Hypothetical of a rental situation for clarity

[Brandon Gamblin]

The following is a hypothetical situation about investing in rental properties that I came up with in my head from what I already know. I don't know if its correct or incorrect, but here goes: 

Let's just say I bought a single family home for $30,000 and the repair amount is $10,000, then that means the total amount I invested so far is $40,000. Also, let's assume that the property has an FMV of $90,000. If I divide the amount I invested, which is the $40,000, by how much I expect to make per month in cash flow, let's just say, $500 per month, that will give me the number of months that it would've taken me to get my money back through the cash flow. So, $40,000/$500 = 80 months = 80/12, which is approximately equivalent to 6 years and 6 months (I got 6.66666…… on my calculator)? So, it would take somewhere around 6 years and 6 months to get a return on my investment.

Is this how this works?

Also, if I make my money back after those 6 ½ years, and then turn around and sell the property at $90,000 (Hopefully it would have appreciated over those 6 years) then isn’t that another $50,000 that I have made on my investment of $40,000.

Is this how that works or am I missing something?

[Guifre Mora]

@Brandon Gamblin in RE Investment it’s called leverage.

You use debt to grow your business.

This way you don’t have to wait 6 years to repeat the process.

If you had 5 properties with a mortgage of 250 each and received 500 in rent ea you would be making 15,000y vs 6,000y on a single property without a mortgage.

15,000 x 6y = 90k in earnings and this is with debt in your balance sheets.

Now during this period the tenants will pay for your mortgage not you.

It’s not debt it’s leverage because you are making money and gaining equity out of this debt.

A car payment is debt.