In a recent turnkey post, Aldo from Million Dollar Ninja commented and correctly pointed out, regarding my new investment property that “8.5% return on investment while also building equity is pretty good. The good thing is that it is going to be bigger once somebody else pays the mortgage.”
Great point, Aldo. I wanted to turn that idea into a short post about the future – namely, 30-ish years from now.
Let’s say I close on Property #2 and I never purchase another property again (unlikely). In the immediate future, I would be getting $137/month from Property #2 and $313/month from Property #1. Again, reserves for vacancy and maintenance ARE factored in to these numbers.
Going forward, I should be getting a net of $450/month, every month from these investments. That’s great! But NOW, let’s look at 30 years from now.
At this point, I have paid off both mortgages. Scratch that, my TENANTS have paid off both mortgages. Let’s say that rents just rise with inflation, so in real dollars, they stay exactly the same. I will be making more money, but the same amount of inflation-adjusted money. Then, suddenly, two mortgage payments are GONE. I am no longer responsible for $300/month for Property #2 and $340/month for Property #1. Of course, taxes and insurance don’t go away, but the previous numbers represent ONLY the principle and interest I am paying on the loans.
Suddenly, I am cash flowing $640/month MORE, which brings me up to a grand total of $1090/month.
There are certainly down sides to investing in real estate, but the fact that, given my investing strategy, I am cash flowing from the start AND I am planting a seed that will pay dividends way down the line is amazing.
Who knows, I may want to pay the mortgages off early. I may also want to sell the house down the line and get that equity that my tenants have been building for me out of the property and go invest it in a index fund. I have options, but I am planting seeds that will pay dividends down the road.
In my opinion, it’s always good to take a long term approach to money and investing.
Like this post? Sign up to receive posts via email and never miss a tip for living well and saving money!