Investing in real estate can take many forms, but two of the most common are rehabs (flipping) or rental income. I like both of these, but although a successful rehab can generate a good return it’s a one time event, while income investments are gifts that keep on giving.
Our most recent acquisition is a good example. Our criteria for an ideal rental property is a modern, single story, all masonry house in a well maintained neighborhood close to a community center with a smallish yard and a purchase price somewhere around 100 times the gross rent. This is a pretty conservative profile with a goal of a decent ROI as well as good potential for appreciation, so returns are going to be in the 6% to 8% range.
Our latest acquisition was in the Kyle area, which I like due to the potential for growth along the IH35 corridor. This was a nice little house that only needed paint, flooring, and some minor repairs to get it into shape. As the financial analysis shows it will earn 5.8% with management fees and some reserves for repairs and vacancy loss. Another benefit is that we feel that, based on recent comps, the house could sell for $170,000 after the repairs, so we have an instant boost in equity as well.
Of course 6% is not an exciting return, but keep in mind that this doesn’t include any upside from appreciation, and both the income and equity usually keep pace with inflation. The downside? Real estate is inherently il-liquid and transaction costs are high, so this is a buy and hold type of investment.
Give us a call if you’re interested in learning more about investing or would like to get started on your own retirement plan. We’re always ready to help.