- Cashflow- my most recent purchase was a $57,000. I put $5,700 down and got a mortgage for $51,300 at 4.5% for 30 years. The payment with taxes and insurance is $367. A military family that I rented the home to pays me $795 a month. So $795 - $367 = $428 in monthly positive cashflow. That's a total of $5,136 in annual cashflow before maintenance and vacancy. This is the greatest of all returns; therefore, it's listed first!
- Appreciation- I conservatively estimate that a 3 Br. 1.5 Ba in Columbia County will appreciate on average 4% per year. With the home being bought for $57,000, it would go up in value over time by 4% per year, or $2,280. Now an aggressive appreciation estimation would be 6-8%, considering how much money the Federal Reserve just printed we might should go with 20%, and since the home is really worth $90,00 we should multiply $90K by 4% to begin with. However, I'm being conservative...
- Depreciation- We'll depreciate the value of the structure after subtracting out the land ($57K - $5,700 = $51,300) and divide by 27.5 years (view my last post if you have any questions). This equals out to annual wear and tear on my house of $1,865. If I am in a 25% tax bracket, this $1,865 write off would be worth $466 in tax savings per year.
- Amortization- When I make my $367 payment, $67 of my payment actually goes towards repayment of the principal loan amount of $51,300. So after 1 year of payments, I'll owe $67 * 12 months = $804 less on my house! The best part: it's my tenant paying off the loan! So after year one, I'll only owe $50,500. Surely this return on my investment must be accounted for because after 30 years I'll own the home with no mortgage whatsoever! So that's an annual principal pay down of my loan in the amount of $804.

So we've now made $5,136 + $2,280 + $466 + $804 = $8,686. Supposedly, according to the news, real estate is a terrible investment. Yet somehow I was able to buy the above foreclosed home in today's real estate market? With $5,700 down, $3,000 in closing costs, and a $4,000 rehab, I've achieved a 68% Cash on Cash return? So remember CADA as you evaluate your next investment...