Record Low Interest Rates

Record Low Interest Rates

Record Low Interest RatesA recent article by David McHugh in the Omaha World-Herald points out that “Record low interest rates were meant to be a temporary response to the global financial crisis.

“But eight years later, rates are still near zero or even below in much of the developed world, and some experts are warning of long-term side effects: a hit to pension savings, pressure on banks, and possible booms and busts in stock markets and real estate.

“Some economists argue that people may have to get used to living in a zero-interest world for a lot longer than they expected, or at least one with rates far lower than those in recent decades.”

Forbes had an interesting concept that has been lost in today’s record low interest rates environment: When you buy rental properties Omaha, you are taking money out of your liquid financial assets – stocks, bonds, CDs – and investing it into a very illiquid asset – real estate. You were earning a rate of return on your financial assets, such as 1 percent to 3 percent. You can earn a fair cash-on-cash rate of return of 10% to 12% on your real estate. To do this, you need to pro forma your deals and buy cash flow-positive properties that earn you decent returns.

“Decent returns” is a subjective term. It should be a positive return after taxes and inflation and most important, it should compensate you for the risk you take. Since real estate is illiquid, your return on investment (ROI) should be higher than stocks, bonds, CDs. ROI for some includes appreciation. When you buy rental properties in Omaha, we prefer cash-on-cash return as the most important calculation for real estate investors. This approach looks at every dollar invested and determines the percentage yield return on an equity cash investment. This leads us to “cash flow” where the cash inflows during a period are higher than the cash outflows during the same period.

Positive cash flow is a return on your equity investment, call it yield if you want, and that cash flow can be used for living expenses, more investments, or paying down debt. That’s how some get rich in real estate. They reinvest the cash flow into more real estate and it has the effect of compounding. Imagine if you could compound at 10% a year. In seven years you would have doubled your investment.

In today’s record low interest rates environment the connection between risk and return has been severed. Not so in real estate. You can still be compensated, as you should be, for owning illiquid real estate when you buy rental properties in Omaha.

Besides getting a better return than banks, here are five tips for investing in rental properties from Blog:

Tip #1: Choose the Right Location. Regardless of your investment goal, location matters.

Tip #2: Educate Yourself. Investing in rental properties in Omaha or beyond means that you should do your part and learn as much as you can about the property you are looking to purchase and the surrounding location in addition to successful investing strategies.

Tip #3: Hire a Property Manager. Unless you are looking to make running and maintaining rental properties your full time job, you should probably hire a property manager.

Tip #4: Look for Discount Properties. In addition to choosing the right location, educating yourself, and hiring a property manager, it is also important that you look for discount properties.

Tip #5: Get a Professional Inspection. When it comes to real estate, quality matters. You do not want to spend a significant amount of money making repairs and renovations that you were not expecting.

We are Styl Properties, Inc. here to help homeowners out of any kind of distressed situation.  As investors, we are in business to make a modest profit on any deal, however we can help homeowners out of just about any situation, no matter what!  There are no fees, upfront costs, commissions, or anything else.  Just the simple honest truth about your home and how we can help you sell it fast to resolve any situation.

Give us a call today at 402.909.0608 to let us know what YOU need help with!

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