Market Value Appreciation

Figure 13

5 We have used the time period 1988 to 2003 so that our real-life example is recent and representative. The appreciation during that 15-year period (4.4 percent) is actually slightly less than that over the last 30 years (5.6 percent).

assumes that you made a 20 percent down payment (20 percent X $72,000 = $14,400). This means you would have gotten a mortgage loan of $57,600 ($72,000 - $14,400 = $57,600). As you make your monthly loan payments, covered by the rental income from your tenants, you are paying off some portion of the loan's remaining balance and therefore reducing your debt on the property. As you reduce the debt, you increase your equity.

In this real-life example, with a loan of $57,600 and a typical 30-year mortgage, you would have, during those 15 years, reduced the loan debt to $43,334 and therefore gained another $14,266 in equity buildup. The shorter the length of the loan is, the faster you will achieve debt pay-down. In the example we are using, a 15-year mortgage would have reduced the debt to $0 and thereby increased the equity by the full $57,600 amount of the loan.

What makes the Financial Model of the Millionaire Real Estate Investor so compelling is the combined impact of all these factors. This is where the power of real estate to build financial wealth is fully revealed. In the investment we have analyzed, this is how it all adds up: Your $14,400 investment in 1988 turned into equity of more than $128,506 in just 15 years. This would be like putting your $14,400 in a bank account paying an annual compounded interest rate of 15.7 percent. If you had used a 15-year mortgage instead of a 30-year mortgage, your equity would have grown to more than $171,840. That's like an annual compounded interest rate of 17.9 percent. In either case this is a significant return on investment and not one you will find at a bank. And, those remarkable returns don't reflect what happens when you factor for Cash Flow Growth.

Business Brain

Business Brain

Among the hardest transitions for individuals is to move from the employee to the entrepreneur mentality. The idea of getting on your own, getting your own business is fantastic. It's the desire of a lot of individuals to leave their jobs and get to be successful business owners.

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