Residential Income Property

Schultz Financial Mgmt Corp

Risk-Controlled Portfolios for Serious Investors

Income generating real estate is an attractive asset for several reasons.

First, it has a low correlation to stocks and bonds. Second, it can provide both rental income and price appreciation that keep pace with inflation. Third, it provides for beneficial tax treatment through depreciation. Fourth, it can be mostly financed with a mortgage loan at a low interest rate that is tax deductible.

We assist our clients who want to invest in residential income property with advantageous cash flow, but do not want shop for property or manage the property after they have acquired it.

Initially we help our client's determine whether or not to buy residential properties. Then we will help determine what properties to buy and assist them in selecting real estate agents, mortgage brokers, and property managers to work with.

Because it is important to obtain properties with good cash flow, it is probable that these properties will be not in your local area and may even be located in other states.

Leveraged Growth Investing

By obtaining financing, investors can leverage their initial investment in real estate with 90-95% of the property financed with mortgage backed loans at competitive tax deductible interest rates. By investing in new single family homes in fast growing cities experiencing considerable job growth and a large influx of relocating retirees, investors can realize break-even cash flow with as little as 5-10% down.

Below is an example of the initial investment cost and first year cash flow for a property, assuming 5% down payment, 6.75% 30 year fixed rate loan on a home that is vacant for the first two months after purchase.

List Price	$	136,224
Loan Amount	$	129,413
Down Payment	$	6,811
Tax Escrow (5 mos)	$	553
Ins Escrow (3 mos)	$	90
1st Yr. Hazard Ins.	$	359
Other Closing Costs	$	3,000
2 Mos. Mtg Pymt	$	1,678
TOTAL STARTUP			$ 12,491

1st Year Cash Flow		Est. Mo. Expense
Mortgage Pmt. (P&I)	$	839
Property Tax	$	111
Home Owner Ins.	$	30
Property Mgmt.	$	50
TOTAL Expenses			$ 1,030
Est. Rental Income			$ 1,050

Investing for Retirement Income

Senior investors seeking more income than growth may prefer to invest in multi-family apartment buildings in order to obtain a better cash flow. In that case, investors will often make a down payment of 25-30% or more for the property in order realize a more favorable positive cash flow.

How Leverage Works

Even with modest appreciation, investors can realize substantial double digit returns on their initial real estate investment.

For example, if an investor paid a total of $14,000 of initial investment capital into a single family home worth $140,000 that generated a break even cash flow, then a 3% increase in the value of the home would be equivalent to a 30% total return on the initial $14,000 invested.