Caveat to my comments here. I'm getting back into real estate after having my portfolio and life derailed from 2008 for the last 11 years, so I might have a skewed, albeit overly conservative view on all of these topics.
It seems to me what we all need to do is figure out all the average numbers for those calculations for similar properties in areas and see how things compare. Then set those numbers your risk tolerance.
It feels like a dashboard of all those numbers would give you a better sense of the true output/value to you of that property. That seems tedious but data is available and your friend when it comes to larger picture and it takes the emotion out. Being realistic about costs is a vital part of making this effort effective.
BTW, no one should rely on long term "appreciation" of property for "income" as a couple of studies have shown that real estate on average has not gained value in 100 years when factoring in all costs. The best you can hope for is a break even years down the road while pulling out income in the mean time. That's why these calculations are important.
Michael Evans I believe you are accidentally illustrating the point in the danger of isolating a favorite calculation and basing a purchase decision off of that vs taking a few sides and comparing them. At one time I thought like you, then 2008.
On one side you have 1 set of risks, expenses and time to manage against. You also only have 1 market value to worry about the bottom falling out on (aka you can cash out and take your lumps if need be). On the other side you have all of those things times 10 for what is most likely a 30 year time period (aka you'll be upside down on many properties making an escape plan very difficult and long lasting). Leverage definitely supercharges ROI, but it isn't your ROI. Everyone except math nerds can probably stop reading, point made, but numbers to follow...
Use compounding to acquire additional fully paid for properties against your example and see the outcome in 30 years.
Excluding the reality of expenses of owning properties (as your example does for easy illustration purposes), in year 18 you have 10 fully paid for $100k properties (aka a million dollars) generating $150,000 per year in income and slowly escalating your risk now with capital to pay for it. In your supercharged roi example you still have the same yearly income as year 1 and 12 more years of paying for those properties which will have cost you $1,642,000 to purchase by the end leaving you with an income of $150,000 yearly. Playing out the compounding example at 30 years you'd easily have 25+ ($2.5m worth plus excess funds from each year after 19) with a yearly income of $375,000.
