finance

30% yield!? Try Real Estate as an investment

Filed in archive Investing on December 21, 2005

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The key to purchasing real estate as a low-risk, high yield investment is leverage. There has already been plenty written about this topic, but so many people continue to misunderstand. I will attempt to simplify with an example.



Suppose you purchase an investment property today for $135,000 that appraised for $150,000. If you can't purchase significantly below Appraisal, don't buy. Unless rents in your area are higher than normal, as rental income is going to pay your mortgage.



Pay as little down as possible. It's possible to pay nothing down, and that is the ideal, but for this example we'll assume 10%.



So far your total investment is $13,500.



If you've picked a suitable property in a suitable neighborhood, you should easily rent it for enough to cover the cost of the mortgage, insurance, and maintenance the first year. And, since rents go up regularly but your mortgage doesn't, you will soon have an additional income stream from the rent that this property generates.



If you hold onto the property until it doubles in value (depending on the market this could be as soon as five years, though will more likely be 10 to 12 years), It is now worth $300,000.



Your mortgage balance is probably somewhere around $105,000, making your equity $195,000. If you subtract your $13,500 down payment, you are still left with $181,500! All from a $13,500 investment!



You can see how purchasing just one house a year can easily make you wealthy.



Thsi entry has been contributed by Creative Reporter - Dorri Williams. He's a car guy who usually vents over at If it's got an engine. . .

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