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*).
Returns From Purchase of Real Estate With a Mortgage
by Ernesto R. Martin
* 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.