By John Rapasky
I am seeing many investment purchase transactions come across my desk. It seems that many of you feel it is a great time to buy an investment property. Based on today’s interest rates and prices of homes, I can see why. Rates of return on an investment property can range between 10% to 25% per year, putting the purchase of an investment property as one of the best investments you can make today. An examination of the numbers bears this out.
Most of the investment properties that come to us have sales prices under $150,000. In order to get the best rates and costs, be prepared to make a 25% down payment on these properties. As an example, let’s assume a $125,000 sales price. With a 25% down payment, this results in a $93,750 loan amount. At a 5.5% interest rate, the principal and interest payment is $532.50 per month. Assuming $720 per year in insurance, and $1,800 per year in real estate taxes, your monthly principal, interest, taxes, and insurance payment is just under $750 per month. Depending on where you purchase, you may be able to receive $1,200 per month in rental income. This results in $450 per month in income. To determine your return on investment, you take the annual income from the rental property, $5,400 ($450 x 12 months), and divide it by the down payment, closing costs, and prepaid expenses ($31,250 + $5,000 estimated closing costs and prepaid expenses). This results in approximately a 15% return per year. As compared to other investments today, this is a very competitive return. Also, you will have the appreciation of capital, assuming the housing market will begin to recover.
You may think that it could be hard to get the property rented. Well, like with any other piece of real estate, it all depends on location, location, location. We have seen that there are many good renters in this market. Many people find themselves renting because they cannot qualify for a home due to economic factors such as a past foreclosure, short sale, loss of job, or other factors. Notwithstanding these prior misfortunes, they could be good tenants as they now have these events behind them.
Knowing that the return on investment is competitive, and that there are many good renters in the market place, do you think it is a good time to buy an investment property? Contact us and we will be happy to go over your scenario with you.
John Rapasky is the President of the Counsel Mortgage Group, LLC. You can learn about them at www.counselmortgage.com. Copyright © 2011 Counsel Mortgage Group®, LLC
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