Long Term Rentals in Central Ohio
Long term rental properties are a great way to generate passive income, diversify your investment portfolio, and provide financial security for you and your family.
Why Invest in Long Term Rentals
There are 3 main benefits to investing in long term rental properties:
- Passive Income - Long-term rentals provide income with very little active involvement. Sure, you have to find new tenants every couple years and address the occasional maintenance issue, but the overall time commitment is minimal compared to many jobs.
- Diversification - Financial experts always talk about diversification. This doesn't only apply to the stock market. An ideal investment portfolio should consist of stocks, bonds, and real estate (among other things).
- Financial Security - Unlike the stock market, real estate is tangible. While real estate values can fluctuate over time, it's nearly impossible for the value to hit zero. I can't say the same for those shares of Blockbuster stock that you purchased in 1997.
How Do Long Term Rentals Make Money?
This is where things get exciting, but it can also be a bit complicated at the same time. You often hear horror stories of landlords who's rental income doesn't cover their mortgage, but did you know rental income is just one of many revenue sources with long term rentals? With proper research and planning, you can structure an investment portfolio that generates income on multiple fronts, from the same property.
- Rental Income - This is the most obvious one. While rental income can vary by neighborhood and price point, the average in Central Ohio is about 25% of rent. For example, if you're mortgage payment is $1,000, you will (on average) get $1,250 per month in rent - a $250 monthly profit.
- Automatic Savings - So you're making $250 per month in the above example, but the $1,000 mortgage payment isn't all waste. While over half is going towards interest, tax, and insurance, a good chunk is still going towards your principal loan amount. That's equity in your home that you're saving automatically with each monthly mortgage payment.
- Appreciation - Home values increase about 3% per year on average. I know 3% doesn't sound like much, but keep in mind your investment is leveraged by a mortgage. For example, if you put 20% down on a $100,000 home, your initial investment is only $20,000. But the home will still increase in value by $3,000. Because of your mortgage, the ROI jumps from a meager 3% to a respectable 15%.
- Tax Savings - Did you know you can write-off things like mortgage interest, property taxes, and home maintenance? This can result in a pretty substantial tax refund. Always consult a tax professional to optimize your return.
Now that we understand how long term rentals make money, let's look at a sample income report. Please note, these numbers are just estimates based on a sample property.
Purchase Price: $200,000
Down Payment: $40,000 (20% down)
Monthly Mortgage Payment: $800
Monthly Taxes & Insurance: $400
Monthly Rent: $1,500
Estimated Annual Maintenance: $2,000
Monthly Rent - Monthly Payment = Rental Income
$1,500 - $1,200 = $300 per month
$3,600 per year
Monthly Payment - Taxes & Insurance - Interest (this will vary by month) = Automatic Savings
$1,200 - $400 - $500 = $300 per month
$3,600 per year
Purchase Price X 3% = Annual Appreciation
$200,000 X 3% = $6,000
***Note: this amount will compound each year
Rental Income + Automatic Savings + Appreciation - Maintenance / Down Payment = ROI
$3,600 + $3,600 + $6,000 - $2,000 / $40,000 = 28%
ANNUAL ROI = 28%
How Do I Get Started?
Now that you know some of the basics of real estate investing, it's time to take it to the next level. Below are links to some of my favorite investor resources, as well as some featured investment properties in Central Ohio. You can also contact me at email@example.com or 614-395-1776 to schedule a free investment consultation. I look forward to speaking with you soon.
Choosing the right real estate agent is the key to finding your perfect home, negotiating a price you can afford, and ensuring you unlock the door to your new home with a smile. And that’s where The Alfriend Group steps in. We’re more than just a group of agents, we’re local residents, active members of the community, and we are a seamless team dedicated to serving your every need on our quest to help you find your dream home.
With over 20 years of residency in the wonderful city of Dublin and two decades of real estate experience, lead agent Kyle Alfriend of the Alfriend Group has the local knowledge and the real estate expertise to ensure you find the right home in just the right location. His supporting team members of The Alfriend Group are always available to answer your questions, ensure your needs are met, and help you discover Dublin.