Doorvest

The Math

Real estate investing has long been reserved for the ultra-wealthy due to complexity and high barriers to entry. We believe this is unfair as single family rentals provide the best risk-adjusted returns combined with passive, reliable income.

The average rental home on the Doorvest platform is $150,000 and is typically purchased with a downpayment of $30,000, which represents 20% of the purchase price. Our investors can expect returns of $63,327 (211%) in 5 years. After 30 years, the expected return is $500,605 (1,669%), in addition to a fully paid off rental home that continues to generate passive income.

Here’s how:

Purchase price$150,000
Downpaymentinfo-sign$30,000
Mortgage @ 3.875%info-sign$564 /month
Property Taxinfo-sign$250 / month
Home Insuranceinfo-sign$80 / month
Doorvest servicing feeinfo-sign$225 / month
Tax advantagesinfo-sign$982 / year
Home Appreciationinfo-sign3% annually
  • Cash Flow
  • Equity Buildup
  • Tax Benefits
  • Home Appreciation
  • Total Value

The Details

Investing in single family rentals provides four awesome benefits: cashflow (aka passive income), equity buildup, tax advantages, and appreciation.

Cashflow

Incomes - Expenses = Cashflow

Cashflow 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 mortgage payments, taxes, homeowner’s insurance, HOA dues, and servicing fees.

Income

Rent

$1,500

Expenses

Mortgage @ 3.875%/yr

$564

Property Tax

$250

Insurance

$80

Servicing fee

$225

Cash flow

$380

Equity Buildup

As you’ll notice in the cashflow breakdown, cashflow is net of mortgage payments. However, an individual’s total return includes equity buildup aka 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 recommend 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: $11,683
  • 10 year equity buildup: $25,859
  • 30 year equity buildup: $119,996

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 cashflow.

Tax Advantages

One of the many advantages of owning a rental home is the tax deductions. Oftentimes, Doorvest customers are able to generate cashflow while entirely sheltering gains from taxes due to the deductions highlighted in this post.

Upon sale of the investment home, owners are also able to defer capital gains taxes by using a 1031 exchange.

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.

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 $150,000 and the expected appreciation in the first year is $4,500, equal to 3% of the home value. That said, the investor’s initial investment (downpayment) is $30,000 and therefore the effective return due to appreciation is 15% ($4,500 appreciation / $30,000 initial investment). This is known as a levered return.

Lastly, the appreciation is compounded as the holding period increases. This leads to a higher effective return with each additional year.

Expected Returns

Combining the four advantages to owning rental homes, here are the expected returns over various holding periods.

1 Year5 Years10 Years30 Years
Cash on Cash$4,568$22,843$45,686$137,059
Equity buildup$2,159$11,683$25,859$119,996
Tax breaks$982$4,910$9,820$29,460
Property Appreciation$4,500$23,891$51,587$214,089
TOTAL RETURNS$12,210
(41%)
$63,327
(211%)
$132,953
(443%)
$500,605
(1,669%)

Ready to invest in your future?