Drastic Increases to the Cashflow Returns on MartelTurnkey Properties
If you have visited MartelTurnkey.com in the past 6 months, or spoken to a sales team member, you know that the financials we provide on each house have consistently shown a 10% cash-on-cash return. Visit today and you will see the numbers are much different, showing a 20% – 23% return. This change in methodology is long overdue, and a more accurate representation of the investment’s anticipated return. We know you’ll want to understand what’s changed.
Historically we have analyzed properties to ensure a specific cash-on-cash return for our customers. Most recently, it has averaged 10%. The calculation is quite simple: Take the rental income and subtract the fixed costs (comprised of principal and interest, insurance, property taxes and finally property management fees). On average the net cash flow is between $200 and $300 per month. When you multiply this number by 12 months, you get $2400 to $3600 in annualized cash flow. This amount equates to 10% of the down payment you have put on your house which would have been between $24,000 and $36,000. Therefore we have told you you can expect a 10% cash-on-cash return when you buy a cash flowing rental property at MartelTurkey.
The Missing Factor: Appreciation
A 10% return on an investment is very good, especially when it is consistent year after year. But in reality, the numbers are far better than this on your turnkey rental property, due to appreciation. We noticed that our competitors are including appreciation for their calculation of returns. To help you compare more easily we decided to include appreciation as well. It is an important part of the experienced investor’s formula for success. In our markets many of our investors expect to do a cash-out-refi within 5 years and then reinvest their original funds (the $24,000 to $36,000 we previously mentioned) into another house. In order to do this, their house has to increase in value by this same amount. That growth is the appreciation. So, while our calculations and spreadsheets are very simple to understand, they don’t account for a major consideration which is appreciation.
How Did We Adjust For Appreciation?
Realizing we need to add appreciation into our calculations, we had to determine what percentage (%) would be most accurate and conservative to use. While we have been seeing anywhere from 10% to 19% appreciation in our markets in the past few years, this is a short moment in time and not the best for predicting future long term growth. Instead we decided to look at appreciation in our markets since 1995. The resulting percentage is different in each market. You may be wondering why we went back so far in time? Well, as you know, the real estate market crashed in 2008 due to the financial crisis so by going back 27 years, we are smoothing out these bumps that will give us the general trend on real estate appreciation . We are being super conservative but we prefer it this way. Additionally, these appreciation rates are based on a large geographical area, such as a county or metropolitan area. We have our dedicated teams on the ground in the cities where we do business and they keep us apprised of what is going on. We pick and choose where we invest, on a neighborhood basis, to maximize your returns and investment success.
So now when you look at the financials for a MartelTurnkey rental property, you will see a cash-on-cash return of 20% to 23% with the assumptions clearly written out, including the appreciation. More knowledge is always a good thing. We feel this change is long overdue and gives you a better indication of what you can expect from your investment property in the long term. Please reach out to any of the MartelTurnkey team for more information or to put a MartelTurnkey property under contract today.