Rate of Return (ROI) on Investment - Real Estate Apartments

I have  been recently contacted by a reader asking for a help to analyze results of investing into 2 condominiums (apartments).

Here is the input data (story):

Apartment #1  (Apt. #1) - initial investment $ 56 K back in 2005 and additional amount of money in 2010 - $170 K.

Apartment #2 (Apt. #2) - investment $ 170 K in 2010.

The questions are:

 - Whether the investment in the real estate worth it and what is rate of return (ROI)? 

 - What to do next - sell them or keep as rental properties?

Rate of Return (ROI) vs. Inflation

I set my goal back in 2010 that I would need $2 million to become a financially independent person. This means that I have enough capital to generate income which should cover my expenses.

I looked at the role of the inflation on my portfolio. Since the 2010 Cumulative inflation over 3 years is 9%.  In practical terms  it converts $100 in 2010 worth less than $92 today.  If current inflation rate will stay the same by 2040 the same $100 would worth only $48.

I reported that my portfolio worth $226,800 but in 2010 money it is $209,000. This underlines importance why  rate of return on your investments should be at least 2-3% above inflation rate.

2013 Financial Independence Goals

Financial:

- Accumulate at least $42,000 for investments during 2013, beginning  2014.

- Continue to diversify the nest egg.

- Think about additional source of income.

Blog:

- Regular monthly updates

- To cover  6 themes

I have no intentions to move towards an entertaining blog with 2-3 weekly posts.   I will endeavor my best efforts to stay on personal subject of financial independence and family budget.  

Educational:

-  Create list of books to read  & read them- 12 books is minimum.

-  Publish the books reviews.

Family Budget:

- Stay under $80,000 with the family expenses

- Accumulate $7,000 towards durable goods replacement over 10 years.

Be happy.  Run 1,000 miles during the year.

End of 2012 year update ($224,500 +$61,000 or +37%)

The portfolio changes:

↑ $55,600 were accumulated over the year and invested.  This exceeded annual goal of $40,000 with my annual bonus almost fully invested and some additional efforts were put in.  Otherwise the portfolio only gained 3% or $5,400 otherwise.

Primarily this was due to over exposure to cash & precisions metals.   This year I reduced exposure to cash from 74% to 54%, with stock market portfolio allocation went from 18.5% to 39.5% (next year 2013 I expect it will go up to 49% or even %55).

↑ Company shares are slowly going up, as I am reinvesting all the dividends into the new shares. Annual gain is $800.

↑ Keeping emergency fund into GBP, allowed me to gain almost $3,000 on the differences in exchange rate. Albeit from 2008 it lost almost $18,000 as GBP was stronger back then and this is without taking inflation into account.

- Mutual funds invested into emerging markets did not bring any gain this year (To be fair $300). I started wondering whether it is worth keeping money there. Since 2008 there has been loss of 7%, but the currency lost 30% of its value as well. Grand total loss over the last 4 years $9,600

↑ Precious metals gained $2,400 this year.

↓€ lost about 3% towards $ this year,  for my nest egg it meant $1,200 loss.

In time

          One of the most recent challenges i have is strong sense that i do not have time for anything, but even when i stand still it still running at ever increasing speed.

I think that the main contributing factor is number of responsibilities, non-value added things i involved in. It does clutter the life and takes away precisions moments when you could simply sit and dream.

            An analogue with personal finance is buying thing you can afford but do not need. Over the period of time their number grows and you do need to replace them. It eats up and limit the potential savings you could make.

Positive moment that i am so stressed about lack of time that i can work almost anywhere, when i have a moment to myself.

          On the other hand (to be brutally honest) i feel like i have not made any measurable progress in educating myself towards financial independence. The savings have been made do not count, as i always been pretty careful (scared do not have money). Yet again i spent  perhaps 2000 hours blogging, reading and commenting on the posts. It gave me a unique insight into personal finances but sometimes i wish i spent that time reading books and learned fundamentals about modern economy.

        What i understood that for the most of the people financial independence is a challenge  and life long process with no silver bullet. Some of us on a higher salary or (and) with no kids achieve better results but with the real returns of 3-5% on the investment  one cannot expect an early exit.

November 2012 update (224,500 +20,100 or +9%)

It has to be highlighted that the change is for the last 3 months, rather than one.

The portfolio changes:

↑ Accumulate additional $17,100 as part of my annual savings plan (just slightly over three months worth of savings)

↓ The stocks went down by €1,500

↓Mutual funds went down by  $100

↑ $ is weaker towards €, £ and RUB the additional gain from those currencies overweight the stock market losses.

Family budget comparison 2008 – 2012 ..after the relocation.

We had to move last year and relocated to a more expensive area.  Evidently we spent $ 16K more.

As new place of residence  and more expensive area,  I averaged our three previous 3 years of expenses, when we lived in the same environment.  

Non-inflation adjusted table: