The Math
Consider This Scenario
Real estate investing has long been reserved for the ultra-wealthy due to complexity and high barriers to entry. We believe there is a better way to advance financial security so that more people can benefit from the single-family rental asset class which provides top risk-adjusted returns generated by a passive, reliable income combined with attractive equity appreciation.
The average rental home on the Doorvest platform is $260,000 and is typically purchased with a downpayment of $78,000, which represents 30% of the purchase price. However, note, that this is an average rental home. Our purchase prices range from $160,000 to $350,000.
For this average example, our investors can see Total Returns (cash flow + equity build-up + appreciation) of $92,709 in 5 years, and $226,757 in 10 years. After 30 years, the projected value is $1,569,293, in addition to a fully paid off rental home that continues to generate passive income and appreciate. See the graph below to see the breakdown or see additional sections below to learn more about our assumptions.
Down Payment
$78,000
Home Price
$260,000
S&P 500 projected returns based on the home cash outlay amount invested into SPY, SPDR S&P 500 ETF Trust at a 9.72% average annual return rate
Projected Cumulative Year 10 Returns
Total Returns
$226,757
38% ROI
CashFlow
$72,161
Equity
$29,732
Appreciation
$124,863
Incomes
Rent
$1,900
DV Boost
$200
Expenses
Mortgage
$1,090
Property Tax
$418
Insurance
$150
Servicing Fee
$152
Repairs & Maintenance
$41
Cash Flow
$400
01
Cash flow
Cash flow is simplified as the income you're generating minus your total expenses. For rental homes, an investor generates rental income and the most common expenses are but not limited to mortgage payments, taxes, homeowner's insurance, HOA dues, and servicing fees.
Doorvest assumes 5% rental growth YoY as residents renew their leases or new leases are signed. Our example does not include vacancy and credit loss (delinquency) in the first year. We also suggest putting cash aside for Capital Expenditures & turnover costs, as these expenses vary in your journey as an investor. Check out one of our Home profiles to learn more and see a full breakdown.
In addition to your rental income, most Doorvest homes also include our unique home perk: DV Boost. With DV Boost, as long as your home is managed by Doorvest, you will receive additional income every month in order to boost your cash flow. DV Boost is separate from your rental income, which means you will receive DV Boost even if you are not collecting rent! Each home has a different DV Boost amount, but for this example, we'll add an additional $200 in monthly DV Boost Income.
Cash flow
The income you're generating minus your total expenses.
02
Equity Buildup
As you'll notice in the cash flow breakdown, cash flow is net of mortgage payments. However, an individual's total return includes equity buildup also known as your residents helping to pay down your mortgage principal.
Mortgages typically consist of both principal and interest and are amortized, which is how the loan is paid down over 30 years. Though the monthly payments are equal throughout the duration of the loan, the breakdown of principal and interest shifts. This is because the interest is assessed on the total loan balance which decreases over time. We often suggest our investors to pay an additional small sum towards their principal balance each month - this quickly shrinks the 30-year timeline.
In our example:
5 year equity buildup: $12,661
10 year equity buildup: $29,732
30 year equity buildup: $181,997
At the end of 30 years, our investor will have a fully paid off home! This represents a significant sum of equity as well as an increased monthly cash flow.
Equity Buildup
Part of your total returns on your continued investment.
03
Tax Advantages
One of the many advantages of owning a rental home are the tax deductions. Oftentimes, Doorvest customers are able to generate cash flow while entirely sheltering gains from taxes due to the deductions highlighted in this post. This includes, but is not limited to, depreciation, mortgage interest, property taxes, and more!
Upon sale of the investment home, owners are also able to defer capital gains taxes by using a 1031 exchange.
We highly recommend consulting a tax advisor in order to get a personalized tax plan for your investment home. A good tax advisor will aid you in capturing all of the tax advantages of real estate.
Tax Advantages
Leverage your ownership by maximizing your tax deductions.
04
Appreciation
Home appreciation is the most widely understood benefit of owning real estate and is defined as the value of the home increasing over a time period. Experts accept 3% as a conservative estimate for the entire US housing market however this actual number varies depending on localized markets. For reference, based off of twenty years of data, many of our homes have historical appreciation rates of 5-7%, which is double the national average accepted rate. Appreciation is not guaranteed. Past performance is not an indicator of future performance.
Most investors on the Doorvest platform purchase rental homes with a mortgage, which is considered leverage, boosting expected returns from appreciation.
In our example, the purchase price is $260,000 and the expected appreciation in the first year is $7,800, equal to 3% of the home value. That said, assuming the investor's initial investment (downpayment) is $65,000 and therefore the effective return due to appreciation is 12% ($7,800 appreciation / $65,000 initial investment). This is known as a levered return.
If we base our example off of the "historical" appreciation of 4% in the first year, our $260,000 home will appreciate $10,400. The effective return based on this appreciation is 16% ($10,400/$65,000).
Lastly, the appreciation is compounded as the holding period increases. This leads to a higher effective return with each additional year.
Appreciation
The value of the home increasing over any given time period.