Thursday, July 26, 2012

Investing in property - its achievable

By Betsy Falwell

I was driving to pick my daughter up from dance class when I heard an ad on the radio that caught my attention. The ad promised to help me build wealth by using the equity in my own home to buy investment properties. To be honest, I was doubtful the process was as easy as the overly-happy sounding woman in the ad made it seem. Could I really earn a large side-income without pulling a penny out of my pocket? I decided to do the research to find out. Finding Ideal Investment Properties I started by talking to a person I trust when it comes to real estate: my current Realtor. My house is currently on the market, and the agent we’re using works not only with individuals like myself, but also with flippers, investment property managers, and even companies. He suggested I start by looking at foreclosure listings; he recommended the Department of Housing and Urban Development’s, or HUD’s, website, which catalogs the foreclosure listings from a variety of government entities. On the site, I was able to get a good idea of just how inexpensive it can be to buy distressed properties. My Realtor reminded me that foreclosures aren’t the only good deals on the market these days; short sales and owners who are downright eager to sell are making this a buyer’s market.

The Real Cost of Investing in Property 

Next, I turned to my mortgage broker. Mortgage brokers work for you for free – they receive their commissions from the lenders whose products you purchase. That means you won’t pay them anything, any time, and you’ll be working with a professional who focuses solely on home loans (unlike at a bank, where employees have a wider range of responsibilities). We used a home loan calculator to run some fictional numbers on a few properties listed in my area:

• Property 1 (Single-family home facing foreclosure; listed for $108,000 with a tax-value of $195,000): Using the equity in my existing home as the down payment for this property – while taking into the account the nominally-higher interest rate you often pay on investment properties, although a good mortgage broker may be able to help you avoid this – I could expect to pay around $440 a month on the principal of my home loan with a 30-year fixed home loan; with escrow, I’d be paying around $850/month

• Property 2 (Duplex facing short sale; listed for $175,000 with a tax-value of $230,000): My mortgage broker’s home loan calculator suggested I could expect to pay about $700 a month in principal on the note with a 30-year fixed loan; taking property taxes and insurance into account, I’d be looking at $1,100/month Then, I took those numbers to my Realtor, who looked at comparable rentals in the area. He told me I could expect to rent that single-family home out for about $1,400-$1,700 a month – giving me a net gain of between $550-$850 a month!


The scenario with the second property – the duplex – was even better. My Realtor said rental comps in the area put monthly rent around $1,000-$1,200 per unit, meaning I could expect to charge between $2,000-$2,400 a month on the two rentals. The profit margin? A whopping $900-$1,300 monthly!

There’s Even MORE Good News

 As if those numbers weren’t good enough, there’s an even greater upside to property investment. The IRS gives landlords a lot of wiggle room when it comes to writing off various expenses related to property management. For example, landlords can deduct everything from utility fees to HOA dues, maintenance to rental advertisements on their taxes. This can increase your potential profit margin even more.

It’s Not All Fun And Games 

I’ve probably got you chomping at the bit to check out investment property options in your area, but before you head out the door, there’s one caveat you must remember: property investing isn’t for everyone. Becoming a landlord means responding to your tenant’s needs, even if it’s a break-in or a broken water pipe in the middle of the night. It means periods where your property isn’t occupied and, instead of bringing money, you’re losing money every month. If you’re up to the challenges, though, property investment can be a great opportunity to create passive streams of wealth.

3 comments:

  1. As if those numbers were not good enough, there’s an even greater upside to real estate asset investment. The IRS gives real estate asset owners a lot of shake room when it comes to writing off various expenses related to real estate asset management. Income Property

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  2. I really appreciate to read this blog content and it is very useful for material for me because I plan to invest in the property. Most of the persons not aware the fact to invest in this sector.

    Removals London

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  3. This was a good suggestion that you put up here...dude…..hope that it benefits all the ones who land up here. 

    REO Rockstar

    ReplyDelete