Northern Virginia Investment Property Returns; A Class Of Their Own

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Investment Property is Real Estate Purchased for the Purpose of Renting.
Investment property is generally considered property held by the owner to earn rent, or acquire gains through capital appreciation, or both.  For the typical buy-hold investor it’s both – rent and capital appreciation.

Total Return = Cash Flow + Loan Principal Pay Down + Value Appreciation.
Investors view and financially model investment cases on a total return basis.  Cash flow is rental income less all your expenses, mortgage payments, repairs and maintenance, taxes, insurance, etc. – essentially the money left over after all bills are paid.  Principal pay down is the declining loan balance with each mortgage payment.  Appreciation is the increase in property value over time.  These three financial elements added together create the total return.

Investment Property Produces Highest “Risk” & “Work” Adjusted Returns.
In my opinion, there is no better return on a “risk”, “work”, and “time” adjusted basis.  One can consider the returns produced by limited and opportunistic stock trades, or an exotic investment like options – which is the reason I mention “time” and “risk” adjusted.  Someone else can point to the returns from starting a business that is scalable and saleable, but that’s an incredible amount of work which generally cannot be done in combination with a full-time job.  Yes, landlording is some risk and work, and is also the best return on an adjusted basis compared to other investments.

Investment Property Returns in Northern Virginia Outpace the S&P 500 Index Average by 250%
The graph below illustrates investment property returns yielded by carefully selected real estate in Northern Virginia.  I know, because I’m an investor-owner, and I have also closed on investment property representing buyer clients in today’s market.  Even in today’s relatively low inventory market, property is cash flow positive after paying all expenses, the owner’s loan is being paid down by the tenant’s monthly rent payments, and the property is enjoying the annual appreciation I wrote about in Tim’s R/Eview – June Issue.  The example investment property in the graph produces an internal rate of return (IRR) equal to 17%. This level return is 2.5x the S&P 500 Index historical average of just 7%.

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Qualitatively Speaking – Can any Class Compete with Investment Property?
Putting the winning numbers aside for a moment – consider this.  Investment property is an asset you own – someone else is willing to pay you rent to use it – they agree to maintain the asset while they use it – the rent they pay reimburses all your expenses, including your mortgage payment, and leaves you a monthly surplus.  And if that doesn’t sound good enough, the asset proves a reliable path to becoming much more valuable in time.  In fact, a common point I make to my buyer clients who are presently renting a home and considering buying a home in Northern Virginia is “Either way you’re paying a mortgage, why not have it be yours instead of the owner?”

Great Recession Proved Resiliency of Investment Property
A separate subject for another R/Eview Issue, but worth briefly noting here.  When the Great Recession hit in 2008, residential vacancies and rents in the Northern Virginia region were largely unimpacted.  Yes, property values declined, but for the typical buy-hold investor this was a temporary paper loss (balance sheet impact).  The investor’s P&L (income statement), where it counted, did not experience a financial loss.  In fact, the P&L for most investors continued to grow because rents actually climbed during this period.  Rents climbed because of the influx of renters (previously prospecting buyers) who entered the strengthening rental market and exited the softening buying market.  These gains were especially true for investors holding quality, affordable housing.  One more reason why investment property proves more resilient than volatile stock market investments.

Executive R/Eview
Investment property in Northern Virginia produces the highest sustainable returns in the typical investor’s asset portfolio.  Quantitatively, it’s a winning investment beating the S&P 500 Index by 250%.  There is also no better asset class on a qualitative basis – a third party (renter) actually pays you, yielding you a profit – and you keep the upside appreciation gains of the asset while in the renter’s possession.  Investment property has proven strength in all economic cycles, including the Great Recession.  Give serious consideration to the idea of buying investment property and using real estate as a strategy to diversify your asset portfolio and grow wealth.  I can show you how, or help you add to existing holdings.

“Landlords grow rich in their sleep without working, risking or economising.” – John Stuart Mill

“If you don’t find a way to make money while you sleep, you will work until you die”. – Warren Buffet

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