by Karen Williams-deCastro- Realtor®, C2EX, RSPS, GRI, SRS, ABR, SFR, AHWD
My husband and I recently bought a multi unit here in the Florida Keys. If the prospect of putting your money into tangible assets, such as brick and mortar properties or even some creatively adorned siding, ignites your enthusiasm, you're not alone.
Real estate investment has consistently ranked as one of the preferred wealth-building methods for Americans. According to Census data, individual investors, not corporations, own more than 70% of single-family rental properties in the country. [1]
Furthermore, Bankrate surveys spanning a decade reveal that Americans have historically favored real estate for long-term wealth accumulation over other investment options. The latest Bankrate survey underscores this trend, with real estate standing out due to its potential for robust returns, especially for those willing to hold onto a property over time. [2] It's also a popular choice to combat inflation, as rental income and property values tend to rise in tandem with overall prices. [3]
As interest rates continue to rise, pushing potential homebuyers out of the market, a new wave of "mom and pop" investors is eyeing the burgeoning rental market as a potential goldmine. [4] The trend of purchasing homes for both personal residence and renting is also gaining traction, particularly among budget-conscious buyers seeking to offset mortgage costs. [5]
But how do you determine if real estate investment is right for you? Here are three signs that owning rental property could be a suitable choice:
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YOU'RE A HOMEBUYER WHO WANTS HELP COVERING THE MORTGAGE
If you're seeking an innovative approach to buy a home without breaking the bank, consider "house hacking." This strategy, increasingly popular among first-time homebuyers and budget-conscious investors, involves purchasing a home you plan to live in while renting out a portion to one or more tenants. [5]
House hacking offers a more accessible entry into real estate investing, as it often requires a lower credit score and a smaller down payment to qualify for a mortgage compared to traditional investment properties. Some government-backed mortgage programs even permit primary residence purchases with minimal or no down payments. [6] In contrast, buying an investment property you won't reside in may necessitate a down payment of 15% to 25%. [7]
House hacking enables you to use the rent collected to cover your mortgage and other homeownership expenses. Depending on your setup, you can also save on utility bills by sharing them with your tenant or including a portion in their rent. Additionally, house hacking provides access to tax benefits and deductions available exclusively to landlords. [8]
When you embark on your property search, we can assist you in finding an ideal house hacking property, such as a home with a legal downstairs enclosure, a multifamily unit, or one with ample outdoor space for an accessory dwelling unit or garage apartment. Here in the Florida Keys, there are rules and zoning laws that you have to follow. As a local realtor®, I can help you navigate that space.
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YOU'RE AN INVESTOR LOOKING FOR STEADY AND RELIABLE INCOME
If the idea of having a live-in tenant doesn't appeal to you but you still desire an additional income stream, consider a dedicated long-term rental property. In addition to monthly rental income, owning a rental property can diversify your investment portfolio and offer long-term stability, aiding in wealth accumulation. [9]
Data from the Federal Reserve reveals that real estate ownership has historically been a prosperous venture. For instance, in early 2020, the median home value nearly tripled compared to 30 years prior. During the pandemic-era real estate boom, average home prices surged by almost 50% in just two and a half years. [10]
While property appreciation rates can be unpredictable, it's wise to invest in a property that generates positive cash flow, ensuring you receive income each month, even if property values take time to appreciate. Although higher mortgage rates may present challenges for landlords, nearly 60% of real estate investors currently secure loans to finance their purchases. [4] This trend is attributed to increased demand for rental housing, as many prospective buyers are priced out of the market. [4]
If you're interested in exploring residential rental property opportunities that align with your financial goals and appeal to potential renters, I can provide guidance. Feel free to reach out with questions or to schedule a complimentary consultation.
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YOU'RE AN EXPERIENCED INVESTOR LOOKING TO MAXIMIZE YOUR POTENTIAL RETURNS
Another increasingly popular approach to generate income from investment property is to transform it into a short-term vacation rental. However, this strategy carries inherent risks, as some municipalities have tightened rental regulations, and market oversaturation is a concern. [11][12]
If you're an experienced investor willing to embrace some uncertainty, investing in short-term rentals could be a suitable option. With the right property, you can potentially earn considerably more by renting it on platforms like Airbnb compared to traditional long-term rentals. [11]
Success in this endeavor hinges on maintaining high occupancy rates at premium nightly rates. Achieving this requires marketing skills, hospitality acumen, and business savvy. Alternatively, you can hire a professional property manager, but you must factor this expense into your budget.
The vacation rental market experienced a boom during the pandemic, resulting in opportunities for investors. However, it's essential to be well-prepared, financially and knowledge-wise, as some inexperienced investors have encountered challenges in managing vacation properties. [12]
Whether you're seeking investment opportunities in our local market or considering investments elsewhere, we can assist you in identifying potential prospects or refer you to an agent in the desired area for further assistance.
BOTTOM LINE
Investing in real estate can be a rewarding way to build long-term wealth and generate additional income. To maximize your investment's potential, strategic planning is essential.
Call us for a consultation so we can discuss your objectives and financial resources. We'll help you identify neighborhoods with promising income potential, pinpoint homes suitable for renting, and brainstorm the most suitable investment strategy for your unique situation.
The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.
Sources:
- PR Newswire –
https://www.prnewswire.com/news-releases/census-data-show-individuals-continue-to-own-largest-share-of-single-family-rental-homes-301725024.html - Bankrate –
https://www.bankrate.com/investing/survey-favorite-long-term-investment-2022/ - Forbes –
https://www.forbes.com/sites/forbesbusinesscouncil/2022/04/14/why-income-generating-real-estate-is-the-best-hedge-against-inflation/?sh=1081ce921746 - MarketWatch –
https://www.msn.com/en-us/money/realestate/another-challenge-for-homebuyers-more-investors-are-snapping-up-homes-and-40-of-them-are-using-cash/ar-AA1foWSB - Realtor.com –
https://www.realtor.com/advice/buy/on-the-house-house-hacking-your-way-into-your-first-home/ - NerdWallet –
https://www.nerdwallet.com/article/mortgages/government-home-loans - LendingTree –
https://www.lendingtree.com/home/mortgage/down-payment-for-rental-property/ - Quicken Loans –
https://www.quickenloans.com/learn/house-hacking - Investors Business Daily –
https://www.investors.com/etfs-and-funds/personal-finance/rental-properties-investing-experts/ - St. Louis Fed FRED Economic Data –
https://fred.stlouisfed.org/series/MSPUS - Story by J.P. Morgan –
https://story.jpmorgan.com/real-estate-news/thinking-about-investing-in-short-term-rentals-heres-what-to-know - Skift –
https://skift.com/2023/07/21/short-term-rental-saturation-leads-to-a-correction-and-lots-of-home-sales/
Posted by Karen Williams- deCastro on
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