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Most people have lots of things to save for but not always enough discretionary income after the family essentials have been met.
A relatively small investment in a rental home can control a good home that will easily rent, generate positive cash flows and pay for itself. The borrowed funds create leverage that earn a return on the total value of the home and not just the amount of cash you have invested.
The strategy is simple. Find a slightly below average priced home that will rent well. It will appeal to a larger group of people while it’s rented and when it’s ready to be sold.
Rent the home and maintain its condition over the years. As the loan amortizes and the value increases, the equity will grow. When your student is ready to start college, you’ll actually have several options.
You can sell the property; pay the tax on the gain at the reduced capital gains rate and fund the education. Another option would be to refinance and take the proceeds to pay for the tuition. This would allow you to continue to own the asset but would free your equity and under current tax laws is a non-taxable event.
Regardless of whether you’re trying to plan for your children’s education or your own retirement, rental property offers many solid investment opportunities. Contact me if you want more information.
The question plaguing every tenant who wants a home of their own is whether they should continue to rent or is it the right time to buy?
The combination of good prices and low mortgage rates make it considerably cheaper to own than rent in most markets. Assuming a person is qualified with a down payment and won’t be moving for several years, there may not be a better time to buy a home.
In the example below, the total house payment is $1,281.01 compared to $1,500 to rent the same home. Before you consider any of the financial benefits attached to home ownership, it’s cheaper to own than to rent.
The net cost of housing falls to $764 or just more than half the house payment when you consider the principal reduction due to normal amortization, a modest appreciation and the tax savings along with a reasonable maintenance expense that a tenant would not have to pay.
One of the biggest benefits is the growing equity. As the value goes up, the unpaid balance goes down. A favorable leverage causes their low down payment to grow to $40,609 in a short seven years based on a modest 1% appreciation.
There’s an expression often heard in real estate circles: “Whether you rent or buy, you pay for the house you occupy.” You’re either buying it for yourself or you’re helping the landlord buy it.
Check out a Rent vs. Own to see how your numbers will compare to this example or call me to do it for you.
Single-family homes used for rental property have distinct advantages over other types of investments.
An investor can borrow 75-80% at fixed interest rates on appreciating assets with definite tax advantages and reasonable control. The financing alone is attractive compared to some investments that require 50% cash and have floating rates at prime plus for one or two years.
Home prices have adjusted 30-40% around the country, mortgage rates are incredibly low and rents have risen in the past two years due to more demand and shorter supply. Indicators like these point to a strong and sustained rental market.
Consider you bought a $125,000 home for cash that would rent for $1,250 per month. With $15,000 income and allowing for property taxes, insurance and maintenance, it is still reasonable to expect $10,000 net income. You’d have an 8% return on investment without considering tax savings or future appreciation compared with 5-year CDs paying less than 1.5% and a 10-year Treasury yield at 1.65%.
The reasonable control has a lot of appeal to many investors who find the volatility of the stock market unacceptable and don’t want the risk associated with some of the alternative investments. Please contact me if you’d like to know more about available opportunities.
Daniel Brumsted of Environmental Testing Lab, Inc. in Annapolis, MD gives an explanation of what to expect when inspecting a septic system when buying a home. Homeowners are advised to have their septic tanks pumped every two years to ensure a properly operating system and to head off potential costly repairs. When buying always ask the seller for their septic system records.
Charles Kraus, Associate Broker – Coldwell Banker Residential Brokerage – Annapolis, MD – (443) 822-0700
When you are selling your home, one of the problems that can occur when the buyer has a home inspection performed, involves underground storage tanks. Occasionally, we run into an underground storage tank (UST) and sometimes they are used for gasoline, but most often they are used for heating oil.
Underground tanks are subject to moisture and rusting can lead to leaks due to failure of the integrity of the tank. Leaking gasoline and heating oil can contaminate ground water, so they are an environmental concern. Most states have regulations regarding these underground storage tanks, so check with your state and local jurisdiction to see what the regulations are for removal or abandonment. According to Maryland’s Department of the Environment, they recommend tanks that are 25 years old or more be replaced with above ground tanks.
If a property is found to have an underground storage tank one way of testing the tank’s integrity and its associated piping, is to have a professional contractor who specializes in UST’s to perform a pressure test to determine if the tank is leaking. Additionally, a soil test around the area of the tank may be performed to determine if there has been any contamination. If it has been disclosed to the buyer that the property has a UST, a potential buyer will have to make a personal decision based on the information at hand, to consider making the removal and replacement of the UST with an above ground tank a condition of the contract or excepting the existing buried oil tank.
A careful inspection should be made to determine if an abandoned UST exists. Occasionally a situation occurs where sometime in the past, a UST will be replaced with an above ground tank or the HVAC system will be changed to an alternative fuel and in either case the old UST will be abandoned in place. Sometimes the current seller may not even be aware of this. These abandoned tanks can be problematic, especially if heating oil was left in the tank. Even if there is no oil in the tank, it may be advisable to remove the abandoned tank. Old tanks may be found to be abandoned in place by removing all oil and filling the tank with cement, sand or a slurry mixture. If in the time since abandonment took place the integrity of the tank failed and heating oil (or gasoline) has leaked into the soil, a regulated removal and environmental clean up will most likely be necessary. The clean up will often require removal of all contaminated soil from the site and disposal of the soil as required by the state and or local government.
We hope that this raises awareness of the problems that can occur when an underground storage tank exists. The information presented here is by no means the entirety of the subject or complete in scope and should be construed as a limited presentation involving USTs. Always consult with a professional in the field and also with your state and local government.
Note: The United States Environmental Protection Agency (EPA) does not regulate residential underground oil tanks.
As money flees Wall Street in search of a safe haven, bonds are a beneficiary and that means interest rates are improving for mortgages. Contact your lender today to see if improving rates may help your situation.
Charles Kraus, Associate Broker
Coldwell Banker Residential Brokerage
Here is an interesting look at the homes available for sale in Anne Arundel County shown in table format displaying the number of homes for sale by price range. These numbers were accumulated just before the 4th of July 2011 Holiday.
|Price Range||Number of Homes For Sale|
|$100,000 – 299,999||418|
|$300,000 – 399,999||606|
|$400,000 – 499,999||445|
|$500,000 – 599,999||293|
|$600,000 – 699,999||203|
|$700,000 – 799,999||145|
|$800,000 – 899,999||92|
|$900,000 – 999,999||72|
|$1,000,000 – 1,249,999||72|
|$1,250,000 – 1,499,999||67|
|$1,500,000 – 1,999,999||63|
|$2,000,000 – 2,999,999||52|
|$3,000,000 – 3,999,999||18|
|4,000,000 – 5,999,999||7|
|*Does not include listed mobile homes|
The average days on market for homes for sale according to the last available report of May 2011 for Anne Arundel County is 109 according to Real Estate Business Intelligence statistics. Also, the same report shows nine months of inventory available, which is calculated by dividing the number of homes available for sale by the number of homes sold in that month.
It is interesting to note that most expensive home for sale in Maryland according to the Metropolitan Regional Information System (MRIS) is located in Dorchester County and as of the date of this post, was listed for $30 Million Dollars. You can see it on Homes Data Base.
Charles Kraus, Associate Broker – Coldwell Banker Residential Brokerage – Annapolis, MD (O) 410 919-2642
An intriguing look at Anne Arundel County, MD real estate market statistics covering a thirteen year period.