| Advantages of Owning Rental
Property
CASH FLOW - Because income property can be purchased
with relatively low interest loans, many properties can start cashflowing
immediately after purchase. Many first time owners of fourplexes find that
they have not only stopped paying rent, but there is enough cashflow
collected from the rents after paying the mortgage to put in their pocket.
This is even possible when the owner used ZERO down payment financing.
TAX SAVINGS - Investment real estate owners have a
huge tax advantage over many other forms of investment: the opportunity to
depreciate their property and then trade up their capital gains into other property.
Residential properties depreciate (for tax purposes) over 27.5 years and
commercial properties over 39 years. Unlike stocks, if you
use an IRS code 1031 exchange to trade your property for another, you can
avoid paying income tax on the capital gains. There are many other tax benefits
to owning real estate.
EQUITY BUILD UP - Over time, the mortgage you borrowed to
purchased the property gets paid down, and, generally, the property value
goes up. This creates equity, or net cash value to the owner over time.
This can be dramatic growth, as many landlords in Southern California can
attest, or gradual, like a simple savings plan.
APPRECIATION - Many real estate investors believe it is
safe to assume a 4% appreciation level. Of course, some years will be
better than others depending on supply and demand. There are other
important factors like the escalation of costs and the increased costs of
construction and land/infrastructures. As long as governments keep up
major increases in im pact fees for developers, your real estate
investments will continue to appreciate.
The average single family home sold for $23,400 in 1970;
in 2000, a similar average home sold for $169,000. That is an approximate
8% annual increase. Of course, appreciation will vary with the location
and condition of the property as well as the condition of the local
economy.
Here are a couple of links for you to read as you
consider becoming an income property investor.
Buying
a Duplex
Double
the Fun?
There's
no place like rental property
For Non Home Owners
If you have never purchased real estate before, buying income property
will be easier for you than someone who already bought the home they live
in.
QUALIFYING FOR A MORTGAGE - The standard rules of thumb apply with
purchasing an income property as with purchasing a house. You need to have
a stable job/career history for 2+ years, a bank account with some savings
to show financial stability, a FICO credit score over 650, etc.
However, you do have the advantage of being able to use 75% of the rents
for the other units as income to qualify you for the loan. This process is
key to the first time buyer.
LEARNING THE RENTAL BUSINESS - Rental real estate is a business, and
should be conducted like one. While it is simple and easy to learn, it is
vitally important to make good decisions in operating your business. There
are many good books and even some courses which can help. Stonebridge
agents will be happy to tutor you in some of the critical activities which
make being a landlord an rewarding experience.
For Home Owners
QUALIFYING FOR A MORTGAGE - If your intent is to live in
your home after you purchase your rental property, you should be prepared
to come up with about 20% of the purchase price as a down payment, and a
few more percent for closing costs. For some people, this is no obstacle
at all. The same underwriting requirements will apply to you as to the
first time buyer (see above).
LEARNING THE RENTAL BUSINESS - Some of the realities of
homeownership - particularly fixing things that break or wear out - will
be very useful in being a landlord. There are many other issues which can
be of much greater importance, however, such as the legal relationship
between tenant and landlord. There are many good books and even
some courses which can help. Stonebridge agents will be happy to tutor you
in some of the critical activities which make being a landlord an
rewarding experience.
To Learn More About
Being A First Time Buyer Click Here to return to Realty Page to Fill Out
Info Request Form |
