Is it a good time to buy or own rental property?
Ten to 12 percent is normally considered a strong the rate of return in the stock market. Believe it or not, owning rental property has the potential to more than triple that 10 percent return on your money?
Here’s a realistic scenario that demonstrates the power of putting your money in rental properties. Imagine you buy a single family home in Rutherford County for $120,000 with a 20 percent down-payment of $24,000 out of your pocket. On the remaining $96,000, you get a 30-year amortized loan at seven percent interest, which has a monthly payment of $640. Add $1,500 per year to cover insurance and property taxes and your total payment comes to about $765 per month.
It is possible today in Rutherford County to pay about $120K for a home that rents for $900 or more per month. If your purchase is in this category, it will produce a monthly cash flow (rent minus expenses) of $135 per month. In many cases, this cash flow completely covers other non-regular expenses that occur, such as repairs, property management, etc.
Now let’s say that your rental property appreciates in value an average of three percent per year, which is less than the average annual home appreciation in Rutherford County over the past 10 years. With this conservative estimate, in 10 years your home will be worth $161,270, or $41,270 more than you paid for it. Additionally, your principle balance on your loan will have dropped to $82,380 — that’s $13,620 of your loan that has been paid down by your tenants through their rent.
Overall, you will be sitting on $78,890 in equity. Remember, your original cash investment was only $24,000. This means the value of your investment has more than tripled in just 10 years with an average annual return of 32.9 percent. There is no other investment that allows you to leverage your money like real estate.
Of course, being a landlord is not for everyone. This investment is a little more involved than sending a check to your stockbroker. However, you can take much of the stress of owning rental property off your own shoulders by hiring a skillful property manager and giving him the space he needs to do his job properly. And there is something comforting about being able to see and touch your investment.