This real estate market is continuing to produce many fantastic opportunities including a very make sense approach to purchasing income property. Decide where to invest your your cash…
6 Reasons Income Buying Property Makes Sense
1. Low Mortgage Rates- even for investment properties, continue to remain low creating a favorable mortgage payment. It’s not uncommon these days to get a 30 year fixed rate mortgage for an income property purchase under 4%. The Federal Reserve’s commitment to buying mortgage bonds will keep rates favorable for such opportunities.
2. High Rents-in most markets, rents are up. Moreover, fair market rents can be used to offset the mortgage payment in qualifying for a potential mortgage loan. You will want to consult with both a real estate agent and/or a real estate appraiser depending on your market. In Sonoma County, California, rents are up, significantly.
3. Cash Flows- The property will likely cash flow with 20% down or more.
For example use these assumptions:
purchase price $300,000
down payment 20% =$60,000
mortgage loan= $240,000
interest rate 3.857%
mortgage principal and interest $1126.51
monthly property taxes (based on 1.25% of the purchase price) $313
monthly homeowners insurance $67
total mortgage payment $1506.51
closing costs ( based on 3% of the purchase price) $9000
Total cash needed $69,000
Gross rents $1900
net cash flow + $393.49 per month
4. Return On Investment- using a cash on cash return-annual income at $293.49/month translates to $$4721.88 per year in rental income. Divide $4729.88 by the initial capital of $69,000, this translates to an annual return of 6.8% conservatively. Be mindful of the fact a principal and interest fixed rate mortgage is building equity over time by the reduction in your principal balance further improving your return.
5. Tax Deductions-mortgage interest, property taxes, homeowners insurance, each one of these, can be deducted on your federal income tax return. Additionally, you’ll be eligible to write off any repairs you do to improve the property in that calendar year such as painting, interior decorating etc. Contact your tax advisor for further clarification.
6. Appreciation-prices are up nationwide and continue to move upward. The US labor market is also improving. As more people find jobs, real estate tends to rise in succession. Inventory shortage is creating bidding wars driving prices up.
Where To Begin Your Income Property Acquisition
Determine how much risk versus how much reward.
How much cash can you invest?
*Remember you’ll need 20% down or more to purchase an income property
Talk a mortgage lender upfront
*Make sure you can qualify for financing by getting pre-approved with the local mortgage lender.
Get connected with a real estate broker
*You will want to make sure rents in the area make sense for your unique purchase.
Decide how much return you’re looking for giving your appetite for risk and what’s realistic for your area
Buying income property is first about the numbers, does the math make sense? If it does, consider it, if it doesn’t, walk away. Get complementary mortgage rate quote for investment property today.