The Power Of Long-Term Thinking In Real Estate Investment Success

Hunting for the perfect deal can consume a substantial amount of time and effort. Engaging in negotiations, tirelessly scouring listings, and meticulously analyzing figures can lead to months, or even years, of searching for that home-run deal. 


The Difference Between Short-Term Savings Versus Long-Term Gains


Imagine you’re eyeing a single-family home, valued at $200,000. Following some savvy negotiation, you successfully acquire it for a steal at $150,000. On the surface, this might appear as a fantastic deal, given the substantial discount. Yet, when you factor in today’s interest rates, coupled with considerations like taxes, insurance, management expenses, and your debt-equity ratio, this property could surprisingly turn out to be cash-flow negative, despite the initial $50,000 savings.


On the other hand, let’s consider a duplex priced at $450,000. At the time of purchase, the two units were generating a total of $2,200 in gross monthly rental income. Due to the fiercely competitive real estate market, you reluctantly acquired the property for $500,000, making a 40% down payment. With a 30-year mortgage on the remaining $300,000 loan and an interest rate of 7%, your monthly mortgage payments amount to $2,000. Taking into account any additional fees, you may experience a slight negative cash flow during the initial years of property ownership. 


Fast forward 10 years, and the duplex is now appraised at $615,000. Rental rates have increased, bringing in a gross income of $3,000 per month. This upward trend suggests that you might break even on your monthly payments by the fifth year and even achieve a slight positive cash flow shortly afterwards. Additionally, tens of thousands of dollars in debt have been paid off through amortization, directing a larger portion of your monthly payments towards the principal. Based on this trajectory, there is every reason to anticipate the property’s value doubling by the end of the 30-year mortgage term while steadily increasing your monthly profit from rent. 


Let’s Crunch the Numbers


In a perfect world where appreciation and rent increases are 100% linear. Here are the numbers after 30 years:


Annual Appreciation: ($615,000 – $500,000) / 10 years = $11,500 per year 

Estimated Value after 30 Years: $615,000 + ($11,500/year * 20 years) = $835,000

Gross Rent after 30 years: $2,200 + ($80/year * 20 years) = $2,200 + $1,600 = $3,800 per month


Over the course of 30 years with a monthly rent starting at $2,200 and increasing to $3,800, you would have made a total of $792,000 in rent payments during that time period. At the same time, you paid $720,000 over 30 years for the mortgage, which includes interest payments. The result? A profit of $72,000 coupled with an impressive appreciation of $335,000, culminating in a total profit of $407,000.


Despite mortgage payments, you achieved a positive cash flow, which improved as the years went by. $407,000, while not a home-run, is a solid return on investment. Over time, the property paid off its own mortgage, further enhancing your equity and financial position.


Wealth is Built Over Decades


Real wealth in real estate is built over decades by holding onto properties, letting debt decrease, and benefiting from long term inflation in rents and property values. A great deal isn’t as crucial as many think, while chasing early profits and short-term savings could actually hurt you in the long run and might blind you to properties with exceptional long-term potential. Patience, financial stability, and wise long-term investment decisions are more crucial for success in real estate investing.


Need Help With Your First or Existing Real Estate Investment(s)?


CBI Real Estate Ventures LLC is dedicated to enabling both individuals and businesses to harness the potential of strategic real estate investments, fostering wealth creation and unlocking opportunities. We place our faith in the transformative force of innovation and ingenuity in order to maximize the value of every property. Whether it involves property acquisition, the initiation of new projects, or capitalizing on profitable prospects, our primary objective is to assist our clients in constructing a robust portfolio that yields long-term returns.

Contact us at CBI Real Estate Ventures for free consultation