Here’s how to make $100,000 work for you in a Real Estate Investment!

Posted by Carolyn A. Capalbo on Monday, March 25th, 2019 at 2:51pm.

Real Estate Investment & Savings

Here’s how to make $100,000 work for you in a Real Estate Investment!

Do you have $100,000 in your savings or money market account earning 2% interest, 4% interest?  If you do, let’s compare these earnings with a real estate investment!

Safe and secure in the bank, passively earning 2% will net you $1400 per year after taxes (assuming 30% tax bracket).  Let’s also look at a 4% return, this will net $2800 after taxes (again assuming 30% tax bracket).

Now let’s put this $100,000 to work in a 3 level, 1 car garage townhouse in Winchester or maybe Fredericksburg.  Acquisition price of $215,000 and negotiating 2% Seller paid closing costs for this acquisition and financing at 4.875%, the additional closing costs.  Purchasing with a loan of $120,000.

This unit should rent for $1400 per month or $16800 annual gross operating income.  Operating Expenses, which include taxes, insurance, HOA, and marketing fees $4200.  Annual Debt service of $7620.  Interest expense $5810 and Principal Reduction of $1810 (I love this, someone is paying off your debt!)  You are able to depreciate this asset to reduce your tax liabilities, $5898, which brings your taxable income to $888!  At a 30% tax bracket, your tax bill is $266.  And it gets better, your property is most likely to appreciate between 3% and 5% per year.  Assuming a 3% property appreciation rate, your investment homes value would increase by $6450 in the first year. 

Benefits of owning and leasing Real Estate for this example vs having cash in Money Market Fund

 

Investment Property

2% Money Market or CD

4% Money Market or CD

Positive Cash Flow Income

$4976

$2000

$4000

Property Appreciation @3%

$6450

$0

$0

Principal Reduction on Mtg

$1810

$0

$0

Taxes Paid

$266 

$600

$1200

       

 

Investment Property

2% Money Market or CD

4% Money Market or CD

Net Wealth Gain Year One

$12,970 

$1400

$2800

Net Wealth Gain after 5 Years

$69,324

$7,198.75

$14,806.25

 

 

Please note that there can be risks associated with all investments.  In real estate investing, it is important to complete due diligence on all potential property for condition and market expectations.  It is also important to screen potential tenants well.  Credit checks, income, and employment verifications, criminal checks will help you place well-qualified tenants in your rental homes that will pay their rents, which is critical to your success.  Knowing local contractors, handymen, and having home warranty policies in place will help if repairs are needed. 

Carolyn Capalbo,
Northern Virginia REALTOR®

 

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