Cash Flow vs. Appreciation – Information for Real Estate Investors in Marietta, GA

Cash flow is especially strong when you have a real estate investment in Marietta, GA for which you paid in cash. In these cases, all the rental income you earn is cash flow. What you do with that income is up to you; you can pay off debt, save for retirement, or put your kids through college. The other option for investors is to get a home loan to buy a rental property.

Investment Home Loans

To qualify for a loan, you’ll typically need to make a down payment of at least 25 percent of the home’s purchase price. However, it might make sense for you to make this investment with a mortgage, because when you’re paying 25 percent in cash instead of 100 percent, you can buy multiple properties. Let’s say you have $100,000 to spend on real estate. You can either buy one home for that amount, and pay in cash, or you can buy two properties, where you put down $50,000 on each home.

ROI and Home Value

Sometimes, investors forget that the return on investment you earn on your rental property is based on the total value of the home, not just your down payment. When you buy a house for $200,000, and the property gains 10 percent over time, you’re earning a $20,000 return. That’s considering that you only invested $50,000 for a down payment. Your ROI is 40 percent, which is hard to find for any other investment.

Converting to Investment Property

If you’ve been living in your home, but you’re ready to turn it into a rental, you will earn some excellent cash flow, especially if your mortgage is paid off. If you have a lot of equity in the home, however, you may want to do a cash out refinance so you aren’t tying up the equity by turning it into a rental. Owner-occupants get favorable interest rates on these transactions. Your lender will see you as riskier since you won’t be living in the property. If you decide to do a cash out refinance, get the best rate you can, and then go ahead and turn it into a rental property. Your cash flow will be a huge benefit.

Go ahead and buy a starter home if you’re a young adult. Since you’ll be occupying the house, you can probably get a mortgage with about 5 percent down. Once you have saved some money, and you have another 5 percent down payment, go ahead and buy the next house. Keep the first one and rent it out. If you keep doing this, you’ll have a strong portfolio of rental properties that will serve you well.

For questions about cash flow and appreciation, contact Avalon Property Management.

Tenant ScreeningHire and Expert