, $5K of that will go for loan origination costs, so the total amount of money you'll take out of the property in this loan is $100K, and that's $25K profit.
Yes, you will be left with a mortgage on the property, which will require a monthly payment of $693. Your monthly cash flow on this property will dry up to a trickle, but all of your money will be out of the property and it will still be putting $1200 in your pocket every year. You will have recovered your entire initial investment, plus $25K more. That money goes into another property. Repeat again, and you have three properties. Repeat 10 times, and you have $12000/year from your rental properties coming into your pocket every year and $325K in cash.
Theoretically, you could go on and on and on. But typically, what then happens is that you would turn around and pour your $325K back into these properties. Pay off the rest of what you owe on the first five you bought with that money. Your cash flow from each property, let's say, jumps up to $800/month from each, $9600/year, and for all five together, $48K per year.
Use that money to pay off the sixth property. Then snowball that into the seventh, eighth, ninth, and tenth properties. Ten of these paid-off properties will net you $96K a year.
Fifteen years from getting $75K in savings together to an annual take-home income of $96K/year and let's say, with conservative appreciation, $1.5M in real estate assets owned free-and-clear. That's a pretty good middle class retirement.
But what most people would then do is sell the portfolio and move on to doing something simpler, with less of a return and less risk.
