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I am constantly reading books on real estate investing, marketing and similar topics that interest me. Right now I am reading Warren Buffett Wealth by Robert P. Miles. In the book, there is a section that addresses Buffett compound interest. We propose a hypothetical scenario, where if Queen Elizabeth, instead invest $ 30,000 in Regime Christopher Columbus to chart a new passage to Asia, had invested in anything else that only a compound rate of 4% profitability would have earned $ 2 trillion in 1963. In 2003, his investment was worth 9.6 trillion U.S. dollars, which, according to the author, is more than the value of all shares quoted on the same "new" world that Columbus encountered 500 years ago.

Why am I sharing this with you? Because one of the benefits of investing in real estate is the compounding effect that comes from long-term appreciation. Let me explain.

For the discussion easier, let's make an assumption oversimplified. Let us assume that all income you receive from your rental property is exactly equal to all the cost of that property. In other words, we assume that there is never positive or negative cash flow. For our analysis, the house always has to balance cash flow.

If you bought a house for $ 100,000 in which all property income paid for all expenses of the property, what happens to the value of that property over time?

History has shown that, despite short term fluctuations of the low, real estate tends to rise in value over time. In the example Warren Buffett, who used a 4% compound rate of return. Historically, real estate has increased from 6% to 7% per year, but we will use the rate growth of 4% from Warren Buffet for this exercise to keep our conservative numbers.

If the value of your home is growing at 4% per year, what the house would be worth it when you paid off in 30 years? It would be worth approximately $ 311,865. In Section 30, when your mortgage has been paid, you will also have a good monthly income from the property.

This assessment is one of the things that attracts investors of real estate as an investment long term. If in 30 years, are preparing to retire when you want to have a certain amount of money you can calculate how many houses you need to buy this year to balance the cash flow to achieve that goal.

For example, if you want to end up with 2 million net worth 30 years from now and real estate go up in value by 4% per year, then you'd have to buy about $ 642,000 worth of real estate today. If houses in your area $ 100,000 that would be about 7 houses. If houses in your area are $ 200,000 then that is about 4 houses.

Use your own number to determine how many houses you need to purchase to achieve your financial goals.

James Orr is a professional real estate investor, marketing expert and founder of the LearnToBeRich.com on-line investment game.

He works with a network of real estate agents, brokers and real estate investors across the United States through the AnalyzedDeals.com website.

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