Risk free property investment - well, almost!
You've heard that there's no such thing as a free lunch. And, that's true. Anything of value costs something. And while some things are too good to be true, sometimes you need to pinch yourself when you find a great deal.
I'm going to share with you how I look at property investment and why I invest my personal funds into real estate in the Columbus, Ohio market and why you should too.
The best test of whether or not someone is telling you the truth is to see what they do with their OWN money. I routinely take my clients through my properties and share the ins and outs of what it cost to buy, renovate and maintain. Seeing real numbers will help you make an informed decision.
THE MARKET IN COLUMBUS, OHIO
When I started looking at markets to invest in, I did lots of research. And when I say lots, i means LOTS! I looked at economic trends, population trends, jobs, incomes and future potential. I looked at Colorado, Alabama, Michigan, Kansas and Florida.
In detail.
I decided on Columbus. Why? Here are the key things that got me excited about the prospects for a solid return.
COLUMBUS IS GROWING
Most of the places I considered investing in that have similar on paper returns had terrible economic fundamentals. Notice I said on paper returns - why? Well what matters is what you actually make, not what the numbers say you will make. Many areas have poor economic fundamentals which is why they have to provide a high level of return otherwise no one will invest there. Collecting rent, maintaining tenants and growing is VERY difficult.
Here's why I like (love!) Columbus.
Columbus is the capital of Ohio. As such, it benefits from a lot of government spending. Approximately 100,000 students attend 16 colleges in Columbus with the majority enrolled at one of the largest colleges in the US - Ohio State (60,000).
The economy is strong and unemployment is under 4% which means it is a VERY tight labor market - wages are going up and that is great. It means people can spend more. On things like rent among others.
Columbus has a diversified economy. No industry makes up more than 18% - that's key! That means that even if the economy was to struggle in a certain area, it doesn't disproportionately impact the city.
So what does a large college population + government spending + a strong economy equal? It brings population growth! People are attracted to the place and they come in droves. Students stay on after college because they can get great jobs. More population means... You guessed it - need for more housing.
And that's one of the other key reasons why Columbus is such a popular place to live. It has a very low cost of living compared to other capitals.
Population growth - check. Large, well educated workforce - check. Strong employment - check. Low cost of living - double check!
Now do you see why my investors and I choose to place our money in this market?
Here's the last piece of the puzzle.
You can buy a single or multi-family home in Columbus for $40,000-$60,000! Yes that's not a misprint.
Where else can you buy a single family home or a duplex for that price where the economy is this strong? I challenge you to find a place better than Columbus. I couldn't - that's why I invest my personal funds here.
So the last, and obvious question is - but what about the risks?
I'm glad you asked :)
Lets look at a recent scenario of a property I purchased. It was a brick, single family home in a quiet area on 0.29 of an acre.
Here are the actual numbers:
Purchase price $30,000
Renovation cost $12,000
Rent $750 per month
That's a return of 21.4%!!!
What is your rental property making? And how much did you pay for it?
So now let's look at the risks.
Worst case - Armageddon -the economy collapses and we have a recession. Prices on homes drop by a whopping 25%! Guess what I stand to lose? $10,500. That's it. And that's if I sell. And why would I sell when I'm getting a great return?
What does a 25% drop in price look like if you invested in New York or California? Wow!
Second, what if new homes get built? Well, that won't happen. Why? It's simple economics. The replacement cost on a home like the above to build today is between $120,000 - $150,000.
So someone building a new home has to charge 3 times as much rent as I do to make it worthwhile. Do you know a tenant that would pay that for a newer property? Nope, me neither. So I'm not going to be 'built out'.
They can't sell it because no one is going to pay $120,000 for a house surrounded by $50,000 homes and the banks won't lend.
So, they can't build to make money on rentals or to make money on sales. Low income housing is not being built - period. You have a shrinking supply of homes and increasing demand. It's a great opportunity.
Lastly, what do you think happens to rents if the economy collapses and people lose their homes? Same thing that happened during the recession in 2008. They went up!
All the people that couldn't afford their mortgages and lost their homes still had to live somewhere. They had to become renters.
And here's a bonus, let's say the economy goes so well that people want to buy rather than rent - no problem! I'm happy to sell and pocket a large chunk of cash - I bought it so low it doesn't matter.
Is it completely risk free? No, there are always risks.
But the above fundamentals are about as close to risk free as I've ever seen.
It's not a free lunch but it's close! :)
If you want to know more, let's talk. Click the link at the top of the page and make an appointment for a no obligation consultation to see how we can help you be financially free!