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Jul 29, 2026
The Real Math on Rental Properties Nobody Shows You
The Real Math on Rental Properties Nobody Shows You
00:00
11:19
Transcript
0:00
[upbeat music] So I hear it all the time, and I'm sure you do too, that, "Hey, rental properties, eh, they don't work so much anymore because rates are higher, home prices are higher, and cash flow is just get squeezed."
0:18
I totally get that, but [laughs] it's not the entire story. If we look at the entire story, this is a longer-term asset, right?
0:27
If your goal is to go from earning a fairly high income to eventually replacing that with assets that cash flow, then it's time to get in the game, and rental properties are not a bad thing.
0:40
I heard someone speak the other day, I wish I could remember who said it. He said, "I, I don't sell property. I buy property and hold it."
0:50
And whoever it was was talking about his daughter owns a, a home, a rental property, in California. And in California right now, they've passed some laws, and ADUs are a big thing.
1:01
Building, um, an accessory dwelling unit in the back. Picture, uh, you know, one of these, uh, garages with the in-law suite over the garage, something to that effect.
1:14
Building something like that in the back is now permissible in most municipalities, I think, in California, and it's a big thing among investors.
1:23
So his daughter built one of these things and said, "Well, I wanna sell the one in the back and keep the house, and the house will be paid for by the profit from the ADU." And his dad said, "No. Absolutely not.
1:35
You don't do that. We buy and hold real estate because that's how the money's made. You don't sell real estate." So with that premise, I wanna show you the numbers.
1:44
At first glance, if you look at this number, this $375,000 home in Dorchester County, you can see it's $184 a month positive cash flow when everything's taken into account.
1:58
And when everything's taken into account, I mean everything. Because the other thing people tell you is, "Well, the repairs will kill you on those." Well, I'm- I've taken that into account. Let's take a look.
2:10
So you can see here, month one, cash flow $184. And most people would be like, "I mean, that's not gonna change my life. $184. That's almost dinner out for two at a nice restaurant. [laughs] Almost."
2:26
Let's see what went into that first, and then we'll see how inflation becomes your friend and actually works in your favor in this case. So the median monthly rent for that size home is about $2,793 a month.
2:40
I just left that at that. We could put it to 2,700, or we could bump it to 2,800. I just left it at what it calculated. But the annual rent increase is about 3.39% projected in Dorchester County, which is your key.
2:57
Because here's the thing, assets are on the right side of inflation. Whereas consumables, when we go to the supermarket and we buy eggs and steak, well, that's on the wrong side of inflation.
3:10
We don't like that because it keeps going up, and it won't ever stop probably. But an asset, inflation is your friend because you can raise rents, and the home value is going up over time.
3:24
So this is a longer-term investment. This is like, this is like Warren Buffett. How many times has he said something to the effect of, "No, I b- I buy good companies and hold them for a very long time"?
3:37
I mean, if Warren Buffett sold Coca-Cola at the first negative quarterly report, quarterly earnings report, you'd be like, "Well, he's a trader. He's trading stocks. He's not an investor." We don't wanna be a trader.
3:51
We wanna be an investor. We wanna own things. So I took into account the rent increase, but I also taken into account an annual vacancy rate. When one tenant moves out, takes some time to turn the property.
4:03
You gotta clean the carpets, maybe repaint something, and it takes a minute. So you're gonna have a couple weeks down every year on average. Now, it's a 375 purchase in this case. You've got property taxes.
4:14
You've got homeowner's insurance. You've got property tax increases. We've already had big homeowner's in-
4:22
increases, homeowner's insurance increases, so I'm not really taking that into account so much because I think we've seen the bulk of that for the time being. But property taxes, they're not gonna go down.
4:34
They're probably gonna go up. So I put a 2% increase per year. I as- I set aside $156 per month from the cash flow for repairs and maintenance, right? Because you have to let the property repair itself, obviously.
4:49
You have to set aside something for that. It's a business. After all, all of these things, ownership in pretty much any asset, is a business, so you set aside for expenses.
5:00
In our scenario, you're gonna hold this for 10 years, and then you're gonna sell, and there's a cost to sell. Now, that cost seems to be going down.
5:10
Two and a half percent per side for the agents seems to be the going rate, but I kept it at 6% total. 3% for the selling agent, 3% for the buying agent.
5:19
And I kept it at a minimal down payment for investment property, which is 20%. I almost put 25%, but it skews the numbers too much in cash flow's favor, and it takes up too much cash. So I kept it at 20% down.
5:34
I just locked one of these this past week at 6.625%. It was costing.35 discount, 0.35, so I took that into account as well. Final thing. We're gonna own for 10 years in this scenario.
5:50
Because you're buying a fairly new house, there's not gonna be major things going wrong in the first 10 years. Probably won't need a roof unless a major storm comes through. That's why you have insurance.
6:00
Ideally, all the major components, the air conditioning unit, et cetera, are probably gonna last 10 years in this house. Probably. We don't know for sure. Anything can happen.
6:10
But, you know, other than clogged toilets at 2:00 AM, [laughs] that's what you sign up for sometimes, there's not gonna be, hopefully, too major repairs. But we've already set aside for that as well.
6:22
The appreciation rate in Dorchester County is projected, forecasted, to be just under 3.5% per year. Now, will that happen exactly? Of course not. So many things will affect that.
6:34
But we can base that on the, um, historical appreciation rates and what's coming down the pipe. Could it be higher than that? Sure, with all the money printing we've been doing and the debts and everything like that.
6:48
Could be, but let's leave it at, uh, projected 3.48%. So here's what it looks like. Your rental income is $2,681 per month with expenses of $2,498 per month, including set asides for maintenance and all that stuff.
7:05
So your monthly cash flow is 184 bucks. Who would do that? That's what your friends will tell you. "That's not enough. That's not... Oh, that's no good."
7:14
Let's then pull back the curtain and look at the entire investment, 'cause that's where the money is made. In year one, you're charging j- just under $2,800 in rent. Not bad.
7:26
But by year two, the rent's gonna go up, right? Because you're running a business here, you gotta keep up with inflation. You're going to push rents up a little bit every single year to keep up with inflation.
7:39
So by year five, what... By year one, the total cash flow positive after all expenses is about $2,200. By year five, you're looking at total cash flow of almost $6,600, and by year 10, it's over 12, almost $13,000.
7:55
The cash flow keeps getting better and better. But wait, there's more. You also have the appreciation gain, right?
8:02
We said appreciation is, uh, expected to be, forecast to be 3.48% here in this particular market in our example, and that means your $375,000 home is now worth $527,000. And amortization.
8:17
Remember, it's a 30-year fixed rate mortgage, so little by little the s- tenant is actually paying down the mortgage. I mean, you are. It's in your name, the mortgage is. But you're not making the payment, the tenant is.
8:32
So the tenant is paying down that principal balance to the tune of about $45,000. So let's look at what all of that looks like. The rental income is $375,000 and change, plus the appreciation of over $150,000.
8:47
That's $528,000 off one investment.
8:51
Because you have expenses, you have interest, you have property taxes, insurance, repairs we talked about a couple of times, closing costs to buy, which is factored in, closing costs to sell, which we factored in, 6%.
9:05
And that totals just under $300,000. So your profit is about $230,000 over 10 years. That's not bad.
9:14
Your initial investment, 75%, return on investment 300%, but your annual compounded return is about 15.1%. 15%, that's really good. And if you could do that,
9:28
do this a few times over, well, think what that would be. If you're profiting over the next 10 years $230,000 per property, and you end up buying, let's just say it's a property a year,
9:43
well, that adds up over time to something substantial and some real cash flow, especially if you don't use the 6% to sell.
9:52
You keep the property and just use the 6% to one time put that money back into the property to fix it up every 10 years, all the main stuff. Get the new water heater, get the new whatever it is.
10:03
Then you've got an asset that can last a long, long time. But most people do sell, and so that's what I factored in. So that's the real behind-the-scenes numbers when you're buying an investment property.
10:17
You go from looking at it at, at a glance and saying, "I make 184 bucks a month. Nah," to, "Oh, I make almost a quarter million dollars over the next 10 years. Oh, okay." Well, that is owning something that makes sense.
10:32
We'll do another video if you want, comment if you want, uh, on, well, what if I don't have 75,000 times 10 to keep buying these properties over and over as the down payment?
10:44
I'll tell you how to get into that as well, and there's a way to do that. But this is just standard buy a new-ish property, rent it for the next 10 years, and make somewhat close to a quarter million dollars.
10:58
Not too bad. I hope that helps. Oh, by the way, down below, if you like this, I send a weekly newsletter, Asset Accelerator, and you can subscribe for free, and I hope you'll do that.
11:11
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