Investing returns - Posted by rob day

Posted by Dave T on November 27, 2001 at 22:55:14:

Don’t forget to add the equity gained by paying down the mortgage. The mortgage payments on that $40K loan at 7% (30 yr fixed) will pay down the loan balance another 1% just in the first year.

Your total return calculation is even a little better when you include loan amortization.

Investing returns - Posted by rob day

Posted by rob day on November 27, 2001 at 08:56:19:


I have been an investor for a few years now and honestly have done well. I recently received a book for my birhtday about real estate “the unofficial guide to re investing” good book in my oppinion. Anyway it talked about return on investment. I have a different school of thought than the book and the way realtors have presented properties to me:

  1. If I put 10,000 down to buy a property and get 3,000 back in the first year, the book and realtors tell me I am getting a 30% return on my money. From the school of financial planners and business I am not receiving a 30% return. If I were to get a 30% return on my money I’d have 13,000 in cash at the end of the year. How do you folks view this? I just do not want to irritate realtors and owners regarding this.

  2. Also I was thinking of investing my monthly cash flow in government bonds. After 10 years they double so your return over 10 years is 7.2% plus you get what they are paying in interest (2%) and your return on your investment (cap rate say 10%) If you have a good building and can add the returns together you are looking at 19.2% on your money in relatively safe vehicles. yes there may be other ways to invest the money, but this seemed pretty safe to me.

What are your folks thoughts?


Re: Investing returns - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on November 27, 2001 at 20:21:28:


I liked Chis’s response to your question.

I am confused about your second paragraph. You mention something about “add the returns together [and] you are looking at 19.2% on your money . . …” This only makes sense to me if both returns are created with the same investment money. Which does make sense to me = buying both a bond and a property with the same dollars? If you can teach that trick, you and I can make a lot of money selling your program on TV.

If you invested equal amounts in the bonds and the real estate you could average the two returns together by adding them up an dividing by 2.

Maybe I just don’t understand what you are saying.

Now, investing in trust deeds would interest me more than bonds if I had a bunch of loose money sitting around. You probably can get about 10-12% return a year. And you may do better if you share in the points charged to the borrower. A lot of lenders/investors do that.

Good Investing********************Ron Starr*************

Re: Investing returns - Posted by Chris

Posted by Chris on November 27, 2001 at 09:41:48:

Either way it’s a 30% return. Anyone who would say otherwise needs to buy a calculator. One might be more liqiud than the other, that’s all. If you put 10k into a property you still have that equity, it didn’t go anywhere, so your balance sheet shows that you have 13k, and you do!
Now ask your financial planner to show you where he’s going to consistently get you a 30% return, watch him stutter and stumble. But is it possible to put 10k in a property and get a 3k cashflow return? Every day.
But if you do that is your return 30%? Well let’s see.
The property would also likely appreciate 3-4% (or more) during the year. Let’s say your 10k was 20% of the property value (I hope it was less) then the property would be a 50k property, so our appreciation would be say $1750 or so, divided by our 10k, an additional 17.5% return.
Then don’t forget about your depreciation deduction that will make most of your cashflow gain in this example tax free. That could be worth around $550 in this example, another 5.5% return.

So lets recap here:
Cashflow return 30%
Appreciation 17.5%
Tax advantage 5.5%
Total return 53%

Now go ask your financial planner how he can do that!