As the old saying goes about hedging against inflation, putting money into precious metals such as gold or real estate is best. Gold traditionally matches inflation, and real estate investments do not dramatically lose value. Rental property investment is a great way to hedge against inflation. One of rental property investors’ most valuable tools in the U.S. is the 30-year fixed-rate mortgage. These mortgages allow rental property investors to avoid unexpected interest rate hikes during ownership.
With higher interest rates, active real estate investors should consider putting their rental investments under expert supervision. The most significant benefit of hiring a property management company like DenCO Property Management and Sales (DenCO) is their knowledge of the Denver real estate market and what rents each neighborhood can demand. Click here to view your real estate brokerage services.
Long-term Investments
Rental properties with fixed-rate mortgages are considered suitable long-term investments. Investors who buy rentals, if managed properly, should create a stable source of income. After a decade of cheap money, new rental investors need to realize that interest rates in the five to six percent range are low historically. So, now is a good time to invest in rental properties. To get the best return even when paying a higher interest rate, it behooves investors to understand how rental properties make money, how to maintain asset value, and where to buy. Rentals with adjustable-rate mortgages do not qualify as long-term investments because of interest rate risk. Click here to see historical 30 year fixed mortgage rates.
How Rentals Make Money?
Approaching rentals as profit centers will determine whether buying during times of higher interest rates makes business sense. Investors should make sure their rental property is cash flow positive by including property taxes and insurance in their analysis. Future rental increases and appreciation are not germane to the buying decision because these benefits can change and are not guaranteed. Rental properties make money in the following ways:
- Cash flow
- Asset Value Appreciation
- Equity
Cash Flow
Properties are cash flow positive when the rental income covers all mortgage payments, insurance, taxes, and maintenance each year. These expenses will increase over time, but not at a rate anywhere near rent gains in the Denver market. Rental income increases as the margin between future rents and mortgage expenses grows.
Increasing Asset Value
Over the last three years, Denver grew five times faster than St. Louis. So buying rental properties in Denver is probably a good bet. Savvy investors sustain their properties over time by keeping up with maintenance, making repairs when needed, and keeping all plumbing, roofing, heating, and cooling systems functional. Properties in good working order demand higher rents and increase asset value. The location also impacts appreciation. Rentals bought in or near popular neighborhoods, close to parks, and other areas of interest will increase in value over time.
Building Equity
Paying down the principal on loans increases equity over time. Investors should never miss the opportunity to re-finance when there is a drop in interest rates. Lower payments increase rental income each month and build equity.
How Can Professional Property Management Make Rental Properties a Good Investment?
Being a landlord is demanding. Expert property management takes the hassle off owners’ hands. DenCO manages over 150 home, duplex, and apartment rentals in the DU, Washington Park, and other Denver neighborhoods and has been in business since 1990.
Call us at 303-722-9688 or click here to complete a contact us form.
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