So this past week I spent some time in Denver. I talked to numerous people about investing and having rental houses.
DISCLAIMER; THE FOLLOWING ARE THOUGHTS GENERATED FROM KNOWLEDGE AND INDUSTRY FACTS; THOUGH THERE ARE MANY EXCEPTS TO EVERY SCENARIO AND THE ONLY WAY TO GET AN ACCURATE UNDERSTANDING OF WHAT IS GOING ON IN YOUR MARKET IS TO CONTACT YOUR REAL ESTATE AGENT.
The market in Denver much different than in Dallas. In Dallas, people buy rental houses and try to rent them for a few hundred dollars over their mortgage payment. Generating monthly income and a savings account for when things break. In Denver the houses are priced much higher and the rent is much lower, forcing investors to receive less than they mortgage payments. This is of course if the house was purchased with the min. down payment- cash purchases or large down payments are exception to this. So the question is can you still make money if your revenue from renters is less than your mortgage? YES.
So this goes back to long term or short term investments. (read previous blog) Each month you are generating equity in a house that you are not living in. A renter is covering most or even 3/4 of your mortgage payment. The idea is to own something that creates money (equity) for the minimal amount of investment. In other words, if you only have to spend a few hundred dollars on a house that you are not living in, in order to create thousands of dollars of equity, it is worth the investment and more than likely better than any investment with any bank in town.
Now of course this process takes time and patience. When first buying a house, it takes money to put down and when selling a house it takes money to cover fees. These costs need to be recovered with the equity generated by your tenant. This always depends on the market and how fast house prices rise. Of course this depends on the city which you live in as well as the neighborhood the rental is in.
The correct city and correct neighborhood and predictions of house valves is a completely different blog. Just know that in Dallas, the general housing market has increased 3-5% each year for the past 7 plus years. Some neighborhood prices in Dallas have recorded 15-20% increase in valve in the past 2 years. In general this means, with the average cost of investment being around 10-15% (explain that later) it typically takes 5 - 10 years in Dallas to recoup an investment and to generate a profit. Now in Denver this process might take a little longer, but remember with each monthly payment you are generating equity even if the value of the house does not increase.
Now lets break it down for simple explanation. On most cases the mortgage is going to be a 30 year note. Your payment is 2000 a month (including principal, interest and insurance) In Denver typically you can rent the house to cover your principal and interest, but might not cover the insurance and taxes. The cost of your investment is the insurance and taxes each month.
In Dallas the rent is higher and it is possible to cover the principal, interest, insurance and property tax with the tenants rent.
So then the next question is.. is it better to invest in Dallas even if I live in Denver? Stay tuned for next blog on expenses of owning a rental house....out of state vs. local management company vs self managing..