The following is a little help to analyze your options.
Let’s say you worked hard and saved money over the years. It is sitting in your checking or savings account, and making little or no interest. You’d like to have your money work for you. You are considering investment options, such as stocks, mutual funds or real estate.
First, try not to be emotional. When you invest, you are looking for the best return on your money. Don’t get caught up in whether you are “in love” with a stock or piece of real estate. Try to stay analytical. Second, research and analyze your options. If you are looking to invest in a stock or mutual fund, look at the research to estimate your return. For real estate, consider leveraging your funds to maximize your investment.
For example, assume you are purchasing a $250,000 single family home to rent. An investment property typically requires a minimum 20% down payment, or $50,000 in this example. Assume an interest rate of 6% on a 30-year fixed mortgage, so the monthly principal and interest payment is $1,199. Further, assume homeowners insurance is $720 per year ($60 per month) and taxes are $2,400 per year ($200 per month). Thus, the total payment is $1,459 per month. Estimate the market rents for the property are $1,800 per month. Thus, you will make $341 per month. Extrapolating this over one year totals $4,092. Dividing this by your initial down payment gives you a rough estimate of your return in the first year, which in this example is 8.18% (i.e. 4,092 ÷ 50,000) This is a rough estimate as it does not account for the mortgage principal being paid by your renter, nor the capital appreciation on the building, both of which could improve your rate of return.
When considering your investment options, do your research. If you are considering an investment in real estate, contact us and we can help you analyze if it is a right fit for you.
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