Patience Pays Off: Unveiling the Long-Term Wealth Potential of Real Estate

I’ve recently stated that real estate is a marathon.

I’m not sure everyone understands what I mean.

I’ll explain.

It’s not about the speed at which you acquire properties. It’s about how your income and net worth grows over time for each property.

The best way to explain is with an example.

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I’m going to do some math. You can just read the results if you don’t like math. LOL

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Let’s assume you buy a rental property worth $100,000/door that rents for $1,000 per unit. After all expenses, let’s assume you net $100/door the first year.

Not exciting. But, let’s see what happens with time.

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Let’s assume rents increase 3%/year. We’ll ignore expenses for the moment, since the big expenses are fixed (mortgage, interest, and property taxes in many counties).

A 3% increase may not sound exciting, but let’s look closer.

The 3% increase is on the GROSS rent, not net.

This is actually a 30% INCREASE in NET rents.

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Math:

(You can skip this if you’d like)

Your net income in this example is 10% of gross rents. ($100/$1000 = 10%)

3% of gross rent ($1000) = $30

$30/$100 (your net profit) = 30% increase in net rent

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Now, it’s getting more interesting. But, let’s keep going.

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Your tenant is paying your mortgage. That’s in addition to your net monthly profit.

If you have an $80,000 mortgage per door, your mortgage is paid down by $1,180 in year 1, $1,237 in year 2, $1,299 in year 3…

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In 10 years, this is what the numbers look like:

Gross rent per door - $1,305.00

Net rent per door - $405.00

Total equity earned - $14,926.00

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Time has a big impact on your revenue growth.

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If you are in a high growth area, your monthly net rent will be even higher than the example above.

In you are in a high growth area, your property value will also increase.

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If you buy more doors, you can see how exciting the numbers start to look.

Happy Investing!