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!
I hope you are all having a great start to your February! Real estate is still selling very quickly in Fort Collins, and myself, buyers, and sellers are all keeping up with the speed of the market by being proactive. On the buying side that means me looking for properties that may not have hit the market yet, and sending mailings to neighborhoods to see who would have a property that would fit my buyers’ criteria. On the selling side that means having all the marketing in place before putting it on the market, because most likely we will be bombarded with showings. That also means preparing sellers for the potential for multiple offers, and the different ways we can deal with those situations.
Let’s talk about investment properties now though. Many investors have been sitting on the sidelines for 2013 because of the lack of inventory. As we progress into the spring of this year though, I’m hopeful that we will see more properties coming on the market. Meaning investors will at least have homes to look at, a big change from last year! It is important to understand what types of cash flow targets us investors will be seeing as the interest rates increase. While we were spoiled with investor rates at 4 and 4.5% last year, that gave us great cash flow because monthly payments were less. A single family home (3 bed 2 bath around campus) we were seeing $300-400 per month after all costs (assuming 25% down). As we see the rates increase, we just have to understand those cash flows will be down a little bit (probably closer to the $200-250 mark). The benefits to purchasing investment properties will still exist though, including writing off the interest, depreciating the home on your taxes, and best of all building equity over time as a retirement plan.
If you have any questions about purchasing investment properties here in Fort Collins and what I can do for you, please call me at 970-673-7285. Thanks!