Returns From Purchase of Real Estate With a Mortgage

by Ernesto R. Martin

For this example, if you keep the unit for 30 years (when the mortgage is paid off) and it appreciates at the national average for real estate of 3.55%, the property will then be worth $569,500; on your investment of $50,000 that represents an annual return of 8.45%. If we use the average annual appreciation for Miami properties over the past 18 years of 5.39%, the property at the 30-year point will be worth $966,000, which represents an annual return of over 10.35% on your investment of $50,000. As mentioned, these returns (8.45% - 10.35%) are comparable or superior to the annual return of the S&P 500 stock market index (with dividends reinvested, that index has had an average annual return of 6.1% over the past 20 years, and 9.7% over the past 30 years*).

* Over the next few years the S&P 500 may have higher or lower returns. For instance, the return over the past 10 years has been a whopping 13.2% with dividends reinvested, largely because there hasn't been any losing years. However, if in the future there is a drop like the one which occurred over the 17 month period starting in September 2007, when the S&P 500 lost 44% of its value, then lomg-term returns are likely to be again in the single digits.