| The Current Situation
With interest rates at near record lows, a savings account probably doesn’t do much for your money right now. Given the current favorable conditions for homebuyers, you may be considering buying an investment property that you can rent and/or resell for a tidy profit.
On a national level, homes generally appreciate about four or five percent annually, although it fluctuates from year to year. Even with the depreciation the market has experienced in the last 12 months, real estate is still one of the most sound and safe investments you can make—if you think long-term. The longer you’re willing to hold on to the property, the higher your return is likely to be. The average home appreciation of 5% per year may not seem like much compared to long-term investments such as treasury bonds or bills, but consider this:
- Your return on investment (ROI) is based on the total value of your home, even though you’ve only initially invested a down payment. In other words, let’s say you purchased a $500,000 condo. Your first year’s increase in value would be $25,000, against a 20% down payment of $100,000. That’s a 25% return!
But let’s not forget that you’ve made mortgage and tax payments in the meantime. Since the interest on these is tax deductible, and you’re mostly paying interest during the first 20 years of a 30-year mortgage, the government is essentially subsidizing your home purchase. The end result: your rate of return when buying a home is higher than most any other investment you could make.
- While your property is appreciating in value, you’re generating rental income that’s helping to cover your monthly mortgage, taxes, and maintenance.
- Investing on improvements to your property, such as upgrading a bathroom or kitchen, increases the value of the home—sometimes by as much as five times the improvement cost. It also allows you to demand higher rent and cover a large portion (if not all) of your monthly payments.
- Unlike stocks or bonds, an investment property is a usable and tangible asset. You can choose to live in it yourself or allow others to reside there.
Which Properites Make Worthwhile Investments?
Should you buy a studio apartment close to the PATH, or a two-bedroom on 6th and Monroe? How about a three-family brownstone that you can live in and rent at the same time?
Here are some key factors to consider when deciding on what to buy in Hoboken:
- Location: This is perhaps the most significant factor, specially if you plan to generate rental income. If you’re catering to NYC commuters, then you want a property with easy access to the PATH train, NJ Transit Light Rail, buses, or the NY Waterway ferry.
- Size: Though a single professional could probably make due with a nice studio or one-bedroom, couples, families, and parties of two or more roommates are going to need more space. Think about the type of tenant/buyer you’re going to attract to your property.
- Amenities: Remember, the more your property offers, the more attractive it’s going to be for tenants and buyers. Common questions are: Does it come with parking? Is there a washer/dryer in the unit or building? Is it an elevator building or a walk-up? Is the gym membership included?
- Competition: How many other properties like yours are currently available? Are they "nicer" or competitively priced? Have similar properties rented or sold quickly?
- Work Involved: While you rent out your property, you’re going to be a landlord. This means not just making sure that your property stays in good shape, but also dealing with tenants and all their quirks. You’ll have to screen tenants, collect rent, make rush repairs, and deal with vacancies. Even if you employ the services of a management company to handle the day-to-day, you’re still must look out for your asset.
When you’re ready to make a sound real estate investement, you can count on our professional guidance to help you make the right decision.
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