Analysis one - “21st-Century Landlords”

Analysis One- “21st-Century Landlords”

When committing capital to gain a financial return, an investor must be motivated and must be willing to take risks. Keith Colacioppo, a chemical engineer, took a risk soon after graduate school in 1998, when he decided to move back home with his parents to cut his taxes and increase his savings. He was faced with a challenge of seeking a potential investment property that would produce more in rental income than it would in expenses. In 2001, Colacioppo finally found his investment property and made a private offer of $315,000 on a fifty-year-old two family dwelling and closed in June of 2002. The property has one bedroom on the first floor measuring 600-square foot. An additional 1,000-square-foot, two-bedroom unit on the second floor, and the house is routinely occupied. After paying the mortgage, insurance and taxes, Colacioppo profits an average of $475 monthly if unexpected expenses do not occur. He applies most of his profits to improve his current residence or saves it to invest in other future properties. At times, Colacioppo decides to make his own improvements or repairs, which saves him money on maintenance expenses. He has also received unsolicited bids from prospective buyers that indicate a 40% appreciation within the last two years.

Another approach is to rent out one’s own house. As the owner, one would know what to expect and there should be minor maintenance required. One could invest in a property, rent it out and invest in another without having to sell the property, but it prevents the investor from taking profits from a sale to settle on a new property. This approach brings the owner continuous cash flow once all the properties are paid.

Investing in real estate can benefit the investor in many ways. Having a positive cash flow and an increase in appreciation is advantageous and is sometimes preferred over stocks and bonds, which are harder to control. “Owning a rental property also gives you more control over your investment than with stocks and bonds” (Kosnett 2004). Statistics show that prices in certain cities are rising and so are rental prices. “In the U.S., the average price of a single-family home has risen an average of 7.3% each year over the past five years and 5.5% over the past decade” (Kosnett 2004). Tax breaks are another advantage when the buyer uses a floating-rate line of credit during the purchase. Due to wear and tear, depreciation on property values can also lead to tax write-offs,