Rental Homes- I.D.E.A.L. Investment?

By
Real Estate Agent with Solid Source Realty GA Ga Re lic. 266576

Are Rental Homes an I.D.E.A.L. Investment?

There are a lot of investment options available for us today.  Stocks, bonds, mutual funds, gold, silver, annuities, etc can all be a part of a solid retirement plan.  

for rent


Some people may claim that I am biased, and maybe that is so.  However, I firmly believe that rental homes are an I.D.E.A.L. investment and should be included in every retirement plan.  Over the next several post I will discuss why this is so and give you some ideas to help you with your real estate investment planning.

Keep in mind that there are no promised returns.  I think the examples that I give are realistic but please consult with your own investment and tax advisers.

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As we go through this series I will be using an example of  a 3 bedroom 2 bath home with a purchase cost of $100,000.  There are two reasons for this.  1. It makes the math simple.  2. That is a home that would be very readily and realistically purchased in this area and market.  In other areas the math be be different but the same logic will apply.  
 

Income
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Part 1:

Rental homes provide income.  To compare that to another more "traditional" investment it pays a monthly dividend.  Additionally that dividend is very high in relation to the cost of the investment.  That $100,000 house would rent for about $1100 a month around here.  Even if we factor in a 25% cost for vacancies, management, repairs, etc that leaves a net of $825 per month or $9900 per year.  So before we even get to the other advantages of owning a rental home you have a 9.9% "dividend"! How many of those other investments can match that?

Now would also be a great time to mention that management cost.  The biggest reservation that people have about dealing with rental property is tenant hassles.  Hire somebody to do that for you and just consider it a cost of business.  As a matter of fact it IS a cost of business and you can probably deduct the cost.  More on that later.  Consult your tax advisor for more depth on that.

If you bought that $100,000 home with a 15 year mortgage and 20% down payment the monthly payment including taxes and insurance is in the range of $800-850 per month.  Later will will look at some variations of paying cash or financing.  But for now if you financed the house you have an approximate break even cash flow!

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Rainmaker
409,541
Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease

Bob, 

Love your logic.  We not only lease and property manage homes in Fulton, but we own a few of our own rental homes.  I am looking to use my IRA and purchase more, as I am much more comfortable with the return and control I have on rental homes than the stock market. 

All the best, Michelle

December 12, 2011 08:40 AM #1
Rainmaker
220,395
Bob Southard
Solid Source Realty GA - Kennesaw, GA
e-Pro - Cobb, Cherokee, North Fulton

Michelle,

Thanks for mentioning the IRA!  I will be posting part two shortly.  Be sure to check it out.

December 12, 2011 10:32 AM #2
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Rainmaker
220,395

Bob Southard

e-Pro - Cobb, Cherokee, North Fulton
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