Hedge Against Inflation. A fixed mortgage rate coupled with an increasing Consumer Price Index (CPI), creates growing profits when expenses are held steady.
Reduce your Tax Burden. Write off your investment property expenses. Conceal your income. Consult your CPA : )
Create Passive Income. Cash Flow is Key. Rather than working for a paycheck, real estate income is created after you set-up the investment.
The Real Estate Market is a Fluid Market: short and long term liquidation options. When the economy is strong and demands amble housing options, people that own desirable housing are positioned to sell in a high market. When the economy is slow, lending is sparse and rental demand increases. Both good and bad economies provide options for those that own rental property.
Why should you Invest in Austin property?
Austin is the Silicon Valley of Texas. Many large tech companies, as well as small start-ups call Austin home. Apple Computer, Paypal, Visa, Intel, Dell, Emerson, Xerox, IBM, Oracle, Rackspace, HomeAway, Google and OutBound Engine all have offices in the Austin Metro. With the presence of the large companies, smaller tech companies are attracted to the area due to high number of tech workers.
For the tenth year in a row, Chief Executive has named Texas, number one for best states to do business in. Pro-business politics, low taxes and consistent regulation has made Texas an easy state to start or grow a business. In addition to low corporate tax, there is no individual state income tax in Texas. This is attractive to workers and families moving here: more money in their pocket.
The projected economic growth rate is over six percent. As well, over 100 people move to Austin, everyday. These people need a place to live! Our current housing inventory is at a deficit. Vacancy rates in rental housing is a mere two percent.
Austin is the hub of everything hip. Not only does Austin house the State Capital and the University of Texas, but we're also famous for the annual South By Southwest (SXSW) conference, Austin City Limits (ACL), X-Games, Formula 1 Racing, and soon to be professional Surf Park and many other events. More people visit Austin than any other city in Texas. Our events capture national and international attention, with almost 20 million annual visitors.
Cash versus Financing: Options to pay for your Investment Property.
If you have available funds, it may be tempting to use your hard earned money and buy a house out-right. The thought of not having a monthly mortgage or paying thousands of dollars in annual interest seems rewarding in exchange for emptying your bank account. The choice is yours, but I always recommend my clients to consider financing. If you owner occupy your property, you can use interest paid on your federal income tax return. If your property is an investment rental, you can account for interest on your profit and loss statement, further sheltering your net income.
I prefer financing because interest rates are so low, it pays to borrow money. With financing, you can leverage your existing cash and increase your investment power. Instead of a zero percent interest payment to yourself (if you use your cash to buy a home), you could quadruple your investment. Current interest rates for investment property (non-owner occupied) is between 4 and 5 % and requires 25% down payment. If you have $400,000 cash available to liquidate, you could buy one or two rental homes, or borrow $800,000 and have 4x the cash flow.
Here's an example: If you bought a piece of rental property in 1980 for $64,000 in cash and it is now worth $173,000, it would seem like you would have over $100,000 in profit. When adjusted for 1980 price inflation and compare what a dollar then would buy, next to a dollar today, it would look like you paid $164,000 for the house. That's only a 3.4% profit expressed in real terms. The secret is leverage. If you would have put 20% down ($12,800) and took a loan for the remainder, your profit over 30 years would be over 400%! This is how people get rich from real estate investing: turning $12,800 into $173,000. Rather than using your cash, the tenants are effectively paying your cost to borrow.