Should I Invest in Real Estate Now?

In Short: Absolutely!

What you will need: Most lenders are going to require 20% down at the minimum to qualify you for a loan, and 25-30% down to get the best loan rates and terms (there are always other sources of financing investment property that might fall outside of the 'norm')

What to expect: Because investment loans are seen as having a slightly higher risk profile, you will pay about .5% - 1% above what banks would charge an owner-occupant on a loan, and may charge 'points' (fees based on a percentage of the loan amount), or a higher interest rate depending on the risk profile of the investor. 

Why is now a good time to buy?:The cost of money (interest rates that banks will charge you for money) are historically low.  You don't even having to get a 'good deal' on a home for it to be a good long-term investment (although it is nice!).  At 5% (appx. as of the writing of this post), you are paying 1-1.5% less for the same money as previously... and rental rates in OKC, Moore, and Edmond, haven't really decreased!  Translation: You will be spending 20% less for the money than you would have previously, and that money that you save on a monthly basis goes right back into your pocket! 

Are there risks?: As with any investment, there are risks, but for the most part they can be mitigated significantly.  Insurance policies (for major losses), Home Warranties (to help prevent a major cash outlay on any of the major appliances in the home), Offering below-market rent (to ensure a shorter vacancy period between renters), etc...  There are lots of ways that you can help limit the risks. 

What kind of real estate should I look for? Of course, the most common is going to be a single family home, but the rental market doesn't stop there.  Most any real estate that can be bought can be rented!  To get typical financing, you will want to look for either single family homes, duplexes, tri-plexes, or four-plexes.  Anything above 4 units and you will have to obtain commercial financing. 

It seems like all the good deals need a lot of work before I could rent them -- what should I do?  Buy one that is move-in ready!  You will pay a little bit more for it at the beginning, but you will probably be able to get tenants in it faster, and will have less maintenance along the way if it has been cared for previously.  There are a lot of move-in ready homes that you can buy for $120,000~, and with a loan amount of 20% down ($24,000) you could rent it out for $950 per month and your payment (including estimated taxes and insurance and at 5.25% for 30 years) would be $695.12 -- which makes for $255 per month cash flow!  If you didn't care about the cash flow now but wanted the cash flow in the future, you could have the house completely paid off in 15 years and still cash flow about $20 per month! 

Are there any other benefits to investing in real estate? Yes.  The IRS lets you depreciate the improved value of the property over the course of 27.5 years.  Using the above example, the house price is $120,000, and the land value would probably be close to $20,000.  Take the land value out of the total purchase price and you get a $100,000 that you can WRITE OFF of your income from the property over the course of 27.5 years.  That is $303 per month that you can write off, which roughly correlates to the amount that you are going to be making every month on the property once you factor in your principle pay down portion of the loan.  So now, in 15 years, someone else will have completely paid off your investment property, you will have paid little to no taxes on it, and you can pocket any income that you make on the property at that point as profit (less taxes and insurance).  Also, keep in mind that real estate is inflation adjusted too.  If inflation goes up, so does the property value and the rent that you can charge. 

Is there a limit to the number of properties that I can purchase? There is no limit to the number that you can purchase, but there are limits (currently you can have no more than 10 financed conventionally) to the financing.  I know investors that accumulated investment property through their younger years and now have 10-15 properties completely paid off.  Just think if you could have 10-15 properties paid off right now, and making an average of even $750 per month on them.  You probably wouldn't have to pull out a calculator to want to be on the receiving end of those checks. 

How do I get started? Just give me a call!  I can help answer your questions and put you in touch with local lenders that will be able to sit down with you and discuss financing options.  As soon as the financing is arranged, it is just a matter of finding a property that suits you and your investment style and how much work you want to put into the property at the beginning.

Rob Schaerer
Dillard Group Real Estate
Preferred: (405) 694-8537
Office: (405) 366-7707

"It's not about houses -- It's about homes."

I am a Real Estate Agent specializing in the Norman OK, Moore OK, and Oklahoma City OK areas.  I am a member of the National Association of Realtors, and have access to the Norman MLS and the Oklahoma City MLS.  I can help you as a buyer broker or help you as a listing broker for your home in Norman OK, Moore OK, and anywhere in the Oklahoma City metro area.  I would love to be your Oklahoma Real Estate Agent -- let me know how I can help you with your next move!

Date Posted
Blog Post Title
03/08/2011 How Does the Norman Market in January 2011 Compare to January 2010 
03/03/2011 Should I Invest in Real Estate Now?
02/04/2011 2010-2011 OHFA Bond / Down Payment Assistance Program
02/04/2011 Cleveland County Oklahoma Bond Program
02/04/2011 Should You Get a Home Inspection on a New House? 
07/22/2010 2010 NCRC First Time Home Buyer Grant 
06/15/2010 Low Maintenance Retirement Living
01/31/2010 2010 First Time Buyer Bond Program
07/28/2009 Neighborhood Focus: Royal Oaks in Norman OK
07/15/2009 Neighborhood Focus: Eagle Cliff in Norman OK
07/06/2009 2009 NCRC Grant: $5,000 for First time home buyers in Norman
07/03/2009 Neighborhood Focus: Carrington Place in Norman OK
05/11/2009 Neighborhood Focus: Brookhaven In Norman OK
05/10/2009 Neighborhood Focus: The Vineyard in Norman Oklahoma
05/09/2009 Can the $8000 tax credit be used towards down payment?
05/29/2009 Home Valuation Tool
05/29/2009 Cleveland County Sheriff Sales
04/23/2009 Saving money on a refinance
04/23/2009 Oklahoma City Metro: #10 best place in the country to call home
04/18/2009 2009 Oklahoma Down Payment Assistance Program
10/21/2008 Mortgage Market Changes
04/10/2008 Free Money for the First Time Home Buyer
04/04/2008 Oklahoma Home Values up by 4.24 percent in 2007
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