Looking Closer at Investing

Yesterday, I was commenting on the market demand for well maintained rental properties for non-students in the City of Harrisonburg.  I had pitched these general assumptions...

Purchase Price:  $150,000
Down Payment:  20%  ($30,000)
Interest Rate on 30 year Mortgage:  4.5%
Monthly Payment:  $740 (principal, interest, taxes, insurance)

Rental Income:  $1050
Property Management:  -$105
Association Dues:  -$50
Mortgage Payment: -$740
Net Cash Flow: +$155

I had several follow up questions from you all yesterday, so I thought I'd provide a slightly more detailed view of this theoretical investment....

This analysis shows a much fuller analysis of the potential investment, including these assumptions:

• $150K purchase price
  
• Assumption of 2% per year appreciation
  
• 80% financed at 4.5% over 30 years
  
• $1,050/month rental income with half a month of vacancy per year
  
• $500/year in repairs
  
• $50/month in association dues
  
• 10% management fees
  

In the first year, this investment would potentially result in....

• Positive Cash flow of $818 (benefit seen immediately)
• Tenants paying down the mortgage by $1936 (benefit seen later)
• Tax savings of $747 assuming 25% tax bracket (benefit seen annually)
• Appreciation of $3000
• Thus, a benefit of $6,501 in year one.

Over the first five years, this would potentially result in....

• Positive Cash flow of $6,600 (benefit seen immediately)
  
• Tenants paying down the mortgage by $10,610 (benefit seen later)
  
• Tax savings of $2,875 assuming 25% tax bracket (benefit seen annually)
  
• Appreciation of $15,612
  
• Thus, a benefit of $35,698 over the first five years
  

Let me know if you have questions about any or all of this, as each investor and investment scenario will look a bit different.  All that said, I believe there is a reasonable opportunity for a solid return when buying an investment property in Harrisonburg -- and I'd be happy to help you with that process if you are interested.