Let’s face it, real estate is a risky investment. It makes sense for some people to own investment real estate in their portfolios. At Bancroft & Associates, we’re here to help you build and manage an investment real estate portfolio. We like to think along the lines of “Get rich slow, stay rich long.” If you believe that investment in real estate is for you, the question is when is the best time to start? That will depend on the people considering investing. If that’s you, here are some things to think about.
This is a particularly good time to use the advantage of not being financially encumbered by dependents such as children, or elderly parents, impacting your lifestyle to start your portfolio. Most loan programs available for a first-time home buyer allows them to put 5% or less down and have the advantage of significantly lower interest rates than a commercial loan. This allows the investor to buy a house, duplex, or up to a 4 plex, with a low-down payment and extremely low monthly payments comparatively.
In our experience, younger buyers don’t expect to get their dream homes with their first purchase, just thinking of it as buying their first rental while they’re living in it. These savvy buyers are more willing to purchase a lower-priced home that they will be able to leverage as an investment as they grow. The main benefit here is being able to conserve capital and reduce interest costs. Most mortgages underwritten by FNMA and Freddie Mac allow you to own up to four high- leverage properties at one time. In other words, you’re allowed to accumulate up to four rental properties using very favorable mortgage terms.
This is probably the most difficult time to invest in residential income real estate. There are so many distractions; children’s activities, work, life challenges, etc., that get in the way of purchasing investment real estate. One of the key things to keep in mind is how big an advantage or disadvantage owning residential income properties can be. Some families may be financially prepared for investing at this point but may not have the temperament to handle the risks inherent to owning residential income properties.
For example, if you think your income is not sufficient enough to take full benefit of investment real estate, if your reserves are not significant enough to weather the ups and downs of owning residential income property, or if you can’t displace your family so that you can still qualify for a FNMA or Freddie Mac mortgage through owner-occupancy, perhaps it might be better to wait until you fall into our next category.
This is an ideal time for the more mature family to dive into investment real estate. At this point, more significant tax payments drive individuals and couples to look at the tax advantages and wealth building attributes of owning residential income real estate. There are ways to use an IRA, 401(k), and other retirement-oriented investments as a source of funding for your new investment.
Investment real estate is a marathon, not a sprint. It takes time, care, and the right professionals to create a portfolio that will provide a tax shelter, a source of income, and wealth building. Look for agents that have their own residential income real estate. Also, be sure to ask whether they are trained in the process of buying, selling, and managing of residential income properties. An agent with these characteristics will be an immense help in building, expanding, and managing your portfolio.
Bancroft & Associates has experience in all three aspects of residential income real estate. Our broker, Glenn Bancroft, owns 65 units and has managed them through the company. His 2 sons, Sterling and Grayson, have also begun their venture into residential income real estate and are building their portfolios. So no matter which category you fall into, we will be able to relate to your situation, offer our expertise, and help you achieve your investment goals.
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