5 Reasons to Consider Investment in Residential Real Estate

Historically low interest rates, steadily rising real estate prices and a very strong rental market make owning a single-family investment property attractive and potentially lucrative in Austin.

With the right tenants – hopefully found after reviewing background and credit checks — property owners can often supplement their income through a rental property. In Austin, several markets exist. A few of the most common include tens of thousands of college students, growing families who haven’t yet saved enough to buy a home and the roughly 110 people who move to Austin every day.

But it takes the right homeowner and the right mindset to enter the residential real estate market as an investor to make it work. Here’s a look at five variables to consider that might help you decide if searching residential real estate listings for investment property is the right move for you.

1.) Make Money, Diversify Income: Make sure the rent you charge tenants is more than enough to cover your mortgage payment (which typically includes principle, interest, taxes and insurance, or “PITI”) as well as maintenance costs, you’ll have an avenue to draw significant income that sits mostly outside of the ups and downs of the stock market. Over time, based on rental rates rising, the positive cash flow increases due to the mortgage payment remaining relatively stable if you take out a fixed-rate loan. Of course, taxes and insurance will go up, but the principle and interest remain the same with a fixed rate mortgage.

For many, an investment property serves as supplementary retirement income as well — with a potentially huge payoff at the end when the property is sold at an appreciated amount.

2.) Stable Renters, Long-term Leases: Real estate industry research indicates that people who rent single-family homes tend to stay longer than people who rent an apartment, reducing gaps in rent income and building more trust between tenant and owner. In some cases, tenants will even offer to make lasting improvements — from painting to planting — on their own that could benefit the owner and tenant. Of course, even careful vetting of rental applicants can allow a problematic renter in, which is why you need to be up for the challenge.

3.) Love a Challenge: When the air conditioner or hot water heater go out, you’ve got to be ready to make quick repairs — or have someone else ready. You may also have to hustle to find new tenants to avoid gaps in income. For some, these little emergencies provide a sense of purpose and a task to tackle. For others, it’s more headache than they’re willing to deal with, in which case it may be worth looking into a property management company or a Homeowner’s Warranty Program that covers appliances and the home’s major systems. Similarly, you’ll want to familiarize yourself with Texas laws for tenants and landlords to know your rights.

4.) Resale Value: In Austin, resale values continue to climb. People who bought homes a few years ago now have the option to sell at significantly higher prices. For example, the median price of home climbed 9 percent from July 2013 to July 2014. The trend seems poised to continue. But there’s some stability even if prices don’t appreciate so rapidly. Rental property owners enjoy the luxury of waiting out the market until the price is right to sell, meanwhile the rental income keeps flowing. Plus, the principle of the loan continues to get paid down, increasing the owner’s equity even if there is no value appreciation.

5.) Tax Shelter: Tax laws allow rental owners to subtract loan interest and property expenses on their federal income tax. You may also be able to write off expenses to visit and work on your rental property. Meanwhile, you will also be able to write off a depreciation allowance on the property, sheltering even more of your income from the taxman.