Cash-on-cash returns and what to watch for in today’s rental market

Cash-on-cash returns and what to watch for in today’s rental market

Welcome to Ask the Colorado Dream House Team with Dan Polimino!

Today’s show focuses on rental properties, cash-on-cash returns, and the pitfalls you should watch out for in today’s rental market.

Full Transcript

Hi everyone and welcome to today's show of Ask the Colorado Dream House Team, I'm your host Dan Polimino coming to you live from Denver Colorado. First day of February Can you believe. We've already gone through the month of January 8 per cent of the calendar year is already over. It seems like we just started

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. 2018. Welcome to the show if you're new. This is everything about real estate. We help you buy sell and invest in real estate. We like to do two things with each show we want to answer your questions and we want to give you some news you can use. And again if you don't have to be here in Denver Colorado you can be anywhere in the country. And this is just good database driven information coming from years in years and thousands of transactions lots of experience that you can use wherever you're at. As always if you'd like to ask a question leave a comment here on Facebook or you can e-mail us at Colorado Dreamhouse team or give us a call at 7 2 0 4 4 6 6 3 2 5. We would love to talk with you and if we can help you buy sell or invest in real estate. We would love to do it. All right. Today's News You Can Use is about the 2018 new tax law and how it applies to real estate. We help a lot of people invest in real estate. Buy rental properties commercial whatever it may be. And their number one question to us is Dan with the new 2018 tax law. Did the mortgage interest deduction change for rental properties. And the answer is No. It did not. Good news. So if you are in the rental property business and you make a good living at that or you make just a little money on the side or whatever the case may be. Nothing's changed with the mortgage interest deduction you still get to deduct the mortgage interest. It's the same form in your taxes. It's on the schedule. It's an itemized expense. Nothing changes. Talk to your accountant. Now what about a second home. Right. That's a little more complicated.

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Now you'll remember that the mortgage interest deduction was on loans up to one million dollars. It's been revised in 2018. It's now on loans up to seven hundred fifty thousand dollars. So let's take a scenario Let's say your primary house has a loan of. 300000. And you buy a second home. And that has a loan of 300000. That's a total of 600000. The mortgage interest deduction is up to 750. So you'll be able to deduct the whole amount on your taxes. Works out pretty well. What if your mortgage on your primary is three hundred. And your mortgage on your secondary is six hundred. And it totals up to be nine hundred thousand dollars. Well combined. Remember the first and second home can only be 750. So you're only going to have a mortgage deduction on the first 750 thousand dollars. There's one caveat. If. Your loans. Were in place or originated. Prior to the tax law. Going into effect in 2018. You're sort of grandfathered in. You still have the 1 million dollar cap. Again if your loans were in place or originated prior to 2018. You can have a mortgage interest deduction up to 1 million dollars. Hope that answers your questions. I hope that helps in your planning. I think it's good news for all of us and again for those of us that invest in real estate. It is good news. All right here is the questions. Dear Colorado Dream House team and it's a rental theme. Today. Wondering if we should jump into the rental market and buy an investment property. Well obviously it depends on what part of the country you're in but in Denver there is very very very low vacancy rates it's hard to find a rental and people are paying premiums to rent properties. So it is an excellent time in Denver to pick up an investment property and make some money that way. There's two ways her earning income on a rental property. Number one. Through the monthly rent. Does the amount that the tenant is paying you. Does it cover the mortgage and does it cash flow. Does it put a little cash in your pocket. On top of that. The second way to. Earn money in a rental investment is through the natural course of appreciation. How long do you plan on holding the rental property. We recommend a minimum of two years two to five years. Seems to be the right amount. But the question is how much will the house go up in value during natural appreciation. So again two ways. Cash flow on a monthly basis through the rent and natural appreciation. All right. We'll talk more about this as we go along. Dear Colorado Dreamhouse team what should I be looking for when buying an investment property. Same rules of real estate when you're buying a primary residence which is location location location. That is your first and best rule buy a place in a great location not backing the railroad tracks not back into power lines. Not backing to a busy street in a good neighborhood. Good schools. These are some of the things that you're looking for. Secondly by the biggest place you can for the least amount of money. I know that seems kind of academic or remedial but it's the truth by the biggest square footage finish square footage that you can. Beds baths for the least amount of money. Look for the deal. Right. Last but not least that's what I talked about a few minutes ago. Take a look at how much rent you're going to be able to charge will that cover the mortgage. And will put a little money in your pocket. Those are the three biggies on what to look for. All right dear Colorado Dream House team. What are the pitfalls of buying an investment property. When you hear people go I don't want to buy an investment property I don't want to get that phone call at 2:00 in the morning and there's a flood in the house and I don't want to deal with all of that. And what if the tenants destroy the place when they move out. Listen this is not that big of a deal. We live in a day and age where we can pick up the phone at 2 o'clock in the morning and call a plumber for an emergency service. And all you do is say to the tenant I understand shut the water off and I'll have a plumber over there in ten minutes. That's all that it is. What if they destroyed the house. Well first we keep the security deposit right. And rarely do they do enough damage that it costs you well into the thousands. Usually it's it's dirty the carpet needs replace the scuffed up the floors. They put a hole in the wall. Generally it's. Minor stuff. Now don't send me a whole bunch of e-mails and say Well damn that's not what happened to me. You should have seen what they did to the house. No I know those stories. I've been a part of it. All right. But for the most part it's not that risky of an investment as you think unless. You bought in a poor location you paid an exorbitantly high price and you didn't buy the right property based on what it could fetch for rent. All right. Well that's today's questions. Thank you. Keep them coming. Love to hear them. And happy to answer more. You can always contact us at Colorado Dreamhouse dot com. Hey don't forget about as we get started here in 2018 our 250 marketing guarantee if you're thinking about selling your house you're going to want to check this out. I'm not going to spill all the details here but basically it goes like this. We believe that the marketing for your home is better than anyone else. We believe it's better than any of our competition and we're ready to put our money where our mouth is. If it's not better than our competition. We'll pay you 250 dollars in cash. That's simple. Just meet with us for 30 minutes. Let us present the marketing plan and if our marketing plan is not better than the competitions. We'll pay you 250 bucks and you can hire our competition. Check it out. For more of the details Colorado Dreamhouse dot com. Forward slash to 50 and we'd love to talk with you. All right that's today's show. We'll see everybody next Tuesday. In the meantime have a great weekend.

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