Should i buy a rental property as an investment?
When it comes to your retirement, a lot of people think about their home as a real investment – perhaps as a last resort in the case of a reverse mortgage, should other funds get low, or as a bequest to make the centerpiece of their will. A lot of people who don’t have a down payment socked away think that they will never be able to achieve home ownership – which means that there are many investment opportunities out there that many people never take advantage of – the chance to buy homes and either lease them to tenants or sell them with a rent-to-own contract, profiting both on the sale price as well as on the rent that comes in while the purchaser is getting his credit squared away. What makes rental property good investment material is that you have a chance to grow the capital value of the property over time. Just like anyone else who owns a home, you will have the chance to deduct taxes and a number of expenses from your income taxes. Let’s take a look at some of the best reasons to start investing in rental properties.
With Real Estate Investing, You’re helping someone get on a faster path to home ownership
It’s discouraging for consumers to realize what banks are asking for when they look at mortgage applications and realize how far away they are from having the right credit score or having the necessary down payment to purchase a home. When clients are unable to secure financing it does not mean the dream of owning a home is gone. When Banks say “no”, Rent to Own says “yes”. The good thing about renting to own is that, with each rent check, someone who has had some bad luck in the past can put money toward a future down payment. So, as a Real Estate Investor with Rent to own, you’re not just making money on the transaction – you’re also doing something that the banks are refusing to do, help people escape the rent cycle. You collect rent each month, put a small percentage aside for the eventual down payment, and then you sell the property to the purchaser (tenant) at the end of the lease. The agreement of Purchase and Sale is agreed to at the beginning of the Rent to own term but is actually executed at the end. During the rent to own term, the tenant is responsible to work with a 3rd party to repair any Credit issues and make then a bank client at the end.
You are the boss
When you purchase a rental property, you get to choose how you want to make money. Some investors like to hold onto the house over the long term and rent it out in a BRH (buy-rent-hold) situation, while others want to take advantage of a more structured program with an expected ROI on a set term. You choose the Investment strategy suited to your risk tolerance.
Appreciation of a leveraged asset
What is leverage? It happens when you come across a significant investment opportunity but only pay for a small portion of it yourself, borrowing the rest through a Bank Mortgage (Leverage). In the case of a Real Estate Investment, the lower your out of pocket investment the higher the “leveraged” situation. If you consider the impact of this on potential appreciation, the possibilities are huge.
Let’s say that you have $50,000 sitting around that you could invest in a property. You could take that to a bank and turn that into a mortgage approval for as much as a $500,000 property, in a lot of cases. Now you’re turning $50,000 into a $500,000 property. Let’s say that your property appreciates in value by an average of 4 percent a year. Obviously, there is some fluctuation in both directions in property values, but over time the value generally moves up. After 10 years, that Real Estate Investment property would have appreciated to a value of $740,122. That’s $240,122 in profit on a transaction that only cost you $50,000, plus the mortgage payments you made. However, whether you held the property in a BRH or Rent To Own situation, you also pulled in rental income to cover that mortgage and then some.
So are rental properties good investment ideas? The numbers – and the reliability of the income – say Yes. Get in touch with one of the rent-to-own professionals at HOS Financial today to find out how to secure higher returns for your investments.