Investment Properties, Rents, and Prices

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I often get the question, why should I buy an investment property while prices are so high? I will get to the answer to that question, but that question makes an incorrect assumption. It assumes that prices are high right now, and we should all wait to buy an investment property until prices go "back down". Now of course I don't have a crystal ball, but with the lack of inventory, the population growth in Larimer County, and the lack of buildable lots, there is a very low chance of prices falling below where they are today in the next 5 or so years. We will probably see a slow down in the rate of price increases, but that still means price increases.

So back to the answer to the original question, and it lies with two pieces of the puzzle. Rents and Interest Rates. I started selling investment properties in Fort Collins 11 years ago, when the average price was closer to $200,000. A 3 bedroom 2 bath near the CSU campus was selling for $180,000. That same home today would be selling for at least $280,000, but our cash flow numbers are higher today than they were back then! Rents have increased at a faster rate than prices, so even though your monthly mortgage payment is higher, your rents are by percentage even higher than they were "back in the day". Also, with interest rates almost HALF of what they were 10 years ago, you are paying much less interest in that mortgage payment, also making the increase in mortgage payment slower than rents. 

I have clients that have purchased many investment properties in the last two years during this time of price increases, but their numbers are fantastic on both cash flow and appreciation! If you have any questions or would like to learn more, give me a call or go to my investment property webinar. I'd love to help you!

Posted on August 15, 2016 at 1:14 pm
Paul Hunter | Category: Buyer Tips, Investment, Real Estate | Tagged , , , , , , ,

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