Posted on November - 04 - 2010
Get Rich Slowly with Real Estate
by: Marc Rasmussen – Sarasota Florida real estate
Real estate has not been a great investment the last 5 years. Home prices across the country have been plummeting. In Sarasota, Florida if you bought a home anytime after 2002 or 2003 then you stand a good chance of being under water. With the recent collapse of prices it might be a great time to buy long term rental properties.
Everyone keeps asking if the real estate market has bottomed. Sarasota inventory levels have remained steady since June of 2006. Inventory levels are hovering around a 10 month supply which is a far cry from the 33 month inventory we had in September of 2007. As prices have been falling sales have been increasing which has been eating up the inventory.
Even if we are not at the bottom there is a good chance we are near it. The great thing about a buy and hold strategy is that you don’t have the be precise in your timing. If history repeats itself real estate prices will rise again. It has in the past after a bust and it will again.
If you do have any money laying around then you might consider buying some rental properties. Let’s assume you have $100,000 to invest and you go buy 5 rental homes at $100,000 each. You put $20,000 down on each home and get a mortgage for $80,000. Many of these $100,000 homes will produce enough rental income to cover most or all of the expenses like principle, interest, property taxes and insurance.
Now assume 15 years later your mortgages are paid off and now you have a comfortable monthly rental income stream. If you assume the appreciation rates below your five houses are now worth:
- 2% – $672,934
- 3% – $778,983
- 4% – $900,471
- 5% – $1,039,464
So if you get a modest 4% average appreciation for the next 15 years then you will have five free and clear homes worth $900,471. Your $100,000 investment, time to manage the rental properties and any negative cash flows grew into a $900,471 real estate portfolio producing a steady monthly income. Not too shabby.
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