your property can offer long-term posi- tive cash flow, and this ongoing stream of income you receive from an investment offers other benefits — see below. 3. Appreciation If the value of your property has gone up, and you decide to sell, your profit is called appreciation. Cash flow and appreciation are two forms of revenue from rental properties. Remember, even though you aren’t buying in hopes of selling to earn a quick profit, you should always have an exit strategy in place. 4. Fewer highs and lows A cash-flowing property is not sub- ject to the daily ups and downs of the markets. It is typically a longer-term play — as opposed to paper assets or the Equity/Bond Markets, where you can have daily ups and downs of up to 10 percent. 5. Tax advantages Tax credits are available for low-in- come housing, the rehabilitation of historical buildings, and certain other real estate investments. A tax credit is deducted directly from the tax you owe. You also get an annual deduction for depreciation, which is typically a per- centage of the value of the property that you can write off as an expense against revenues. Finally, in some countries, the gains from the sale of real estate can be postponed indefinitely as long as the proceeds are reinvested in other real estate, known as a 1031 exchange. Important factors to consider when choosing a real estate market for single family rental property investing include population and employment growth and home value appreciation. When buying single family rental properties located in a different city or state, investors also research purchase prices, taxes, and housing regulations. Other investors also look at the percentage of the population that are
renting. For instance, D.C., New York, and California have the most renters in terms of percentage of the population. Another important consideration is that you want to use the 1 percent rule, which means that the monthly rent generated is at least 1 percent of the sales price of the home. For example, if you have a house worth $250,000, you want to be able to generate around $2,500 per month in rent. This is going to eliminate a lot of areas of the country — in particular coastal California, New York and even some middle-America markets such as Denver, Colorado. •
IMPORTANT FACTORS TO CONSIDERWHEN CHOOSINGAREAL ESTATEMARKET FOR SINGLE FAMILYRENTAL PROPERTY INVESTING INCLUDE POPULATION AND EMPLOYMENT GROWTHANDHOME VALUEAPPRECIATION. WHENBUYING SINGLE FAMILYRENTAL PROPERTIES LOCATED INADIFFERENTCITYOR STATE, INVESTORSALSO RESEARCHPURCHASE PRICES, TAXES, AND HOUSING REGULATIONS.”
Glenn Hamburger CFP® is an Orange County lifelong resident. He a Senior Director with Banc of California Private Banking located in Newport Beach. All of
the opinions in this article are his personally and do not necessarily reflect those of Banc of California.
in particular — are showing less and less interest in owning a home, according to new data from Freddie Mac. The study released by Freddie Mac Multifamily, found that while economic confidence is growing among renters, affordability concerns remain the domi- nant driver of renter behavior. The study found that 63 percent of renters view renting as more affordable than owning a home. That includes 73 percent of baby boomers. And 67 percent of renters who plan to continue renting said they would do so for financial reasons. That’s up from 59 percent two years ago, according to Freddie Mac. Additionally, recent trends indicate that
segments such as the millennials and baby boomers are electing to rent where they want to live and invest in a single family residence to create cash flow in another, more affordable market. The following are five advantages to such an approach: 1. Leverage If you pay 10 percent to 30 percent as a down payment, a bank, lending insti- tution or private party will provide the rest of your funding. That means you can own a $100,000 piece of property for just $10,000 to $30,000. 2. Cash flow If purchased and managed properly,
AGROWINGNUMBER OFAMERICANS — MILLENNIALS, BABY BOOMERSANDGEN-XERS INPARTICULAR —ARE SHOWING LESSAND LESS INTEREST INOWNING AHOME, ACCORDING TONEWDATAFROM FREDDIEMAC.”
44 | think realty magazine :: august 2018
thinkrealty . com | 45
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