People often come to me with questions about investing in real estate. Most are looking for passive income and a chance to build their net wealth. A good rental property can do both.
Right now Certificates of Deposit are paying 1.54%. If you had $50,000 in a CD, you could reasonably expect to earn $771.54 in interest over the next year. The same $50,000 in a money market would earn $671.34 ( 1.34% ) in the same time period. There is a house for sale in Kansas City for $50,100. It is currently rented for $600/month. That's $7,200/year. Subtract your property taxes ($1,122) and your insurance ($600) and you have $5,478 to put in your pocket.
Which would you prefer as a return on your investment?
But don't I have to pay taxes on the income I receive from rental properties? Yes, the IRS prefers that you pay your income taxes on all income. Your accountant will figure out the depreciation on the property for you. If you spend any money to repair, maintain, or upgrade the property, save your receipts so that your accountant can deduct those expenses.
How will I find a renter and once I do find a renter, how will I legally lease the house and collect the rent? There are many ways to find tenants (renters). When I help a client buy a rental property, I tell/help/show them how to find renters, which forms to use in the lease agreement and go over the various ways to collect the rent money. Many people prefer to pay a property manager to handle these details for them. This is a smart way to go as it frees you from taking care of all these details; all you do is cash the checks. Property managers charge around 10% of the amount the house rents for; some may charge a flat fee per month.
Are all of the houses for sale in Kansas City ready to rent? No, some will need work before they can be rented out. If you are willing to do some work, great, we will look at those houses. If you aren't, we won't. If you would like to consider homes needing work but don't want to do the work yourself, I will help you find a reliable contractor. We will consider the estimate of costs to bring the house up to habitable standards before deciding how much you are willing to offer to purchase the home.
What if I want to spend more on an investment property; is it still possible to make money or do I need to buy a bunch of little ones? Yes, it is possible to buy more valuable real estate as your investment vehicle. Here's a 3 bedroom 2 bath 2 car garage for $150,000. It will rent for $950/month. After taxes and insurance, your profit is $8,800/year. Move it over a few blocks and it will rent for $1,200/month, or $11,800/year profit. As the home price increases, so do the taxes and insurance as well as the potential rental income. Just remember to balance your expenses with your income. - Unless you are just holding the property for eventual resale, but that's a topic for another blog post.
Can anyone do this? Yes, with the help of a good realtor and property manager, anyone can do this.
Can I use the money in my IRA or Keogh to buy investment properties? Yes, you can. Call me and I will refer you to a financial adviser to help you arrange your funds before we select a property.
What if I don't have that much cash; can I buy a rental property using a mortgage? Yes, you can. In our first example, you would come out with $274.84/month after your mortgage payment (20% conventional 30 year mortgage @ 5%). In our second example, you would come out with $265.02/month (20% conventional 30 year mortgage @ 5%).
From the U.S. Census Bureau:
Median Price of New Homes Sold in the U.S.:
What should I do with the additional income? That is entirely up to you. Some people put it in the bank, some people use it for vacations, some people use it to buy groceries. Where you are in your life and what you plan to do next will impact your decision.
How long should I keep the rental property? Again, that is an individual decision. If you like the money it is bringing you every month, keep it. If it doubles in value and someone wants to buy it, consider selling it.
As a general rule, plan on holding your investment for 7 - 18 years. When you're ready to talk about investing in Kansas City real estate, call me.
Prudential Kansas City Real Estate
435 Nichols Rd 3rd Floor
Kansas City, MO 64112
816.560.3758 mobile ♦ 816.410.5499 office
Disclaimer: Visiting this blog, or any other website, does not create an agency relationship with the author or any third party. Posts on this blog are meant to impart general information and should not be construed as professional advice specific to the reader or to any particular situation. Please consult with your own retained attorney, accountant, inspector, tax specialist, real estate consultant, or other licensed professional to receive guidance and assistance appropriate to your specific needs and interests. All information is deemed reliable but not guaranteed. All content, including photos, are the original creation of the author unless otherwise noted. No part of this blog post may be reproduced without written permission from the author (with the exception of Member Reblogs, when activated). 2010 Kansas City Real Estate With Maria on Active Rain