Is Income Property An Easier Way To Buy A Home?
Can I make money with income property?
This is a questions asked by a number of my clients who realize there are many advantages of owning a home. Owning a home which is income property is not easy, however, in the long can be very profitable and a tax saver.
For example if you purchased a duplex today and paid $1,300,000 and put down 35% (most lender’s requirements), at an interest rate of 4.00% your monthly payment to the bank would be $4,034.16 per month.
Let’s assume for your $1,300,000 down payment you can purchase a duplex with one side having 3 bedrooms, 2 baths, and the other side having 2 bedrooms, 1 bath. What would those two units bring in form of rent on a monthly basis? The current answer for rents is below.
What I want to do is be a bit conservative here and not give you top of the market rents. After all you want good tenants that are will and able to pay the rent monthly without overextending themselves.
Let’s say we can get $4500/month for the 3 bedroom unit and $3200 for the 2 bedroom unit. That’ll give you a monthly income of $7,700 before any expenses like taxes and insurance along with maintenance and upkeep! This Income Property is a perfect investment because it has a positive cash flow. Which the mantra for all real estate investors.
Seems based on numbers for income vs. expense like a no brainer doesn’t it? Well maybe yes and maybe no. Let’s look at what other expenses and or costs you may incur along the way.
When you purchased the income property did you get inspection reports and pest inspection? If so, were there issue brought up in those report that indicated you may have to do some repairs in the near future. Such as was one of the heating systems at the end of its life? (functional obsolescence) If so, the possibility of getting a call from your tenant next Thanksgiving saying they have just turned the heat on and it doesn’t work. They have a house full of quests for Thanksgiving Dinner. (Can we say emergency service call?)
That example is an easy one to fix. And will make everyone happy once it is done. However, there are other items you need to be aware of when buying income property. Some are really good. And others that come up unexpectedly …not so much. Read more…
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