San Luis Obispo Rental Property Buying Guide
In the recent past, it’s made sense to buy rentals as it applied to both income and especially appreciation. Since the recent world-wide financial “realignment,” the term investment property has been redefined. With the availability of rental property in abundance, rents are down; therefore, unless you pay cash for a rental, or make a very sizeable down payment, it’s very likely that the rent will not equal the monthly payment, insurance, taxes, (and) management expense.
If this is the case, you are losing money.
If you are looking to write-off a sizable portion of your annual personal income, this may actually be a good opportunity; before the purchase of a “write off” rental, I highly recommend having your CPA help you analyze your options—especially as they may apply to a rental’s annual depreciation and property tax basis recapture—that way you can examine all of the necessary “tax” pieces of the investment property puzzle before moving forward with a purchase. If you are in need of an experienced accountant, I know a couple of great CPAs (also clients) who would be happy to help you.
If you are making what might be considered a “tidy sum” above and beyond your expenses, your cash on cash/return on investment is typically going to be between two to three percent annually. Not bad, but not great either, especially considering the headaches typically associated with a rental’s tenants, trash, toilets, and taxes. If you need to sell the rental (for any reason), you’ll also need to factor in selling costs which could conceivable eliminate any gain you may have had via the income the rental produced.
If you are looking for a sound real estate investment these days, you should naturally consider a rental’s income opportunities, but more importantly, you should put a greater emphasis on long term appreciation as it applies to the actual return of your investment. This is why it’s vitally important to consider the quality of a property as it applies to its type (single family vs. condo) and most importantly, its location (the closer to the ocean the better—especially here on the Central Coast).
In this regard, I’m advocating clients have a conservative “holding” plan of between five to ten years as it applies to a rental/investment property purchase. This time period will conservatively allow an investor to progress from a negative cash flow to a positive one with the added advantage of increased appreciation as the economy eventually recovers. After all, appreciation is where the real money is in real estate investing.
Lastly, beware of anyone willing to put you into an investment property without recommending that you consult with your CPA first.
Posted at 01:29PM Aug 28, 2009 by Paul Pickering in Real Estate | Comments[0]
