Do you think you would like to become Landlord in retirement?
The Single Family Home Investment Dog now hunts.
I know real estate. I like an investment I can see, touch, smell, and improve on. Owning stocks is too abstract for me and I have no control. Owning rental property appeals to me as part of a retirement plan it just makes plain sense. For many years buyers from up north would ask me to find rental properties to buy – and for years I would have to tell them that these investments rarely worked. I think I first heard the expression from Bill Clinton, but I would say, “That dog does not hunt”
Well folks, that Dog is now a hunter. Let’s talk about the return on investments for a single family home here in Florida. You may be surprised to know that you can get a total return of above 30% and a capitalization rate yearly of over 10% (without appreciation and long term holding advantages) per year on some of these homes chosen wisely
First, my disclaimer: Only YOU should do the final analysis and only YOU should make the decision on how to invest your money. Real Estate is a risky business and there are no promises that there will be an increase in values or the ability to rent a property.
First let me start with an actual duplex:
I do not see good appreciation on this duplex, but a solid return. The value will only go up as the rents go up.
Now on to a new DR Horton single family home:
The single family homes above makes sense because of the assumed appreciation, the duplex makes it on income. These are two concrete examples, but of course there are hundreds of ways to put a rental property into your retirement plan.
Let’s talk about some of the items
Initial Investment. My example assumes no improvements and no additional cost of acquisition. If, for example you had to put another $18,000 in improvements into the house, your return would be halved.
Purchase Price. I always say you make your money when you buy, not when you sell. Our example acquisition was made is at least 30% below the most aggressive replacement costs. You can pay less, and you can pay more, but I suggest you always pay less than replacement cost.
Financing. It is very difficult if not impossible to borrow money for these kinds of deals without other collateral. I used a 25 year amortization and a 4% cost of money.
Appreciation. Whenever I do this spread sheet for a client, I ask THEM what they think will be the annual appreciation for the property, then I cut his estimate in half. In the above example I used 4%. I think this is very low, especially when we buy right. If I had used ten percent appreciation, our total return would rise.
Vacancy and Credit Losses and other items. The model is a simple one and does not take into consideration vacancies, replacement reserves, credit problems, or the need to replace an air- conditioner or roof. I did put a management number in here, but I did not put a cost of acquiring a tenant. All of these numbers will affect your return.
Oh, I know you can shoot a lot of holes in the above examples but I have to tell you: this dog hunts.
If you want to make an appointment to come in and sit down with me and go over a spreadsheet designed to analyze your deal, I would be happy to do so.
Other Real Estate Opportunities we are working on. Here, in no particular order, are some of the hot topics that are on our collective plate. I would encourage you to make an appointment with one of our investment professionals to discuss any of interest.
- Student Housing
- Foreclosed Home Purchases
- REIF – Real Estate Investment Funds ( Partnerships, REITS, Syndications)
- Investor Representation (we buy FOR you, split the profits)
- In-fill building of spec homes.