ROI Analysis: Residential Rental Property to Other Asset Classes
Below you will see the outcomes of a recent research project, designed to answer the question: Where to Invest Now? In the chart, you will see the average return on investment percentages for the six most common types of investments: Money Markets, CD's, Gold, REITS, and Stock Market for 2017.
For comparison purposes between asset classes, I held the ROI of the rental property as a constant and then calculated, how much one would have to invest in each of the other asset classes to achieve the same return.
* The property selected as the own-your-own real estate example, was an active property, available for purchase in the Pittsburgh PA marketplace, on January 19, 2018. * A financial performance analysis using a REIA Report Investor was conducted to identify the ROI for the rental property along with many other financial performance factors * The return does not include the other three financial benefits of Owning-Your-Own residential income producing properties of Appreciation, Principal Reductions (tenants are paying for your investment), and Tax Benefits. * The return for Rental Property is based on leveraging the purchase with an 80/20 LTV loan at 5% interest for 20 years to fund the investment. * Return
rates based on $25,000 investment held between Jan 1 and Dec 31 2017 *NOTE: Your actual results may vary. All investments come with substantial risks, including the complete possible loss of all monies invested plus other losses and may not be suitable for many members of the public.
Income producing real estate is the only investment that can achieve "infinite returns"- a time where all costs to secure the asset have been returned to the investor leaving $0 invested while returning increasing returns for life.
The chart below is a partial chart from the REIA Report Investor that was used to conduct a financial performance analysis on a real estate rental property used for example purposes only in the current asset return research study. Please note that this example property, provides Infinite Returns on Investment in Year 4 when the investor manages the property them self, and Year 4 when using a property manager.
Unlike all other types of investments, you don't have to "cash in" the investment to continue receiving the investments benefits. For all other investment classes, you must dissolve the investment to reap the benefits of its equity growth (only one of the four pillars for building wealth in real estate). When you invest in the highest generating positive cash flow properties, returns move from good to great to infinite returns- yes infinite returns.
How Residential Rental Properties Can Build Net Worth- Four Levels at the Same Time
When investing, most investors seek out investments that are: safe, secure, provide positive returns, and are guaranteed to be there in the future. Investing in, and Owning-Your-Own residential rental properties, provides investors with an asset that can build net worth and income at four different levels- at the same time- known as a properties Four Pillars. The levels at which these four pillars come together, will be used to make investment decisions.
The Four Pillars for Building Net Worth and Income
1. Cash Flows- The amount of income generated from rents and other non-rental activities for a property
2. Tax Benefits- The total of allowable deductions on a tax return intended to reduce a taxpayer's burden (multiple tax shelter strategies you can take advantage of)
3. Appreciation- The increase in value of a property over a period of time (can come from market appreciation, forced appreciation, or financial appreciation).
4. Principle Reduction- The amount of principal that has been paid down due to making timely monthly payments on the debt (your investment is paid for my tenants).
Cash Flows and Tax Benefitsreturn cash back into your system on a monthly or yearly basis. Appreciation and Principal Reductionreturns equity over a longer period of time and typically are realized through an equity loan or line of credit, refinancing, or at sale.
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