Have you been thinking of buying an Investment property? Now is a great time to buy!! Last week the interest rates to buy an investment property just dropped in the low 4s. Make the equity currently sitting in your home work for you rather than sitting there. We have done this ourselves with our Real Estate portfolio and so have a lot of experience in this field
So why should you do this??
Did you know that very small investors, investors with portfolios with less than 10 single family homes, make up 88% of the estimated market share of all rentals in the US? You don’t have to be a big shot with a large bankroll to get started in real estate investing. Some 19 million millennials who want to own a home are renting because they don’t think they can afford a down payment. Thousands of them are discovering single-family rentals (SFRs). They are ideal tenants for investment properties.
Nationally, vacancy rates are stable at about 4%, and rents are continuing to rise in step with house prices because demand is strong.
Potential benefits of owning SFRs as an investment property
Leverage – here is a simple example of the benefit of leverage:
Purchase price = $300,000, down payment @ 20% = $60,000.
Assume a price increase @3% p.a. = $9,000
Expressed as a gross % return on initial investment = 15%. This number does not include any additional return based on principal reduction etc.
Tax Advantages – there can be tax advantages and vehicles to defer taxes (1031 exchanges) depending on the client situation. A common question is how do you know what your tax exposure is if you ever sell (cap gains, taxes on depreciation etc.) There is a formula for calculating this and your CPA can help you calculate this and explain it in the context of your other tax obligations.
Income opportunities – Properties that generate a positive cash flow are by implication generating income.
People always need a place to live – Final numbers for 2019 are to be confirmed but lots of new people continue to move into Denver Colorado.
Kids going to college… – 529s are better than no plans at all for kids going to college and typically there are State tax benefits. Investing in SFRs though as an alternative investment strategy may get you to your goal quicker when you consider the capital appreciation and principal reduction mix to build equity.
Asset allocation – as part of a balanced portfolio of a primary residence, 401k, cash, 529 etc. a SFR could be an additional feature.
Depending on the priorities for the investor there are other metrics that may be considered as part of the decision making process: CAP Rates, Cash-on-Cash Return, Total Investment Return etc.
Call us if you’re interested in getting your portfolio started