The interest rate at all times lows creates excellent opportunities for home buyers, even if they are not so good for people looking for a place to make their money grow. Currently, Portsmouth NH banks are offering a whopping 1% average return on a 1-year certificate of deposit. That means if you invest $10,000 with them, they will pay you a whole $100 for using your money for a year.
So what’s a better deal? Real estate, specifically single-family homes or multi-unit properties up to 4 units. Why four units? Because up to 4 units are the magic number for lenders to offer the most favorable terms. Currently, if you buy a Portsmouth NH investment property under 4 units and intend to occupy one of the units, you can get in for as little as 3.5% down payment with an FHA insured loan.
That’s a great deal. That means you could buy a Portsmouth NH duplex, live in one unit, and let your tenants pay some of your payment while enjoying the tax benefits and appreciation of homeownership.
Even if you don’t intend to live in one of your units, you can still buy a fourplex or smaller with as little as 20% down. Before we get into the financial nuts and bolts of this transaction, I need to fully disclose that I am not offering to loan you any money and that I am not a mortgage banker nor an accountant. For tax and investment advice, you should contact a qualified Portsmouth NH professional.
Here’s why a Portsmouth NH investment property is a better deal than a CD. If you have the $10,000 figure used above and buy the CD, you get a 1% annual return. If you take the same $10,000 and pay 3.5% down on a $300,000 duplex. Using a Portsmouth NH listing now on the market for $295,000, 3.5% of that figure is $10,325 down. Current rents are $1100 a month for one unit, $1250 for the other.
You move into the $1100 a month unit and now collect the $1250 from unit # 2. Your mortgage principal and interest payment are $1,279.78 per month, $460 for taxes, mortgage insurance, and hazard insurance bring your total monthly payment to somewhere around $2,000. You take your $1,250 monthly income from unit #2, and that leaves you with a $750 a month house payment.
OK, so that’s pretty good, but how am I better off? First, you’re offsetting over 50% of your house payment with rent from the other unit. Second, you’re now buying a $300,000 asset that historically has always increased in value. Never mind the last 5 years; over the long term, real estate has always been an excellent investment and continues to be.
In year 1, around $10,000 of those 12 monthly payments are going to be interest, you can deduct those from your federal income taxes based on what income bracket you’re in. You will also reduce your mortgage loan by about $5,000, so that’s like a forced savings account. AND, the federal government also lets you depreciate investment real estate over 27.5 years, so that’s another tax deduction you need to talk with your CPA about.
Finally, real estate prices are once again on the rise; we see increases in 2012 prices for Portsmouth NH homes and multifamily units.
And nationwide, rents are increasing due to increased demand and a dwindling supply. Hardly any new rental units have been built over the past 5 years because of the economy. Trulia.com predicts rents will rise by 5.1% in 2012 and continue to increase. All these positive factors make that a hundred bucks you can get on a CD look pretty puny by comparison.
So, all things considered, NOW is an excellent time to consider adding some Portsmouth NH real estate to your investment portfolio. You can also own real estate in a self-directed IRA; talk to your favorite CPA about how to do that.
My partner Ann Cummings and I believe in the future of Portsmouth NH real estate; we own investment properties and think you should too. Give us a call at 603-436-1221 or email Ann@AnnCummings.com and Jim@JimLee.com. We’re always happy to sit down with you and answer all your questions about Portsmouth NH real estate.
Visit us on the web at NewHampshireMaineRealEstate.com
Content published by Jim Lee