Return To REALTOR.ca
519-536-7535 ext 487

Woodstock Ontario Real Estate

Search More

Ben Sage, Moving Woodstock

When is an 8% return on investment actually 35% ???

Posted on January 14, 2012 by Ben Sage in Uncategorized

Good day all!

Many of you know that I am not only a Real Estate Salesperson, but also a Real Estate Investor.  The purpose of this blog post is to show how you can absolutely demolish returns expected through traditional stock-market investments through Real Estate Investment.

So, how is it possible to earn HUGE returns on your investment in this volatile marketplace?

Let’s use my new listing at 42 Vansittart Avenue in Woodstock as an example.

Asking Price is $157,750.
Both units are currently rented, grossing $16,800 annually. 
Landlord covers Property Taxes ($2,138 annually), Water ($1,100 annually), and Water Heater Rentals ($380 annually)
You should probably have insurance too ($600 annually).

This leaves a NET OPERATING INCOME (NOI) of $12,582.  

When you consider that you’ll earn $12,500 on a purchase price of $157,750, you end up with a RETURN ON INVESTMENT (ROI) of 7.92% or, 8%. 

This 8% return on investment assumes that you paid $157,750 in CASH for the property. 

Not a bad return, when I consider what my Mutual Fund portfolio looks like at the end of 2011……but….

BEHOLD the POWER OF LEVERAGING!

Suppose, however, you decided take out a mortgage on the property, as opposed to pay cash for the full amount.  How does the investment look then?

Well, you’d need a 20% downpayment (thanks to the instability in the global markets, investors need to pay 20% upfront in order to purchase “speculative” property).

So, your 20% downpayment would be $31,550.

Lets assume closing costs at 1.5% (may be more, may be less, depending on certain circumstances).  Another $2,366.25.

Your total out of pocket expense would be $33,916.

We now must add the cost of borrowing that money into our expenses.  Year 1 on a mortgage (using 4% fixed/15 years) would cost you $4,893, reducing your ROI to $7,688

Considering you’ve only invested $33,916, and you’re earning $7,688 on that investment, it now shows a return of 23%.

TRADITIONALLY, PROPERTY VALUE IS AN APPRECIATING ASSET

Calculating Capital Appreciation based on 2.5% annual increase in property values (historically, increases have been much higher than that, however, lets be reasonable here – historic increases are largely unsustainable, and a more conservative approach is prudent) shows a further gain of $3,950 in equity.

LOOKING AT THE BIG PICTURE…..

After the first year, you’ve seen a 23% return on your cash investment, and you’ve seen an appreciation in the asset of 2.5% or $3,950 (representing a further 12% return on your cash investment), for a TOTAL RETURN ON CASH INVESTMENT of 35% in your FIRST YEAR!

MONEY OUT = $33,916

CASH RETURN = $7,688
CAPITAL APPRECIATION = $3,950

(TOTAL RETURN = $11,638) 
Divided By 
(TOTAL INVESTMENT = $33,916) 
 equals 
34% ROI
CALL ME TODAY TO GET STARTED!

 

Ben Sage, Sales Representative. www.facebook.com/SageAdviceRealEstate  www.bensage.com www.oxfordcountyhomes.ca Re/Max a-b Realty Ltd., Brokerage. 519-536-7535. 521 Dundas St., Woodstock, ON

This post originated at my website, located at www.bensage.com

0 comments

Leave A Comment