Allison just made $83,000 from a $20,000 investment. Ten years ago, she had bought an apartment as a real estate investment.
Real Estate Investment
Properties that generate income for a buyer and that are bought to make money, not to live in.
When Allison bought the house 10 years ago, she planned to rent it out and then eventually resell it for more than she had bought it. This way, she would make money from the monthly rent payments, and the increase in property value.
So how exactly did she make $83,000 from only $20,000 with this investment? Here’s how:
Allison bought the house for $100,000 using $20,000 of her own money and $80,000 that she borrowed from the bank at a 3% annual interest rate. This means that until Allison paid back the $80,000 loan to the bank, she’d have to give them $3,000 per year or $200 per month.
But that was easy, because by renting out the apartment, she received $1,000 per month – enough to pay the bank $200 and enough to keep $800 to herself. She continued to do this for 10 years, until she saved up $96,000 to herself ($800 x 12 x 10)!
During this time, the value of the apartment had also gone up from $100,000 to $120,000. She sold the apartment, and ended up with $120,000 + $96,000 = $216,000! Of course, Allison had to pay back the $80,000 she had borrowed from the bank. Also, since she made profit from this investment, she had to pay taxes of $33,000, leaving her with $103,000. After removing the initial $20,000 that Allison had invested of her own money, Allison has made a $83,000 profit from this investment… wow!
Of course, as a property owner, Allison was responsible for maintenance, finding tenants, collecting rent, etc. So there are other difficulties and expenses to consider. Also, the house market can go up or down. So, the risk of the apartment decreasing in value was also possible. Luckily for Allison, everything went as planned and she was able to make a lot of money from this investment.
Investing in real estate is one of the most popular types of investments, as it can provide you with huge returns! But like every investment, there are always risks to consider.
Would you invest in real estate? Let us know in the comments below!