Category: Investing

Many people may have a misperception about the typical real estate investor. They often think you have to be very wealthy to invest in real estate. Fortunately, that’s just not the case. It turns out that many real estate investors are your average, everyday people. It may be your neighbor who owns one or two rental properties or a friend who moved into a new home and kept their old one as a rental. And, in reality, it could very easily be you if you wanted.

Real estate investors are just those who have chosen to utilize real estate as a way to diversify their investments and build wealth.

The most common reasons my clients invest in real estate are to diversify investments, save for their kid’s college education, and to create wealth for retirement. Think about this: wouldn’t it be great to have renters pay off your mortgage for the next 15-30 years and then have a cash producing asset that you now own free and clear, just in time for retirement? Then at that point, you still have the rent payments coming in but without the mortgage!

Still not sure if you could fit the profile of a real estate investor? Consider that the median household income of those who purchased investment property in 2011 was $86,100, which doesn’t compare that much differently than the median household income of those who bought primary residences – $72,400. Plus, the median age of investors last year was 50, with half of investors under the age of 45.

Here are some other interesting facts about investors:

• A large portion of investors purchased in their own community – 38% of investors bought within 15 miles. However, it’s fairly common for investors to buy in other areas – 30% of investment purchases are over 100 miles away from the investor’s primary residence.
• 27% of all residential real estate purchases in 2011 were investment property, up from 17% in 2010.
• Almost half of investment properties were purchased with a mortgage. So, yes, there is financing available for investment property.
• The median length of time an investor expects to hold onto a property is five years, but a significant percentage plan to hold on even longer than that.

Keep in mind that most people’s attitudes on investing are different now than at the peak of the market. Most investors are now looking for longer term opportunities that bring in a positive cash flow.

Another interesting tidbit is that 78% of investors surveyed believe that now is a good time to purchase real estate. This, of course, explains why so many of them are doing so!

Think Flagstaff is too small for investment opportunities? You’ll find it interesting that 37% of investment property purchases were in small towns or rural areas. Plus, having a steady flow of students from NAU contributes to the strong rental market in Flagstaff.

There are good investment opportunities in this market and now may be a good time to learn about diversifying your investments with real estate.

All statistics are from the Investment and Vacation Home Buyers Survey 2012, ©2012 NATIONAL ASSOCIATION OF REALTORS®. All rights reserved.

The reality is that college is expensive and housing is a big part of that expense. Your kid is going to need a place to live for the next four years, so why not defray some of that cost by investing in a property that your kid could live in while at NAU? Right now it’s typically less expensive to own than to rent, plus you have other benefits such as gaining equity through paying down the mortgage and possible appreciation. Let’s explore some of these options…

Living in the NAU dorms:
Looking on NAU’s Residence Life website, dorms can be as high as $599/month, with a typical rent appearing to be $470/month. This isn’t horrible, but in most dorms you have to move your kid in and out each school year and you have nothing to show for all that money spent in rent for four years. Even if you’ve decided to have your kid in the dorms for the first year, it still makes sense to invest in a property for their remaining three years and maybe even keep the property as a rental after they graduate.

Renting off campus:
Renting off campus in Flagstaff can be $500+ when sharing with roommates and even more if you rent your own 1-bedroom place. The problem here is that you’ve spent over $24,000 in rent in four years with nothing to show for it. Plus, you’re competing with many others to find the good rentals and being at the whim of a landlord means your son or daughter may be forced to move multiple times during their time at NAU.

Buying a Condo or Townhome in Flagstaff:
Your total monthly payment on a 1-bedroom or studio you purchase will very likely be less than the amount you’d pay in rent, depending on how much you put down. An even better option is to buy a two or three bedroom condo or townhome and have your student get roommates whose rents contribute to the mortgage, making your total monthly cost much less than if you were just paying rent. Not only are you paying less each month, but no matter which option you choose, you’re also gaining equity by paying down your mortgage each month, which can add up to thousands of dollars over the course of three or four years.

Single-family homes are also an option, but most people prefer a condo or townhome in this situation because of the lower maintenance and lower prices. I can help you determine which options might make the most sense for your situation.

If you’re wondering how much you’d need to spend upfront for this, you can purchase a second home with conventional financing and a down payment anywhere from 5-20%. There’s also an FHA loan product, informally called a “Kiddie Condo Loan,” that allows you to purchase the home with your son or daughter for as little as 3.5% down. I can provide you with more specifics on which condos and townhomes in Flagstaff might be the best fit and what to expect with the prices of those units, but in general, condos are ranging in the low-to-mid $100k’s and townhomes in the mid $100k’s to $200k.

Owning investment property is one of the best ways to gain wealth and investing in a condo or townhome for your NAU student is a perfect opportunity to get started. At the very least, you’ve defrayed some of the costs of college, you’ve provided a stable environment for your son or daughter, and given them an introduction to the responsibilities and benefits of homeownership.