I think that you confused with levered and unlevered return concept. I just use your own example:
1) Levered Return: = 10,000/110,000 = 9.09%, the bank makes about 6%, you outearned the bank by 3.09% a year, this is a very impressive margin even by today's standard. If your factor the apprecaition of your house, your return by higher. You have a leverage ration of 4 to 1 by borrowing 80%. It is true that you pay the bank more, but the bank lend you 80%!
2)Unlevered Return: If I use the same 9.09% as the benchmark, you need to earn $50,000 a year for a $550,000 cash investment, that means the monthly rent at least should be $4,200/month, I doubt that a 550K house can have this kind of rent. If I use $3000 monthly net rent, your cash investment return will only be 6.5%.
This is the beauty of RE leverage investment. You can buy 4 more 550K houses by using leverage and make 5w a year and keep the upside when the housing price goes up.
