Real EDvice

Is Real Estate investing right for you?

Editor’s Note: Welcome to Real EDvice—a weekly column written by your community professionals in the real estate industry covering all aspects of the real estate transaction.


For The Vista

Owning a home was the dream of my parents’ generation, and owning a bigger home was the focus of my age group.

But times, they are a changing. The millennials—those folks born since 1980—want to spend their money on travel and experiences—not in buying and maintaining a home. I know this to be true.

My partner, Don, has a 33-year-old son who hasn’t begun to think of buying a home. It’s the same with his friends. Adventure, fun, and living in the moment, take priority.

According to the US Census Bureau, home ownership by age group looks like this: 65 and over (78.6%) and under 35 (34.3%). For 35-44-year-olds, the rate is 59% percent; 45-54, 69.4%; and 55-64, 75.6%.

Additionally, home ownership in the US is declining—63.6% today—the lowest since 1965, and significantly lower than the high of 69.4% in 2004.

That sounds depressing for a Realtor, doesn’t it? But the picture is not as bleak as it sounds. There are two bright spots: 1) the boom-and-bust mentality of the mid-2000’s, when lenders would write a loan for anyone who could breathe, has ended, and that’s good for the industry; and 2) while ownership rates are down, rental opportunities are up. The national vacancy rate has declined to 7.0%, from an 11.1% high in 2009. And that creates a new avenue for real estate—investing in rental properties.

The Attraction of Investment Real Estate

A recent survey by SmartMove reported that “6 in 10 landlords say it’s more profitable and attractive to be a landlord now than it was five years ago.” Also, rental rates are rising, with 57% of landlords increasing their rates in the past year. Nationally, rental rates—on average for a three-bedroom home—have risen 4.8%.

Several years ago, the average long-term monthly rental in FFG was around $750-$800. Today, it is closer to $1,000. Folks rent in our neighborhood for three primary reasons: 1) they are vacationing; 2) they are “trying out” our area; and 3) they are building a new home and want to be close by.

There are three sweet spots for a real estate investor:

-— Short-term rentals to golfers and vacationers (not permitted in single-family homes in FFG)

— Lakefront homes

— Homes selling under $150,000

The rental market that is very robust is in the last category. Right now, there are 130 single-family, site-built homes in Fairfield Glade under $150k. Some are move-in ready; others require a bit of help—mostly cosmetic—to create a good rental. But with a bit of elbow grease, many of these homes can be rented for $900-$1,100 per month.

The cash flow from rentals can be enticing—especially with mortgage rates so low. At today’s rates (around 4%), you might finance 80% of a $150,000 home for around $650.00/month.

Of course, you must include taxes, insurance and HOA. But, even with those added, you’re looking at a payment a bit north of $700 per month. The difference between monthly layout and income is attractive.

And don’t forget, you can also depreciate rental property, which will improve those cash flow numbers. Please check in with your accountant for exact figures.

Bottom line, if you’re looking for an alternative investment, consider buying a ‘real’ asset.