Appreciation buying is a way to buy real estate that can make
you a lot of money but it is more speculative than other real
estate methods. Basically you must find areas that are going to
appreciate a great deal and buy in those areas. For a typical
four plex in my home town of Ottawa the rental income per door
is at maximum 100, the average appreciation in a building over
the last 50 years has been 3% (it was only negative a couple of
times) a year, and the average you pay down on your mortgage is
1/25th of the mortgage amount. Here's a chart that summarizes
how much you make on each of the three areas of money making:
appreciation, paying down the mortgage, and rental income.
| Purchase Price |
300,000 |
| DownPayment |
75,000 |
| Amount of income from Rent (400*12) |
4800 |
| Return on Investment (ROI) from rental income |
6.4% |
| Amount made in appreciation average over 25
years. |
13125
|
| ROI from appreciation |
17.5% |
| Amount made in mortgage paydown (1/25 *225,000) |
9000 |
| ROI from mortgage paydown |
12% |
As you can see you make more from appreciation over the 25 years
than you do from the other 2. It is important to note that you
must keep the building in good shape if you are going to make
the appreciation gains that you would like.
You can be assured of good appreciation if you buy in good areas.To
know whether an area is a good one to buy in see (Finding
a good area to buy in).
Real-Estate-Haven