Often I am asked about the profitability of real estate investing. Real estate can be a very lucrative investment and there are a number of different avenues you can take depending on the amount you can invest, your preferred level of involvement, and your desired investment return.
Rent in the Seattle market is very high due to the demand for housing. Employment in the city limits is strong and the Seattle Times reported that average apartment rents jumped 4.1% in the second quarter of 2014 alone. Although rent rates and appreciation varies from area to area and type of rental, according to the Seattle Times, vacancy rates in King and Snohomish County are at the lowest number in nine years.
So how does this translate into a real estate investment?
Let’s take a look at one of my current listings at 12526 8th Ave NE in Pinehurst. The list price is $375,000 and with 20% down, and assuming the rent is $1,750 per month, you can see the monthly cash flow is in the negative:
Negative cash flow? How on earth can this be a good investment? Read on!
Let’s look five years down the road. If the property has appreciated at a very modest 5% per year, the $375,000 investment which had $75,000 equity when purchased now has $207,786 in equity (due to appreciation and the investor paying the mortgage for five years).
But what about the cash flow? It is true that the investor was paying out more than $100 per month in excess of what they were bringing in, but remember, that rent was at market five years ago. Let’s also account for a 5% per year increase in property taxes and insurance, and even rent (although current demand indicates this rate could be much higher). Where does that leave our monthly cash flow?
This is only for a 5% annual increase in rent. What if it were more like 7.5%?
That cash flow is in addition to the increase in equity!
Of course, this is assuming that the owner is managing the property his or herself and it doesn’t take any repairs or modifications into account. However, each property is different and has different needs.
Intrigued? Please contact me to learn more! Email me at firstname.lastname@example.org or give me a call: (206) 226-5300