Wednesday, September 7, 2016

To Invest or Not To Invest.

Rental Property, is this for me?

 

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Rental properties have five primary factors that contribute to the return on investment.  Based on market conditions and investor strategies, the individual motivating factor can change from property to property.
There was a time when the benefit of tax savings to offset income from other sources was considered important to some investors.  However, in today's environment, they are more likely valued as incidental benefits.
Some investors expect appreciation to deliver the satisfactory results which can be reasonable over time if a reliable appreciation rate is used.  Savvy investors today are using conservative estimates for long-term holding periods.
Leverage occurs when borrowed funds are used to control a larger asset.  Positive leverage can actually increase the yield on an investment.  Equity build-up happens due to the amortization of the loan which requires that a portion of the monthly payment reduces the principal owed.
The last component that contributes to a property's yield is the cash flow.  When the rents are greater than the expenses of operating the property and servicing the debt, there is a positive cash flow.  A property with a good cash flow doesn't have to go up in value to justify the investment.
The combination of lower prices, low mortgage rates and rising rents are attracting investors to rental properties that include single-family homes in predominantly owner-occupied neighborhoods.
Even if you were to ignore the benefits of tax savings, potential appreciation and leverage, the attractive cash flows make rental property a very smart investment alternative.  Contact me for more information