Real estate is one of the most popular forms of income investment because it is tangible. It doesn’t always work for everyone’s personality or portfolio, but it may be a good consideration if you are hands-on and want some diversification.
Now that we are on the other side of the Great Recession, property values and interest rates, though beginning to creep up, still are historically low. With the current environment, I am seeing an increase in real estate investments for retirement planning.
Durango has a history of low rental supply and high rental demand, and the majority of the rental demand is in the downtown and in-town locations.
Investing in rental properties can generate current income and significant tax benefits as well as build equity from appreciation through the years and decades. Real estate is the only investment we know of that you can live in or rent to produce income.
Most successful real estate investors build their portfolio through saving money and then gradually buying properties over the years. The best returns on real estate rely on the use of credit to obtain the leverage of using other people’s money.
Residential property is an attractive investment and is easier to understand, purchase and manage than most other types of property. If you’re a homeowner, you already have experience locating, purchasing and maintaining residential property.
Line up a real estate agent, lender, tax adviser, and possibly a lawyer before you start viewing properties because the real estate investor with the best resources can identify the best properties and move quickly.
The best investment properties are ones that are well located and physically sound but cosmetically challenged and poorly managed. Inspections will help determine the extent and cost of deferred maintenance or needed repairs. If you are handy and can do the work yourself, your return will be higher.
Investing in property in the area you live may make a lot of sense, as you are familiar with the real estate market, can choose to get a higher return by managing the property yourself and most likely already have relationships with local resources for services you need.
You’re purchasing a future income stream or cash flow when you buy an investment property. What you pay for a property and the cash flow it generates make a significant difference in the success of your investment. The key is identifying which properties sellers have underpriced.
Be prepared to make at least a 20 to 25 percent down payment to get access to the best financing terms.
Your real estate professional can get you comparable market statistics to help you determine if the property is priced desirably. You will require the current expenses to determine the net operating income – the annual income generated by a property after taking into account all income collected from operations and deducting all expenses incurred from operations.
While planning for retirement and diversifying assets, rental income may be a viable option for you to consider.
Kelly Kniffin is a Realtor with Legacy Properties West-Sotheby’s International Realty and serves as president of the Durango Area Association of Realtors. Reach her at kelly@homesdurangoCO.com.