If you’re interested in real estate investing in Marietta, GA, but you don’t have a lot of cash to buy a property outright, you should consider a loan. When you borrow money to purchase an investment property, you’re buying an asset that appreciates over time while your tenant pays down your debt. That can provide you with an outstanding return on your investment.
Your Down Payment and PITI
Suppose you buy an investment property for $200,000. Most mortgage companies will require investors to put down at least 25 percent of the purchase price. So, your down payment will be $50,000, which means your loan is for $150,000. Factor your PITI, which stands for Principal, Interest, Taxes, and Insurance, and you’ll probably face a monthly cost of $1,050. On a $200,000 home, your monthly rental income will cover and probably exceed that amount.
Not only will you earn money on rent every month, you’ll also be building a strong ROI based on your property’s ability to grow in value. If the $200,000 property appreciates at a rate of 3 percent every year (which is a conservative estimate), the home will be worth $231,000 after five years. That’s a gain of $31,000. When you consider that you earned $31,000 after spending only $50,000 on your down payment, you are earning a 62 percent ROI. You won’t find that kind of return with other investments. Home values have grown at a rate that exceeds 5 percent, so planning on a 3 percent return is safe, and will probably provide you with additional returns going forward. You should earn between four and eight percent every year.
Your Total Asset Appreciation
The amount of your appreciation is based on the entire asset, not just your down payment. The property as a whole is growing at the return rate, so even if you have a monthly mortgage payment to cover, you’re still going to earn exceptional returns on your investment property.
If you have any questions about appreciation or home loans for investments, please contact Avalon Property Management.