Quote:
Originally Posted by indes
A 7-11% return sounds pretty awesome, but the reason I was leaning towards the apartment building is because aside from the 20% I put down it should support itself.
Now, I am definitely not the most financially savvy person around and this is why I'm asking for advice.
Is there some calculators I could check out to see what the difference would be in return on $100,000 between the two options?
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You can use any compound interest calculator to check out what your return could be in another interest baring investment. I would plan on using a 25% down payment though. I'm not sure what the reality of your financing options is but it's a bit more realistic I think. And you'll definitely be needing a 25 year amortization if cash flow is important. But let's do both 10 and 25.
A $162,500 initial investment at 7% compounded annually is worth $882k in 25 years. At 11% it's worth 2.2 million.
Even at 10 years it's 320k and 460k. When calculating the roi on your building you must remember to include the value of your down payment in interest over time. So your 650k building is worth less because of the time value of your money.
The main issue I have is risk control. If you think about one thing in your life of investing it must be risk. To be honest I've made the most money by not understanding risk. But it was pure luck. It's the hick who pulls one lever in Vegas and wins the big prize.
In real estate your macro risk can really set you up. Osama bin Laden comes along and bombs the foundation of your world's capital markets and voila, physical assets become your best friend. Oil booms and you'e in an oil town, money is free, people watch flipping shows all day and pretty soon you're a millionaire.
But you have no say in it. You have no say in currency risk, interest rate risk, policy risk (utility price, property tax, insurance rates), weather (2013 flood).
You might think you have a say in micro issues, but you don't. My last job was a leasing agent and over 2 years I rented 450 units. The ones I thought were great tenants turned into the worst tenants and vice versa. Good investors always have a say in the risk to which they expose their money. Other investors get lucky, others go broke. Chances are you'll wind up in the middle.
You need things to go well. You need luck. If you paid off your building in 15 years you'd be doing well. But it totally depends on the value of the building in 15 years to decide whether it's a worthy venture or not. Is your 650k worth a million or half a million?