Today, I’m going to share some thoughts about investing in residential rental properties.
First, let’s take a minute to read the tea leaves a bit. .We’re all suffering from high prices from the gas pump to groceries. Well, runaway inflation coupled with a recent uptick in interest rates along with a very low supply of homes for sale assures us that the rental market in the greater Cincinnati area will remain strong. Even setting aside the current economic forecasts, real estate has proven itself to be a solid investment. The impact of inflation will serve to bump home prices higher, just as inflation pushes up the price of all goods and services. The ratio of renters vs home occupied properties in Hamilton County is low compared with the rest of the state which averages 66%. The lowest rate of home ownership in the state is Franklin County at only 53%, followed by Hamilton County and Cuyahoga County which are second and third at under 60%.
What does all of this mean? This means that those that can afford to buy rental properties are wise to do it now. The residential rental market is strong and it is an excellent way to protect your investment dollars and hedge against inflation.
Many just starting out in their first home find that a two-family home is a great option. They can live in one apartment and rent out the other. I did this when buying my first home in Hyde Park many years ago. The addition of projected rental income can often help get the financing you need to secure the loan needed to buy the property. Improvements to the portion of the home that is rented are also deductible on taxes and it can be proportionally deducted for expenses incurred in the common areas. The additional income will also help with mortgage payments, with owners living there nearly rent-free and making it easier to put money aside for future investments.
From an investor perspective diversification of your investments can be a smart idea. By having a portfolio that contains various types of investments, you create what’s known as a “safety net” – meaning that should something happen to go wrong with one particular investment, you have others to fall back on. And while there are other ways of diversifying an investment portfolio – such as through stocks, bonds and mutual funds – real estate has always been considered one of the best forms of diversification, due to the fact that it’s relatively secure and has low correlation to other asset classes.
If you’re only managing a few rental properties and choose to manage them yourself, I would recommend that you keep the locations of your properties closer to your own home. This makes getting there to check on your property and deal with any issues, repairs or maintenance far easier.
So, whether you’re considering buying a two family or something larger or perhaps just thinking about adding investment properties to diversify your portfolio, please give me a call. I will be happy to help you in finding the property that best fits your needs and guide you through the process. Again, this is Dan Hendricks of Keller Williams Advisors. I look forward to hearing from you soon!
