OK, so here's my cut at Wandering Doc's numbers. Caveats below:

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```
Price........................... 100,000
Rent............................ 11,100
Vacancy......................... (666)
Taxes........................... (1,000)
Insurance....................... (600)
Property Mngmnt................. (1,404) 8% + 1 months rent every 24 months...
Maintenance..................... (1,332)
................................
Cash Flow (pre-tax)............. 6,098
................................
Appreciation.................... 1,000
Tax Rate........................ 30%
Depr tax savings................ 873
Taxes on cash flow.............. (1,829)
Total after tax cash flow....... 5,141
A/T cash flow %................. 5.1%
Total return $.................. 6,142
Unlevered return, %............. 6.1%
................................
Effects of leverage:............
Interest Rate................... 4%
LTV............................. 80%
Down Pmt........................ 20,000
Loan Term....................... 20
Payment......................... (485)
Year 1 Total.................... (5,817)
Year 1 interest................. (3,200)
Year 1 principal................ (2,617)
................................
Tax Impact of interest.......... 960
After Tax Cash Flow, year 1..... 284
A/T Cash on cash................ 1.4%
Add appreciation................ 1,000
Add principal paydown........... 2,617
Total A/T return ($)............ 3,901
Total A/T return on initial cash 19.5%
```

Caveats and notes:

1) I am not currently a direct real estate investor, and it's been many years since I've done it (and even then, my experience was relatively limited compared to many). But I have researched it now and again in more recent times, and I think much of what I've got above is relatively realistic.

2) WanderingDoc did not provide all the number necessary for an analysis, so I've made some guesses/assumptions. Some of these may vary significantly based on region. Appreciation rate is a BIG one (discussed further below), but property taxes is another significant one. I've not separated out utility charges and certain service fees and the like that may apply for some properties - consider them perhaps as part of "maintenance".

3) Why so low an assumption for appreciation? (I assume 1%, WanderingDoc talks of 4%.) Well, from my understanding, when you have properties that have relatively high rent to value numbers (or cap rates, or whatever), you're typically in geographic regions or neighborhoods that are not booming. Yes, appreciation is likely to be higher in many coastal/tech enclaves, but cap rates there will quite possibly be lower.

4) I think WanderingDoc's initial analysis confused rather than clarified by mixing up leverage impacts in the raw numbers (i.e. by multiplying a lot of stuff by 5x for the impacts of 80% borrowing). I've separated them here - first an unlevered analysis, then a levered analysis. The raw cash flow, pre-tax, in my unlevered analysis is $6098, on $100K invested, so ~6.1% cap rate. Perhaps that's a little conservative, but remember, the basic parameters we're dealing with here (per WD) are 900-950 rent (I used the average of this range) on a $100K property. In a perfect world - 100% occupancy, ZERO costs, that's 11,100/100,000 for 11.1% cap rate. Of course there WILL be costs and vacancy, so...

5) Depreciation saves some on the tax bill, but if the property cash flows (as it may, especially if bought unlevered), the cash profit is (edit - generally) taxable. I've assumed 80% of the property value is depreciable (IIUC, the land value is not), on a 27.5 year schedule, and an overall tax rate of 30%.

6) Bottom line, for unlevered, I get cash on cash, pre-tax, of 6.1%, post-tax of 5.1%, and total post-tax return, WITHOUT making allowances for depreciation recapture or taxes on capital gains, of 6.1% (This makes the somewhat generous assumption that these get wiped out on death by step-up basis).

7) OK, now let's turn to the leverage side of things. Here I'm perhaps on shakier grounds. I'm not real current on typical loan terms these days, and I realize there's a lot of variation. In particular, things that may be possible on a small scale (say, buying a single property owner occupied, living there a while, then moving out and using it as a rental while keeping the loan in place), probably don't scale well. And, IIRC, even on a purely investment loan, you may get better terms, assuming you have a good salary and take a recourse loan, on your 2nd loan versus your 10th - again, scaling issues. Anyways, I assumed a 20 year fully amortizing 4% loan. I did not model closing costs.

OK, so if you apply a 4% loan to a property with a 6.1% cap rate, you DO boost your returns (assuming that things go roughly according to plan). But you don't necessarily boost your cash on cash returns (assuming we're truly talking cash in pocket, and not allowing for refinancings). That's because there's some principal paydown, which reduces cash flow to the investor.

Bottom line, I get a cash on cash return of 1.4%, and a total return of 19.5%, after tax (but again, before allowing for any depr. recapture or cap gains taxes).

So, the investor is magnifying total returns (assuming things go well), while reducing cash on cash returns. Yes, cashout refinancings may effectively boost cash on cash returns, but there are costs to these, and I think particularly with investment property, there may again be scale issues.

What if we vary some assumptions?

I won't try to replicate the table for these - just some highlights:

(In each of these, I'm varying only the indicating quantities from those shown above)

* If vacancy spikes to 20%, A/T Cash Flow %, unlevered, goes to 4.0%, levered goes to -4.5%. At 40% vacancy, these go to 2.3% and -12.8%

* If appreciation goes to 4% (from 1%), then total A/T return goes from 6.1% to 9.1%, unlevered, and (as % of initial cash) from 19.5% to 34.5%.

(So, if appreciation truly is 4% as WD speculates, then yes, with big leverage, you can get returns in the thirties, though not cash on cash, absent refinancing...)

* If (leveraged scenario) LTV goes from 80% to 75%, and interest rate goes from 4% to 4.5%, then A/T cash on cash goes from 1.4% to 1.8% (presumably because leverage is reduced), and total A/T return on initial cash goes from 19.5% to 15.1%.

8) Some further caveats - The payment math maybe slightly off - I may be fumbling raw interest rates and APRs there, but the differences shouldn't be too big at the rates I'm using.

My guess is that total costs of leverage for more ambitious RE investors (beyond one or two investments) will generally be higher, with points, closing costs and the like, that I haven't put in my number crunching.

There are probably other things I've forgotten.

One could certainly make both more and less generous assumptions.

There are plenty of potential risks and unexpected surprises, that would generally be more damaging to the highly leveraged investor with many properties versus the lightly leveraged investor and/or someone with only a property or two and substantial non-real estate income and financial reserves.