Continuation from the previous post “Portfolio during retirement “, this article is to discuss with the 26 years accumulation of 26 positive cash flow rental properties, what will be the networth?
Previously mentioned that we have to focus on the three elements:
- Liabilities
- Networth
- Cashflow
Previous post ““Portfolio during retirement “ discussed and explained on the cashflow from the rental properties. Let me used back the previous example of buying 1 property per year method. However, this time, we will look into more details on 1 property and propagate to the rest of 26 properties by the age of 55 years old.
Property details
Property type: Apartment / Condominium
Purchased price: $250,000
Down payment: 10%
Loan amount: 90%
Tenure: 20 years
Interest rate: 5%
Monthly Installment: $1504
Assumption on the property appreciation is 5% per year. This is in-line with the yearly inflation rate in our country.
Table 1 below is the Loan Amortization table.
Loan Amortization Table
Chart 1 is the equity build up for the next 20 years.
Equity Accumulation
Based on the chart, at the end of the 20 years, the property is valued at around $631K
Now required to squeeze some of the brain juice with doing some maths.
Total equity or networth for all 26 properties will be $5 millions.
Compare to Mr & Mrs Wong networth is around $4.75 million also quite closed. But this is better, why?
Two reasons:
- There are Positve cash flow for all 26 properties
- Total networth is higher than Mr & Mrs Wong
Wealth Accumulation Start
Let’s look into more details of the data presented of the 26 properties.
There will be 7 properties paid off at the aged of 55 years old.
The remaining 19 properties outstanding loan will be around $2.5 millions.
Since each properties is value at $631k in the market, you will just need to sell 4 properties to paid off the remaining 19 outstanding loans!
$631k x 4 = $2.524 million
At the end, you will have 22 fully paid off properties at the aged of 55 years old.
How about cash flow now?
The cash flow now will be whatever rental you get.
Assuming that each property rental is $1500, each month you will get $33k (net rental income).
Conclusion:
Case study presented above is achievable for everyone since only acquired 1 rental properties per year for the next 26 years. The only rule is positive cash flow. I do understand that everyone has time and money constraints. But if you do not spend extra effort to work on the wealth accumulations, no one will help you.
Source: http://www.thebabysteps2wealth.com
Bear in mind, start early is the keyword here. Wealth will grow exponentially on the longer horizon and we have to persistence and patience on it.
Next magic question, what is your total cost outlay to acquire 26 properties?
Ryan
Hi
Great to read your article here! Thanks
We all investors know about +ve cash flow from rental can help you accumulative your wealth continuously.
even 10 properties 1 year also possible if every property rental can cover its monthly installments. ( Rental income can help to get more housing loans and accumulative till infinite , 🙂 )
last 5 – 6 years ago really a good timing for investment, rental yields can be around 12-15%, accumulative 10 properties per year have been proved by many investors.
Question now is after 2013, hardly find a property with +ve cash flow rental, 3-4% rental yields almost the max.
Would you mind to share how to get a +ve cash flow property, which area ?
property
AuthorHi Ryan, great that you enjoy reading my post. I am totally agreed with your comment. The only different now, we have to work much much harder to find out the hidden gems. This is how the REAL investor vs the normal investor.
If you ask me where to find? Recently I had found 2 projects in Penang namely Pangsapuri Widuri and The CEO.
If you look at the listing on the internet, should not looks attractive. Give you a quick glanced on what is on hand and you may used as reference.
Project 1:
Pangsapuri Widuri
Selling Price=$110,000
Rental=$500 ~ $650
Yield=?
Project 1:
The CEO
Selling Price=$250,000
Rental=$1300 ~ $1800
Yield=?
There is one very good area in Seri Kembangan near Taman Equine, cannot recalled the name. It also can fetch higher than 6%. The apartment name is called Putra Permai. Check it out and may need to work into it. Investors there told me tenant will line up to take up your unit. Most of them work in Cyberjaya or Putrajaya but cannot afford to stay there due to escalating price.
Hope my sharing will able to provide greater help in your next move.
Ryan
Project 1:
Pangsapuri Widuri
Selling Price=$110,000
Rental=$500 ~ $650
Yield= 7%
monthly installments : $524, Flexi loans, tenure 35yrs, 90%
Might not have +ve cash flow
If can’t rent out , might no Sub-sale value in future , my2cents…not familiar with penang 🙂
You go for it?
property
AuthorHi Ryan:
I did not go for it, it is more suitable for the newbie.
Few of my circles of friends grab it.
If the yield is 7%, for sure it is positive cash flow.
You may re-examine your installment calculations, maybe you put in the high interest rate?
Anyway, if it is negative cash flow, then have to think and managed it.
We have to treat property investment as business.