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Bruce McCoy
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Buying an investment property and becoming a landlord is a big step. But, the money to be made can be fantastic. In Santa Cruz County (or most California communities) the rental income for a single family home is seldom enough to cover the monthly payments of principal, interest, taxes, insurance and maintenance. However, the tax advantages of owning rental property are that most people can take off the negative cash flow, as well as the depreciation from their ordinary (W-2) income. Other reasons to join the ranks of the landlords are the value appreciation and leveraging possibilities. If you purchase a rental home for $500,000 and put $100,000 in as a downpayment and the property appreciates by 10% over the next 2 years, then your return on investment would be 50% ($500K property value * 10%= $50K)! The very first step you would take, before even looking at an investment property, is to speak with your tax advisor and explore what your tax advantages would be. Of course you will need to determine if you will have the time available to manage property, or are you willing to pay someone else to manage it for you.
Why is this so much better time than before to buy a rental property? Presently home mortgage rates have remained under 7% for loans under $300,700 (not including points). With these low interest rates, the monthly payments are lower for the property. Also, with these interest rates, more people can afford to buy a more expensive home. As more people are able to afford more of a home, then the prices of those homes are driven up. Simple supply and demand.
Owning rental property isn’t recommended for everyone, and each person needs to make his or her own risk/reward determination; however, Santa Cruz investment property has been the greatest, most stable wealth builder for years.
Fixed Interest Rates for mortgages under $300,700 as of 4/23/02 (a.m.) are:
30 year fixed: 6.5% (APR 6.80%) monthly payments are$1,900.63/mo.
15 year fixed: 5.875% (APR 6.35%) monthly payments are: $2,517.22/mo.