Considering adding real estate to your financial portfolio?
Maybe you invest in the stock market and become frustrated with the volatility of bull and bear markets.
But investors have another, more stable option right under their feet – real estate.
Rental property investments are an underutilized market, particularly for first-time property investors who might be looking for income now, money for additional investments, or retirement assets.
The Property Management arm of Marsha Marsh Real Estate Services can help both novice property investors and established investors.
For first-time investors, the biggest impediment is coming up with the 20 to 25 percent down payment that’s required through traditional bank financing, along with closing costs. For a home that costs $100,000, that could mean as much as $30,000 on your first investment property.
So what do you do?
There are a few options:
- Using an inheritance to make a down payment would be a smart investment.
- Doggedly saving over several years for the initial upfront costs is another way to go.
- Some banks will allow cash gifts from relatives as part of the down payment.
But it won’t take long for your investment to turn into income.
Here’s an example: A $100,000 home acquired with a $75,000 loan costs, say, $800 a month in principal, interest, taxes and insurance. You rent that home to three college students for $500 each, which brings in $1,500 per month. That gives you a positive cash flow of $700 per month, and the tenants are paying down your asset while you still maintain the benefits of the tax write off.
Take that math equation out a little further. In one year, $700 x 12 months equals $8,400. In three years, you will have gained $25,200, essentially recouping your down payment.
Another option is to rent your current home.
You’ve already made the down payment, you’ve built equity, and you might refinance the loan at an even lower interest rate, which could allow you to pull out cash as a down payment on another property.
Another advantage of real estate is that you leverage your upfront costs. In other words, you can leverage your initial investment of $25,000 into a loan of $75,000, while you need $100,000 to make a stock investment of $100,000.
But what about the costs of maintaining the rental property?
First, consider this: There are no rules about how to use the cash from your investment. “It’s your income,” Laban Marsh said.
But he advised that from a long-term investment position, you typically want to hold income in an account that will go toward maintenance and improvements or as an additional down payment on another property. This is the type of investment that could be a “save now, spend later” arrangement, or provide you with instant cash flow now.
The Property Management team at Marsha Marsh Real Estate Services can help first-time investors or experienced investors in any number of ways.
We can manage your property or properties and contact vendors for repairs or improvements, which typically involve HVAC, plumbing, electrical work. We have developed trusting, long-lasting relationships with our vendors. We work all the time with them in our industry, and they respond quickly to our calls and bill us at a discount since we provide them with a high-volume business.
It’s a win-win-win.
- The vendors are paid quickly and the tenants are happy with the fast repairs.
- We also can help investors by finding tenants for their properties.
- We will provide advice on whether you are renting at the right value.
There’s some homework to do before you make this exciting investment. Anyone considering an investment in rental properties should examine their net worth, check their creditworthiness, and sit down with lenders to see their interest rate offers.
Also, a good REALTOR will be able to find a suitable property with the potential for improvement and advise how not to overpay. If you pay too much when you buy it, that doesn’t mean someone else will pay too much when you sell it.
You also should weigh whether a property you are considering for purchase requires improvements such as a new furnace, new roof, or new windows. You might pay less for a property that needs upgrades, but a lot of repair calls can lead to a challenging time for investors.
Ultimately, you’re looking for a property that will provide large cash flow and appreciation in value. We'll help you determine if your property can be rented for the type of passive income that you want as part of your financial portfolio.
Are you looking to save time by having a Property Manager help you with your investments? Complete the form below and we’ll contact you for a complimentary investors consultation.