Home > AM1320 radio real estate update > Make 7% – 8% Return On Investment (ROI) November 2012

Make 7% – 8% Return On Investment (ROI) November 2012


Make 7% – 8% Return On Investment (ROI) November 2012

Please click podcast listen to Cantonese interview

Why would you buy a revenue property now when you feel the market is not going anywhere fast? Well, how about starting an investment now where you get 7% return per year?

When I started in the business, history has told me that when the market peaks then experiences a recession, it takes an average of 7.5 years before the peak property price is surpassed. This happened in 1981 to 1988 and in 1995 to 2001. The smaller recession in 1990 took 2.5 years for the peak property price to be surpassed.  The shortest one was in 2008, Vancouver rebound in 6 months time when US is just experiencing recovery while we are back at it due to our new mortgage lending rules introduced to us in the Summer.  Each mortgage payment made in the current low mortgage rates will pay off 30% to 45% of the principal owed or in other words, increase your equity just like an automatic savings account with a return on investment of approximately 7%.

Here is an example back in 2009.

Purchase Price:                   $300,000

25% Down payment:         $75,000

1st Mortgage:                       $225,000 @ 4.5% (25 year amortization) = $1,250.62 per month

Property Transfer Tax:    $4,000

Legal Costs:                          $1,000

Total Amount Invested: $80,000

The rent is $1,500 per month which covers the mortgage payment, maintenance fees (if applicable) and the property taxes.

Your amortization schedule will show that after the first year $4,984.43 of the principal has been paid down or your equity has just gone up $4,984.43.

To calculate your basic Return On Investment (ROI)

$4,984.43/$80,000(Down payment or Amount of Investment) = 6.2%

With a lower mortgage rate and/or higher rent you will get a higher return or ROI. Every year your yearly equity increases. By the 5th year you would have paid off a total of about $27,319.66 = 27,319.66/80,000/5 years = 6.8% per year

Here is today’s example with the same amount but different interest rate.

Purchase Price:                   $300,000

                                                    25% Down payment:   $75,000

1st Mortgage:                        $225,000 @ 2.99% (25 year amortization) = $1,063.65 p/m

Property Transfer Tax:     $4,000

Legal Costs:                           $1,000

Total Amount Invested:  $80,000

The rent is $1,500 per month which covers the mortgage payment, maintenance fees(if applicable) and the property taxes.

Your amortization schedule will show that after the first year $4,984.43(2009) & today it will be $6161.29 of the principal has been paid down & the differences between 2009 & 2012 on equity improvement is $1176.86.

To calculate your basic Return On Investment(ROI)

$4,984.43/$80,000(Down payment or Amount of Investment) = 6.2% in 2009

$6161.29/$80,000 = 7.7% in 2012

With a lower mortgage rate and/or higher rent you will get a higher return or ROI.

Every year your yearly equity increases. By the 5th year you would have paid off a total of about $32,720 = 32,720/80,000/5 years = 8.1% per year

The fact is mortgage rate is staying low for a while & rental rate is not dropping.  This market is absolutely an unbelievable opportunity for investors if you have the cash.

Instead of improving home ownership, the new mortgage rules are actually putting more people back to rental market, might actually encouraging them using their originally saved up home buying down payment money into buying material items.  Things they want but not they need.  Unless potential home buyers discipline their spending habits.  The government cannot acts as parents & tell the citizens how to spend.  Recent report from Canadian Institute of Chartered Accountants shows 30% of those surveyed in BC sometimes buy things they can’t afford compared to 24% of the rest of Canada.  While 82% of them are stressed out about it.  77% of us actually develop a budget but only 32% of those with a budget actually say they stuck with it.  People admitted that they know what they need to do but they don’t do it.  Why, it requires discipline, hard work & tough choices.

If you want to learn how to make 7.7% return on your investment or if this is a right time for you to purchase a home, contact me at 604-412-5860 or tinamak@tinamak.com.

Tina Mak Personal Real Estate Corporation

Your Vancouver Radio Realtor

(The Bridge from East to West since 1992)

#1 Female Agent since 2002 @ Coldwell Banker Westburn Rlty

Vice Chair of Members Committee at AREAA Canada

Canadian Ambassador of Coldwell Banker 2011

Co-host of AM1320 Radio Investment Show

International President’s Circle Award

5489 Kingsway, Burnaby

B.C. V5H 2G1

Tel: 604-412-5860

www.TinaMak.com (English)

www.TinaMak.ca (温哥华中文地產網頁)

www.WestNoblerealestate.ca (Commercial site)

Email: tinamak@tinamak.com

“Knowledge Empowering Investment Decisions”

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