The Wealth Building Power of Leverage/Inflation/Time/Tenants & Scale

For the projections below and for illustration purposes we're going to use a home selling for $220,000.00 with a 20% down payment of $44,000.00. The rent it will collect each month is $1650.00. The graphs below show you the potential cash flow positive wealth building potential at 1 year, 10 years, and 20 years. I think you'll agree the potential is incredible.

​Year 1 starting assumptions	$$ Figures
Annual Free cashflow after all mortgage payments and overheads	$4800
Annual Mortgage Principal Payments	$3169
Inflation at 2% assumed	$4400
Depreciation/Deduction	$1500
Total Wealth created year one	$13,869

*This is a potential annualized return of 31% on your down payment*

Year 1 through 10 accumulated gains:	$$ Figures
​​Annual Free cash flow after all mortgage payments and overheads	$45,982
Annual Mortgage Principal Payments	$35,019
Inflation at 2% assumed	$84,000
Depreciation/Deduction	$15,000
Total Wealth created year 1 to 10	$166,501

*A potential total annualized return of 378% on your $ 44,000 down payment*

Year 1 through 20 accumulated gains:	$$ Figures
​​Annual Free cashflow after all mortgage payments and overheads	$101,621
Annual Mortgage Principal Payments	$91,953
Inflation at 2% assumed	$117,690
Depreciation/Deduction	$30,000
Total Wealth created year 1 to 20	$341,264

*A potential total annualized return of 756% on your $ 44,000 down payment*

Notes and assumptions regarding projections above:

• Annual Free cash flow - I used actual CPI inflation 2000-2010/20 data to calculate this figure
• Tax depreciation - For ease I'll make a general allowance.   
• Mortgage Principal - 30 yr. Fixed at 4% amortization schedule used to calculate.          
• Inflation - 2% assumed - CPI inflation 2000-2010 data to calculate this figure

*Please note:

• This is simply for illustration purposes to highlight the true mechanics of a well purchased new build home making inflation assumptions from the CPI 2000 to 2020.  I made these assumptions on the rental amount and value of the home. I have factored in actual amortized gains from principal payments and not factored in appreciation gains.
• Tax calculations for depreciation on Real Estate can be complex so please consult a professional accountant to garner a professional opinion.
• I have not allowed for maintenance and turnover costs; new homes generally experience less maintenance that older homes but still have moving parts and tenants.
• *This is a simple Macro analysis and I am sure numerous other line items could be included. This breakdown is a useful personal observation and should be used as such.