Real (Estate) Talk – June

Realtors Brad Moore and Alison Maguire of Keller Williams Real Estate’s Moore Maguire Group take a look at the borough’s booming market.

Residential or investment—which kind of home buyer are you? In the present market, investment buyers make up a bit less than 20% of buyers in West Chester. That doesn’t mean that investing in West Chester real estate is not a great idea. Rents in the area are not cheap, so depending upon where your investment is, it will not only pay for itself but might generate revenue for you

The first thing to be aware of is the differences in the actual purchase of an investment property as opposed to a primary residence. For instance, the money: when you’re buying an investment property, you can either purchase it in your own name or under a corporation or LLC. In the latter scenario, you must acquire a commercial loan, which typically has a different amortization schedule, an adjustable rate, and a balloon payment after five years or so.

If you buy an investment property in your own name with the specific intention of renting it out, you’ll likely be required to put down 25%, whereas with a primary residential property you can put down as little as 3%. There is one option to invest with less money down: if you’re buying a duplex with the intention of living in one unit and renting the other, you can buy it as an owner-occupied residential property and not be subject to that 25% down payment requirement

Another advantage is known as cash-on-cash return. As an example, if you invest in a $250k property by putting down $62,500, and that property nets $500 a month or $6,000 a year,that’s nearly a 10% return on your $62,500 cash investment, with a much better risk than the stock market. Add to that any equity that will accrue in even as little as five years’ time, plus you have a great tax write off because you can depreciate the property.

Once you’ve secured a property, you need to decide between offering short-term rentals like Airbnb or yearly rentals — we’ve seen investment properties purchased for each of these scenarios. The primary consideration is how much time and energy you want to put into your rental property.

With shorter Airbnb type rentals, you stand to make more — Airbnbs can run anywhere from $80 to $300 or more a night, depending upon the location and size of the property. But you will obviously have a higher turnover, which brings with it things like frequent cleanings, extra bookkeeping, and other maintenance. It’s simply more hands-on than a standard yearly rental property

Finally, we like to remind buyers that their purchase gives the man investment in their financial security, and the added advantage of literally investing in their neighborhood and the West Chester community. That’s not a bad buy.–