Investing in Visalia will earn you money. Strategically located in central California and one of the most productive agricultural regions in the entire country, this market reliably provides both cash flow and long-term ROI for real estate investors.
But, how soon can you feel like you’re making money when you rent out a property here?
The answer may be unsatisfying: it depends. The turning point on your return depends on the type of property you’ve purchased, how you financed it, and what it is renting for.
Let’s break it down as best we can so you’ll know what to expect when you’re choosing a Visalia investment property.
How Real Estate Investment Returns Work
Returns are more or less the profit you earn annually as a percentage of the total amount of cash you invested into the property. If you bought a single-family rental home in cash, your ROI will likely be much lower than if you financed the property. Your mortgage or loan leverages what you earn.
Currently, the real estate market has some of the highest prices on record. So, it may take you longer to see a return in this market because you’ll have to spend more to acquire a rental home. If you bought a property with a lower price, during a market that’s less competitive, you’d see a return faster.
In Visalia’s rental market, you can actually start to see a return in your first or second year, as long as you can reliably raise rents and retain tenants.
Methods of Measuring Returns on Visalia Investment Homes
Every investor has their own benchmarks. Most real estate professionals, however, use cash on cash return to establish whether they’re earning any money on their investment property. The formula isn’t complicated.
Your cash on cash return is the annual net operating income less loan payments from operations divided by the total cash invested in the property.
Remember, your return will grow over time. If you can see a return from 2 to 8 percent in the first year, you’ve made a good investment. As you hold your investment property, you’ll be able to lower expenses and make some cosmetic improvements and minor upgrades to increase rental value. That’s when you’ll really see an impressive return.
Capital Appreciation and Increasing Value
Most investors don’t start earning money in the first month that they own a rental property. Usually, the amount of rent you collect will not exceed the expenses associated with your investment, especially in California (although Visalia is far less expensive for investors than markets like San Francisco or Silicon Valley).
But you’re still earning money on your property, especially when you consider capital appreciation. This is the increase of a home’s market value compared to its purchase price or acquisition cost. When you factor appreciation into your investment strategy, you’ll see that it will help you earn the income you’re hoping for as the property increases in value.
You’re earning returns with tax benefits and having your tenants pay down your mortgage and contribute to other property-related expenses.
It can be frustrating to feel like you’re losing money or barely breaking even right out of the gate. But, you actually are seeing returns, they’re simply not going to show up as cash in your pocket right away.
We’d be happy to take a look at your investment property and help you estimate when you’ll earn some real money on it. Contact us at Equity Group for help with Visalia investment property.