Offering a higher rate of return than other common investments without the volatility of the stock market are IDEAL rental homes. The latest rates on certificates of deposit (CDs) is under 2.5% and the latest bond rates are all under 1.5% unless you go really long term and you may get 3%. But with CDs and bonds you have no control over the investment other than picking the funds.
In our case, IDEAL is an acronym identifying the advantages of owning rental properties.
- Income paid through monthly rent contributes to paying the expenses and a return on your investment (ROI).
- Depreciation is a non-cash deduction that shelters income for some investors.
- Equity buildup occurs with amortized mortgages because each payment is composed of interest owed and principal reduction to retire the loan by the end of the term.
- Appreciation is achieved as the value of your property goes up.
- Leverage can increase your ROI by using borrowed funds to control a larger asset.
Each of these mentioned individual benefits working in concert together make rental real estate a good investment in today’s economy. Increasing rents, demand for rentals still high, increasing home values and low, non-owner occupied mortgage rates still available all contribute to a positive cash flow and a favorable rate of return. Non-owner occupied mortgage rates are running between 4.1% and 5% for 30-year terms and drop to under 4% for 15-year terms.
Remember when you are looking for rental property you want to look in neighborhoods where the owner-occupied ratio is high and home values are steady. To find out more about how rental property investment might complete your current investment portfolio, contact me today! I can help you navigate the neighborhoods to find the right one for your investment.
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