Analyzing properties using this formula, it is very possible to achieve more than 20% annual returns. A few people I know get more than 30%.
Possible, yes, but certainly not probable in the general case — if it was then no one would buy stocks. You and your friends are Real Estate experts — most people are not. If everyone else was capable of doing the same thing the returns would rapidly go to inflation-level or below. The most successful RE cash-flow investors are working full-time managing their properties, looking for new ones across the country, and arranging repairs/screening renters/etc… Finding undervalued assets of any type is not easy, especially in an environment of easy credit.
I of course agree that leverage, when employed by an expert, can indeed produce very good returns. Of course the converse is also true, that leverage can be extremely dangerous when wielded by someone who is ill-informed. In my experience, the latter greatly outnumber the former in the general population! No one here (to my knowledge) is saying that you should never buy homes or invest in real estate. The general sentiment among posters on this board is that it is difficult to find good real estate investments here in Southern California since E-Z credit made its debut a few years ago. Almost all of us here think that someday soon it will make sense again and we will buy when it does. I know I’m still watching house prices and when I see one that I can afford that I would enjoy living in, I’ll be on it…
