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All Forum Posts by: Robert Barbu

Robert Barbu has started 1 posts and replied 2 times.

CAGR is a geometric average return on your equity. So if you make 10% the first year on $1 of equity (so 1.1x your money), you need to make 10% off the 1.1x starting point (so 1.1*1.1 = 1.21x) to maintain a 10% average CAGR across the two years.

In your example, if the $800 per month is after interest, then you made a 38% return (CAGR) for that year ($800*12/$25,000). It's a -14% return if that $800 is before interest ($375k debt * 3% = $13,125 in interest expenses). In both cases I'm using $25k (your equity) as the denominator. 
Assuming you meant after-interest, the returns look great but well fall as you do scheduled debt paydown (so your equity, the denominator, grows). Also cash returns tend to overstate the real return because not all depreciation is "paper"; depreciation is supposed to (and to some extent does) proxy that the property gets worn-out after a while and you'll need to spend additional money at some point on capital improvements to keep it in shape to be rented-out.

Also how are you only putting 6.7% equity down? FHA loan?

I'm considering investing in real estate to accelerate the growth of my wealth, and wanted to see what my options are. Given my situation (see below), what real estate strategies are the best fit, what are the typical ranges of returns on them, and what are their other pros / cons?

Context: I'm entirely invested in low cost, diversified stock index funds, and I expect them to earn a~8% CAGR on a nominal basis. I'm looking for an investment strategy that should make at least a ~10% CAGR on my equity (to compensate me for the extra effort of not sticking to my current low-maintenance investment strategy), and that would allow me to invest at least $100k per year. I'm willing to put in extra work but I'm not looking for a full-on second job. I'm also hesitant to bet heavily on permanent tax deferral strategies (e.g., "buy, borrow, die") as a lot could change about the tax code over my lifetime.