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. 
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