Wednesday, December 4, 2013

Getting a Higher Return On Your Money - Real Estate and Your Asset Allocation

Rents are rising and they are rising faster than almost any other investment.

In a small, older suburb of Denver, Colorado rents increased 16.2% year over year with a 95.4% occupancy rate. San Jose, California has it even better with an increase of 16.3% and a 97.3% occupancy rate according to a recent report by AxioMetrics Inc., an apartment market research firm in Dallas.

Portland, Seattle and Boston are also areas of the country that have seen the rents increase double digit year over year.

As a rental property owner myself, I am personally seeing this. I was heavily invested in the real estate market along with everyone else 10 years ago. The difference is that I never bought a property that didn't have a Plan B. Actually, for me, everyone else's Plan A was my Plan B. I bought for rental income, not short term gains. I did this for years and got up to about 7 duplexes at one point until the gains on the properties were such that the income became second fiddle. And, I lucked out. I started rolling the properties into ever nicer properties and then started selling them. I had sold all but one property by the top of the market in 2004.. I don't like to think where I would be if I hadn't sold them when I did.

Regardless, rents weren't great back then. It was tough to find renters and when you did, raising the rent on your tenants was out of the question. Raise it and they would leave and you would be out a couple of months' worth of rent.

Rents are great now. The reason I got into the properties in the first place was for the passive income that they generated and smart investors are doing the same thing.

Where else can you get passive income at this level? 30% down on an investment property can get you almost 8% a year on that money. The property value of the real estate market may not return for another 5 to 10 years, but at 8% a year I'm not really worried about it. Tenants won't always be a piece of cake and you will have some turbulent times.. One tenant almost tore one of my places to pieces, but that is the price of rental ownership.

Without putting 20-30% down on individual properties and having to worry about new roofs and bad tenants you can still take advantage of these returns on rental properties. There is an easier way with REITS, or Real Estate Investment Trusts.

REITs are required to pass through most of their income to you and because they are traded on a stock exchange, they are much more liquid than regular real estate and you don't have to pay a realtor. One more benefit is that you can individually choose cities and states. Investing in cities like Detroit right now is not a smart or strategic move.

I'm not selling any REITs and if you do decide to purchase an individual property, more power to you. What I am saying is that these high rental returns are going to be attracting more and more real estate investors, which will increase the property value which in turn may finally get us out of this real estate slump.

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