Why Should I Even Invest in Real Estate??
“Are rental properties a good investment” is a common googled question these days.
When I see this I want to scream from the rooftops - YES GO BUY FIVE but I understand how that looks and sounds. Real estate is my life, of course I think it’s a good investment 😆
Although the belief runs strong, I’ll break down the numbers.
Did you know 70% of millionaires have invested in real estate? Did you also know, you don’t have to be a millionaire to invest in real estate?? 😉
Here’s the thing when something works…it works. And real estate has consistently worked. Here’s why ⬇️
Passive Cash Flow - This has been a hot phrase the past couple of years, the idea of “passive income” - basically making money while you sleep. While I don’t believe that any investment is ever “passive” I do believe the minute you stop trading your time for money is when the game changes. That is what truly builds wealth.
Appreciation - Another buzz word of 2021 and with good reason. The average homeowner gained $56k in equity in 2021 by doing one thing - owning real estate. The property gets paid down as you pay your mortgage while the value of the property goes up. Appreciation is what builds your net worth.
Federal Tax Benefits - The government decided a long time ago that they wanted to encourage home ownership so they created tax benefits to those owning property. Because of the tax benefits, investors end up paying less taxes overall even if they bring in more income. Investing in real estate allows you to make more money and it also allows you to keep more of the money you make.
Principal Pay Down - Similar to appreciation, principal pay down is when you pay down the mortgage getting you closer and closer to becoming free and clear…well the tenant pays down the mortgage and you get closer to owning that property. It’s a double whammy - when you have a cash flowing income property, your tenants are paying down the mortgage and you’re building wealth at the same time..
Refinance - Three words, cash out refi. You take the equity out of one property to buy another. And the coolest thing about it, it’s a non taxable event. 🥳 With equities increasing the way they are, a cash out refi is a great way to leverage your money/equity to purchase more rental property.
So what makes a “good” rental. For a long time investors have been using the 1% rule. The 1% rule states that when investing in property you want the monthly rents to equal 1% of the purchase price.
For the sake of numbers, let's use a property listed at $100k.
$100,000 x .01 = $1,000 —> so rule of thumb is you should charge $1,000 per month.
I will say the 1% rule of thumb is pretty tough to achieve in this market, but that is why we call it the rule of thumb 🤗It can be a great way to calculate initial interest in the property when on the hunt.
Here are a few other things that you should consider when weighing options:
Location: Is the location desirable? Up and coming? If you take a look at the average rents in the area and they are showing signs of a booming market, it still would be a smart investment.
Maintenance & Repair: Does the property need maintenance? Is it an older home that is going to need more upkeep? All of these affect your bottom line.
With the movement of people around the country these last few years, the short term rental market has taken off. Even month to month furnished rentals have become more common. There are a million and one ways to skin a cat and you can be profitable in any which way, you just have to decide how much time and money you want to invest. There are ample tools available to you. It all comes down to you & your goals. Lean on your realtor for the data & get your booty in the rental market!
