The Financial Benefits of Investing in Rental Properties
 

Reasons why investors have historically bought rental properties:

  • Cash Flow - The high demand for rentals coupled with a low vacancy rate is responsible for rising rental rates producing very attractive cash flows.
     

  • Appreciation - For example, applying an estimated 4% growth rate on a home purchased in 2011 for $135,000, the value in 30 years would grow to $378,917.
     

  • Principal Pay-Down - Rents collected from tenants are used to extinguish the mortgage debt. Thus, in the example above, after 30 years of payments made on the mortgage, the balance would be zero.
     

  • Tax Savings - Expenses incurred in operating the rental property (interest, property taxes, repairs, property management fees, etc.) are deducted for tax purposes against the rents collected. In addition, the IRS allows investors to deduct depreciation expense (a non-cash expense).

 

Why now is the right time to invest in a rental home:

  • Millions of homeowners have lost their home or are about to lose their home as a result of a short sale or a foreclosure. These displaced homeowners are or will become renters. They have vacuum cleaners and lawnmowers and know how to maintain a home. In their way of thinking and values, they are not "tenants" in the true sense of the word, but rather "victims" of the economy and the system.
     

  • Because of financing guidelines and the negative effect on their credit score, renters will have to wait 3-5 years before they will be eligible to buy again. As a result, many renters are willing to sign longer-term leases. These longer term leases will reduce vacancy loss for the investor.
     

  • The glut on the market of foreclosed and available short-sale homes has drastically driven down prices on these "distress properties". Many homes are available at prices below current replacement and many are offered at prices less than they were 5 years ago.
     

  • Fannie Mae "HomePath" financing is available for investors with only 15% down, no appraisal fee, and no up-front mortgage insurance. Investors can finance up to three rental homes in addition to their personal residence. Fannie Mae is currently offering buyers 3.5% in closing cost assistance on HomePath Homes. The initial offer must be submitted on or after April 11, 2011 and close by June 30, 2011
     

  • Investors are also able to create a Self-Directed IRA to purchase rental properties using existing investment/retirement account dollars.
     

  • CNNMoney.com in a recent article predicts that the rental vacancy rate will hover at a mere 5%. They expect that rents will rise an average of 10% over the next two years.
     

As a long-time investor with many rental properties, I have first-hand knowledge that I can share with you when you call me at 602-525-5000. I have recently surveyed the local East Valley market and found that many investors are currently earning a 16.3% cash on cash return (after paying a property manager) on homes purchased in the last six months. I'll be happy to share the study with you. I recommend hiring a professional property manager to make your investment truly arm chair. I have extensive experience helping investors negotiate and buy bank-owned properties and other distress situations.