Denver Real Estate Market Heating Up, Residential Investors Clean House - Page 2
Here are the numbers. Let's say you are able to acquire a condo for $30,000. If you pay your broker handsomly for finding the deal, and throw in financing and closing costs, plus a carpet and paint budget, perhaps your investment costs another $5,000, for a total investment of $35,000.
If you are paying 7% on the borrowed money, the monthly interest payments would be about $205.00. Condo dues will add another $250 bucks to the tab, and property taxes another $80.00. Your total monthly nut willl be $535. A rental rate of $595 per month means your tenant is paying the costs of your investment while you wait for appreciation and take the tax benefits. If you paid cash for the unit you would be getting a whopping 55% return on your investment. While I did not take depreciation of furnishings or vacancy into account, these items should be easily offset from appreciation and tax deductions.
After congress stuffed their pockets with a $139,000 unfunded tax break to every single millionaire in the US in December of 2010, they are not likely to shoot their mortgage interest and other deductions in the foot too hard. The net after tax benefits makes the return on investment soar!
“Prices are being kept down because banks are not lending unless you have good credit,” Beran noted. “So people who have lost their homes are unable to qualify for less expensive homes.” That pitches former home-owners against those who traditionally rent, tightening the market.
Since banks are not lending, sales prices continue to remain weak. This provides the perfect scenario for a wise investor who has capital to invest and management expertise. As credit eases, values will likely rise. For those who prefer to let others handle the tenants, Beran is still accepting management contracts for properties.
“Are you in the market right now?” I asked him.
“I am always in the market!” Beran told me. The words are spoken like a true investor. Beran prefers small apartment complexes. He looks for a cap rate higher than 8% and is ready to move if he likes the deal.
How do you know when the real estate market has hit bottom and is on the way up? When seasoned investors slide off the fence and return to the market, you can bet they know something. Considering Gregory Beran bought his first rental property when he was 20 years old in 1978, you can bet he knows a thing or two.
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