When it comes to comparing the costs of buying versus renting a home, Charlotte area residents are likely to find a better value in buying, according to the results of a recent study, reported by
Three Reasons To Buy An Investment Home In Charlotte
Thinking of investing in real estate? Here are three reasons Charlotte is a great place to get started.
1. With home prices going up, more people are looking to rent.
The current inventory crunch has helped boost the value of homes across the country and Charlotte is no exception. When compared to last year, average sales prices for homes in the Charlotte area rose 6.3% to $271,606. The median price increased as well, growing 9.2% year-over-year in September to $225,000.
As it becomes more costly to purchase a home in the region, more people will be looking for rental housing. Buying a home with the intention of renting it out to Charlotte residents can be a great strategy for increasing cash flow and building long term wealth.
2. Rental rates are also on the rise.
According to data compiled by RentCafe.com, the average rent price for homes in Charlotte is $1,073 per month (avg. 938 sq. ft.). This represents a 5% increase since 2016.
Broken down by bedrooms, the average monthly rent prices are as follows:
studio (avg. 527 sq.ft.) - $1,050 (up 1% y-o-y)
1-bedroom (avg. 743 sq. ft.) - $1,005 (up 5% y-o-y)
2-bedroom (avg. 1,055 sq. ft.) - $1,152 (up 5% y-o-y)
3-bedroom (avg. 1,312 sq. ft.) - $1,258 (up 4% y-o-y)
RentCafe.com also found that the majority of rental homes in Charlotte are between the $1,001 - $1,500 price range with 44% of homes falling into this category. The second largest share (37%) of rental homes in Charlotte fall into the $701 - $1,000 price range. Only 7% of rental homes in Charlotte are priced between $501 - $700 and only 8% are priced between $1,501 - $2,000. A mere 4% are priced above $2,000.
Let's say you purchased a 2-bedroom home for $189,000 with a 30-year fixed rate mortgage at 4.00% with 20% down. With this loan structure, your monthly mortgage payments would be around $875 including insurance and taxes. If you charge the average $1,152/month for rent, you could potentially net $277/month. After two years, that could add up to more than $6,600. Not to mention you'll hopefully be adding to your long term wealth through gains in equity.
Of course, the example above doesn't take into account any commission fees for property management firms, HOA dues, or periodic maintenance costs, so you should be sure to crunch all the numbers before getting too excited about investing in a rental property.
3. Equity, equity, equity!
As we've already mentioned, home values in Charlotte are growing rapidly. What does this mean for area homeowners and real estate investors? Equity!
Equity is the value of a home, minus any money still owed on it. For example, a home that's worth $200,000 but has a $150,000 mortgage balance has $50,000 in equity. If a home is worth $200,000 but has a $250,000 mortgage on it, the equity is -$50,000.
As the value of a home increases and the debt of the mortgage decreases, equity begins to build. Likewise, if the mortgage debt is higher than the home's value, the homeowner will have negative equity, aka be "upside down" or "underwater" in their loan.
Equity can be used through a variety of methods, including cash out refinancing or a home equity line of credit. Or, it can simply help you be in a better position when it comes time to sell your home and "move up."
Equity is often compared to money in a savings account; someday it can be used to fund major expenses or other investments such as buying another home, paying for a college education, or even being used to supplement retirement income. But because home values can often increase at a higher and more predictable rate than the value of stocks and bonds, many people opt to invest more in real estate than in the stock market. Of course, we're not investment planners and we can't give you advice on the best way to plan your financial future - but we can tell you that if owning investment property is one of your goals, Charlotte is a great place to buy!
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