Why do most of the wealthiest people in St. Louis own rental property? Well....they are savvy investors and realize that diversifying your investments is an important strategy. The typical investor does not think about rental property as an investment because they see it as a headache. It is easier to buy a stock or bond and not have to do anything except for watch it go up and down in value. With the use of a property management company, owning rental property can be just as simple. No mid-night calls because someone's pipe is leaking.
Check out the scenario for a property that I have listed now located at 6039 Pershing Ave near Washington University. The duplex is for sale for $299,000.
2nd floor is renting for $1895/month and the first floor is renting for $1795/month. Total monthly income is $3,690 per month.
$44,280 Per year. Expenses such as taxes, insurance, maintenance, water, sewer and trash are probably 25% but to be conservative I will use 30%
.70 X $44,280 = $30,996 Net operating income.
At $299k , in order to get your cap rate divide net operating income $30,996 by your purchase price-$299,000 = 10.4% Cap Rate.
Just to let you know, a 5% cap rate or higher is a good investment.
The above scenario is if you pay cash for the property. Let's say you take out a loan....it gets even better! So for example if a person put down 20%, you divide the Net income after the loan by the down payment to get the Cash on Cash Return, in this case, assume a loan payment of $1,500 per month, $30,996-$18,000(loan)/$59,800 which is a 21.7% return, which in my opinion is stunning.
Sounds good so far! Well...then you get the appreciated value of the property over the years. Such a good story all around!
If you are interested in finding out more about investing in rental property, please contact Ted Wight of Dielmann Sothebys International Realty at 314-607-5555 or tedwight@aol.com
Check out this link for some of the investment properties I have available now: LINK
