Why Residential Real Estate is a Great Investment
The magic number for the rate of return considered strong when investing in the stock market is 10-12 percent. What if I told you there was an investment you could make right here in Rutherford County that has historically delivered more than triple that 10 percent return on your money?
Believe it or not, this fantastic investment is residential real estate. Allow me to lay out 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 (you can likely find a lower rate right now), 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 $950 or more per month. If your purchase is in this category, it will produce a monthly cash flow (rent minus expenses) of $185 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 your loan has been paid down by your tenants through their rent.
Overall, you will be sitting on $78,890 in equity on the house. 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 annual return of 32.9 percent on average.
How's that for putting your money to work for you. 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.
If you'd like to know more about investing in real estate, including how to buy property in your SEP or 401K, contact us. We'd be glad to help you figure out whether being a landlord is right for you.