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Over the lifespan of owning the building, say a few decades, you can expect: 1. Rare but highly expensive major expenses like a new roof, new heating system, etc. It's like a tail risk- you don't pay for it most years, but when it comes up, it costs a lot. 2. Required renovations- just to stay at your current level of quality. I.e. let's say you rent to normal middle class tenants now. In 10-15 years, you'll need to install a new kitchen, new bathroom, overall maintenance- just to stay at a middle class level. The building is constantly depreciating! So unless you intend to move economically downscale and rent to lower income folks, to stay 'middle class' you'll need to refresh the building every decade or two. No one wants an ancient kitchen, a decrepit bathroom from three presidents ago, etc. So you have to factor those two major expenses into your total rate of return over the decades. How much is a new roof, a new heating system, that new kitchen, that new bathroom.... You may not see these expenses every year, so you don't feel like they count, but over the decades they will. Source, am actually familiar with the true rate of return for properties over a long enough time span to judge. A 1-3 year snapshot isn't sufficient! |
And what is it?