Clarifying rent to value:
$100,000 property needs to gross $1,000 per month to be at 1%?
Any feedback on the following example:?
$100,000 property price without leverage aka using 100% cash
$12,000 total rent $1,000/mo (property never vacant)
$1,200 property management 10% of rent (not using half month rent to find tenant)
$2,400 taxes
$2,000 (1 to 3% in maintenance and repairs using 2%)
$600 per year in insurance
$3,000 appreciation (average 3.1% from 1900-2012)
$9,000 or 9% Total income and appreciation over a year
9.4% for the stock market (average 1900 to 2012)
Without using leverage it seems like it would be a lot less work to just buy stocks with a higher return?
Using 80% leverage in the above example - 9% minus (5% loan interest rate)= 4% * 4 + 9% = 14.6% for a house - not sure my math is exactly right on this one.
5.2% difference between real estate and stocks - But seems like Real Estate is typically much more work
***doesn't factor in "good deals" tax consequences etc. etc. because you can probably find both in stocks and RE
In my area for about $40,000 I can pick up a property that will bring probably around $700/month.
20% down - $8,000
$2,000 in closing is $10,000.
$2,000 in fix it up.
3 to 6 months cash reserve = $4000
Need about $16,000 to do a $40,000 deal?
Still looking for my next step? Is it to $16,000? Or should I start looking at the "No Money Down Real Estate?" I saw one person only made like $1,800 over a year period a wholesale deal & lost money when you figure in expenses.
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Sources:
http://observationsandnotes.blogspot.com/2009/03/average-annual-stock-market-return.html
The long-term, more than 100-year performance: Since 1900 (end-of-year 1899), through 2012, I estimate the average total return/year of the DJIA (Dow Jones Industrial Average) was approximately 9.4% -- 4.8% in price appreciation, plus approx 4.6% in dividends. (Some numbers may not add up due to rounding.)
http://observationsandnotes.blogspot.com/2011/06/us-housing-prices-since-1900.html
“You might be more interested to know that the average annual home price increase for the U.S. during the whole 1900 - 2012 period was only 3.1%/year -- just a shade better than the inflation rate of 3.0%/year.”
http://www.jacksonvillewealthbuilders.com/how-much-rental-income-to-holdback-for-maintenance-and-repairs/
http://stocks.about.com/od/advancedtrading/a/Martrade010305.htm
You don’t have to borrow up to 50%, but that is as high as you can go. Some stocks may have lower limits and some brokers might not let you margin up to 50%.
https://www.tdameritrade.com/pricing/margin-and-interest-rates.page
TD Ameritrade margin account interest rate is 9%
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