Stocks Are Flat, But Rentals Are Red Hot
If you are like me you have seen your stocks remain the same or drop in value over the last few years. I have taken all the funds that will not cause me to incur penalties out of the stock market and put it in affordable real estate. I have either flipped homes or kept them as rentals. I fell really good about the investments I have kept.
My broker, Dan Hein, manages around 200 properties. My friend Larry manages around 225 properties. All of these properties remain over 95% occupied. The 5% vacancy accounts for people that have moved out and the month the property would sit between tenants. This month is generally to allow carpet to be steam cleaned and updates performed. The rental market is strong primarily due to the stringent rules for bank financing and the fact that the economy has negatively effected alot of folks credit.
There are 2425 listings in Benton County. There are 408 of those are bank owned, corporate owned, REO’s or shortsale. All of these represent an opportunity to buy a home below an already low market value. The old adage “Buy Low, Sell High” applies here, sort of, maybe it should be more like “Buy Low, Rent High”. If would stronlgy recommend a substantial down payment or to completely pay off the property if you can. The more equity you have, the more of the rent you can apply toward principal reduction. If it is paid off then you can pocket more of the rental income.
A mathematical example would be buying a $75,000, 3 bedroom home, in Bentonville Schools. There are 9 of these available right now. Then let’s assume you put $10,000 into making it look new again. Your investment is $85,000. A bank would require 20% down on an investment property . That is $17,000. Your investment is now $68,000. Your payment would be around $500 a month. The rent on a decent 3 bedroom in Bentonville Schools averages $800 a month. This would allow you to apply $300 a month towards paying the home off. If you paid cash you would bring in $9600 a year on your $85,000 investment. That is 11% ROI annually. Then you have to consider that this home will probably be worth over $150,000 in ten years. You have an asset that gains value, produces income, creates a tax shelter, and you are in control of it. The stock market cannot do that right now unless you are very lucky with individual stocks.
Call me or email me and we can discuss it. My number is 479-640-8375. My email is [email protected].