Have you ever thought to put your homes equity to work for you? If you have lived in your home for 3 or more years here in Denver (or put a sizable down payment when you bought) you may be able to take some equity to build your families wealth. How you ask? Buy a rental property! Your investment minded, you’ve rented rooms to friends, you invest in your 401K, you’ve thought about it, but just weren’t quite sure how to pull together the down payment.
There are ways, and with the right lender by your side they will work with you to create a plan of attack so you can grow your portfolio by one or as many rentals over time as you want. There are many reasons to own a rental property, but before starting, think of your exit strategy. Now you may be thinking to yourself “I don’t even own it and you want me to think of when I sell?” The answer is YES! Because thinking of your exit strategy will help you align in how you should buy. Sound crazy?
Why then do we shift money around in our retirement accounts over time (early stages; market shifts; nearing retirement).These are all examples of when we modify our investment strategy, so apply that to your rental purchase. Knowing your risk tolerances will help you buy smart.
Here are 5 reasons to buy a rental property.
- Tax Benefits– When owning a rental home you may be eligible for additional tax benefits that are afforded to you by the IRS guidelines.
- Additional Cash Flow– Given the rental rates in Denver, you may find that you can rent your property for more than your mortgage. This could allow you to reinvest that money, pay down debt, save for an additional rental and so on.
- Pay For Your Children’s College– If you have kiddos, like me, you are thinking of ways to pay for college. Start now, use the cash flow, and over-time pay it off. Then when it comes time to pay for college you may have your solution.
- Grow Your Net Worth– History speaks for itself. Over time real estate goes up in value. Like any investment you have to reinvest (i.e take care of it to avoid deferred maintenance). But if you start young then by the time you are ready to retire you may have numerous properties free and clear, and you can retire in style.
- Retain Your Current Home & Make A Lower Down Payment– Did you know if you did this, you could buy the next home with 3-5% down? Imagine that and here you were thinking you needed 20% down to buy that rental. Plus the home you own will cash flow well if you have owned it for a while.
After it is all said and done, you can make it happen and you may be surprised to know you already have the assets to buy a rental property and not even realize. When thinking of a lender and real estate agent to work with, this is where it becomes even more important than ever to align yourself with talented professionals. Your lender needs to be able to help you work through the plan, I would first ask the lender how many rental properties and how long have they been investing in real estate. As for the agent, I would want to know they have the ability to tell me forecasts for a neighborhood or area. This would be an agent that is up on the goings on of the city.
You need to buy a rental property where you can invest wisely rather than foolishly. Some areas will not appreciate a ton but will be stable rental markets. Others may have a pop in value. These are two different exit strategies and therefore back to the beginning think about your exit strategy. If you don’t know where to start, reach out. I have been investing in real estate since 2005 and will share how my story has unfolded.