Investment Properties: Thinking Outside the Box (Or Your Backyard)
If you are like most investors (and until 12 years ago, myself included) you may be thinking that you would love to buy an investment property. You may have even poked around on Zillow to see what is going on in your area. Most likely, if you live anywhere in the Western half of the U.S., you found prices to be crazy high, and that’s if you can even find a property. Well, maybe you are going about it the wrong way. What I mean is: with property prices skyrocketing over the last several years, maybe it’s time to look beyond your local market for investment properties.
For example, in my local market (Denver CO), the average home price has now eclipsed $500,000 and to get a solid rental property you are looking at anywhere from $400,000 and up typically. But run the numbers on that: after putting 20% down and taking out a loan (and all the difficulty that comes with that process), you are still left with a monthly mortgage payment of around $1600. Add in taxes and insurance as well as maintenance and vacancy and your monthly costs can easily exceed $2000 per month. And those numbers assume that you manage the property yourself. If you don’t, add another $150 per month to that number. This type of property typically rents for around $2000-2200 per month, so you are lucky if you are breaking even every month. And that’s when the property is rented. If that property goes vacant you are writing out a check for $2k per month, every month until you have a renter. That’s a down-side risk that I can’t afford to take.
But what if you were to take that same amount (roughly $85k) and I told you that instead of investing in the Denver market, you could buy three, yes three, houses in dynamic mid-western markets that are also seeing similar appreciation rates to Denver but with much less risk and much stronger positive monthly cash flows? And instead of netting $0-100 per month in Denver you could net $300 per month, per property, or around $900 per month. And you own 3 properties. If one goes vacant, you still have 2 others to help pay the mortgage payments on the properties (oh and did I mention the typical mortgage payment on these properties is approximately $350 per month). And if you had to, you could likely afford to write a check for $350 each month until the property is rented. It beats the heck out of writing a check for $1600 or more!
Sounds too good to be true? Its not, but you will have to think outside of your back yard for your future real estate investments. You also have to be careful and find someone, a turnkey investment property company if you want hands off or build a local team if you want to attempt to do it yourself. Either way there can be strong upside potential. You also won’t be able to drive by the property when you want, but trust me it will still be there, even if it’s a thousand miles away…. and you will love the returns!