Real Estate investing isn’t for everybody. For the first half of my life I didn’t think it was for me because one, I feared the upfront cost and two, I never took the time to really understand the power of it. Fast forward to today, where, after much research and reading I sit with several single family homes in my portfolio averaging an 18% Cash on Cash return. It’s hard to match the returns of leveraged real estate. If I could go back in time to my twenties, I would invest more in real estate and less in my 401k.
Within real estate there are many ways to invest. REITs, notes, multi-family, mobile home parks, commercial buildings, to name a few but for many, including myself, single family homes are where it’s at. Even if the numbers don’t work out in your particular neighborhood or city, it’s easier than you think to buy real estate in other markets or even other states.
Single family homes aren’t as easy to invest in as buying stocks, but the long term gains are worth it. It’s all about the cash flow and making your money work for you. Think you can’t afford to get started? Less than $15,000 can get you 20% down (to avoid PMI) in some rent favorable areas of the country. Save and snowball your earnings to accumulate more properties and eventually you can look at early (or certainly more secure) retirement. Single family homes command higher rents than apartments and appreciate faster than apartments or condos. The utilities are typically up to the renters so the only monthly commitment from you is the mortgage, which should include the property tax already.
Paying a property management company 8-10% can be worth it’s weight in gold -certainly if your investment property is long distance. From finding quality tenants, collecting rent, and responding to their needs a good property management company should handle almost everything for you, including giving you access to an online portal you can use to virtually manage your property and collect rents. Having multiple rental properties doesn’t have to require a large time investment on your part and can easily be done while you continue to work full time.
The new tax bill allows for a 20% deduction for pass through businesses like rental properties. You may also be able to deduct certain expenses including mortgage interest, property tax, operating expenses, depreciation, and repairs. You can deduct the ordinary expenses for managing, conserving and maintaining your rental property.
Property appreciation and the equity you build with single family homes are just additional, albeit very important benefits to this type of investment. The trick is to just get started. Themoneybeat will feature a thorough getting started guide for investing in rental real estate later this year.
If you want to have more wealth and future security, you have to do what the wealthy do. Property ownership should be one part of your plan and is well worth the effort.