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.
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.
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!