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Property Management Blog

What is lazy money?

What is lazy money?

When we buy a property, one of the things many of us do is to look at the return on our investment.  

Let's say you buy a $100k rental property with $20k down with $80k mortgage and make $200 monthly cashflow. In this case, you are getting a 12% return on your money or $2,400 per year. 

Over time, let's say the property appreciates to $120k and the mortgage balance goes down to $60k. That sounds great because now you "made" $40k ($20k less mortgage balance + $20k appreciation.)  

But now your money got lazy. The initial money you put used to give you a 12% return. But now that you have $60k equity ($120 value - $60k mortgage balance,) your return now is only 4%, assuming your cash flow stays at $200 per month. 

This is why it's important to look at the return on your equity because maybe the right thing to do now is to pull out some cash or sell the property and exchange it to other properties.