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Why Investing in Tri-Cities Real Estate is a Smart Idea

By in Kennewick Real Estate with 0 Comments

real-estate-investingI used to kind of freeze up when people talked to me about investment property.  I would smile and nod and parrot, “Yes, it looks like a good investment.”

However, now I am so thrilled to be able to articulate WHY.  I took a class (a couple, actually), in investing – how it works, what numbers to crunch, etc.

Let’s do a scenario that shows how you can experience a 15% return on investment, aka ROI, when investing in Tri-Cities real estate.

The property is purchased for $130,000, with 20% down.  On a 30-year fixed rate mortgage with an interest rate of 5%, the monthly mortgage payment is $558.29.  Add taxes and insurance and HOA  fees, the owner pays out an additional $180.00 per month.

The property rents out for $1200/mo.  This is actually a real possibility, since our rental market is so tight, and our subject property is in south Richland, located literally minutes away from stores, houses of worship, freeway interchanges, and school with high test scores.

One thing we need to figure out for our equation, is the vacancy rate.  In our market, vacancy is highly unlikely, but we’ll pretend one month of the year no one will be in the property.  So, income ($14,400 – twelve months of rent) minus vacancy ($1200 that one month no one is there)  minus expenses ($180.00 x 12, those monthly expenses for a full year) equals Net Operating Income (NOI).

Expressed another way…

$14,400 (Income)

– $1,200 (Vacancy)

-$2160 (Expenses)

____________

$11,040 (NOI)

Now, NOI minus Annual Debt Service, which is the monthly payment multiplied by twelve, ($6700 in this case) equals $4,340, which is the Pre-Tax Cash Flow.

OR –

$11.040 (NOI)

-$6700 (Annual Debt Service 558.33 x 12)

____________

$4,340  (Pre-Tax Cash Flow)

 

Finally, to get the ROI, we divide the Pre-Tax Cash Flow by the Down Payment pus Other Costs of Acquisition (($26,000 down payment, $3,000 in closing costs =$29,000) and we get 15%

4,340 ÷ 29,000 = .15…15%

A 15% return on investment is FANTASTIC!  With savings accounts, stocks, bonds, etc.  you are lucky to get a single digit rate of return.  So 15% is enormously profitable!

Any questions about investing in real estate??  Give me a call.  I love using my financial calculator now!

 

(Stock image via Shutterstock. Used with permission.)

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About The Author
Cari McGee

My husband and I came to the Tri-Cities in 1994, and we thought it would be a temporary stop on our way to larger cities. He was a television sports anchor at the time, and we planned to go wherever the "next step up" took us. Twenty-plus years later, we're still here and we've loved every minute of it! We have two children now, and we've found the Tri-Cities area is a wonderful place to raise a family. It's a great place to do outdoorsy things -- I like to hike Badger Mountain or run along the river path. I also love reading ... by a cozy fire in the winter or a beautiful picture window in the summer (with the A/C on!). I've been a licensed Realtor since 2004. I earned my managing broker's license in 2016, which means I can run my own brokerage, or create a team of real estate agents and supervise them, which is exactly what I did when I formed the Cari McGee Real Estate Team in 2018! We have administrative and marketing personnel, as well as additional agents to serve you. I became a director of the Tri-Cities Association of Realtors Board of Directors in 2016, became Secretary/Treasurer of the organization, and was elected to Vice President in 2019. Want to talk about real estate? Click here to schedule a meeting with me!

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