How to Turn a Quick Profit on an Investment Property

by Dotson Skaggs 01/26/2020

Photo by Mohamed Hassan via Pixabay

Buying property is a long-term investment. If you’re looking to make quick income from property, the only way is to buy low and sell high with minimal input for remodeling, upgrades, or even paint. However, if you intend to keep your property as a rental here are a few of the basics to make it profitable sooner.

Show Me the Numbers

Say you buy a house for $300,000. To get a loan for an investment property you’ll need a minimum of 20% down; so in our scenario, that’s $60,000. Closing costs depend on so many things that even an estimate is difficult, but rule of thumb is three to four percent of the purchase prices. Go with an even $10,000 to keep the numbers easy. You’re out-of-pocket $70,000 by this point.

The mortgage is for the remaining $240,000, so a 30-year fixed rate at 4.5 percent makes your principal and interest payments about $1,200 per month. Add to that property taxes of about $6,000 per year, or $500 per month, and homeowner’s insurance for about $150 gives you a monthly payment of $1,850. If you have an HOA, that might be an additional $50 per month. That’s $1900 for the basics, every month.

These numbers do not factor in upgrades, changes, paint, flooring, appliances or anything else, so remember that those items eat away at your profit too.Say that you rent it for $2,500 per month. That gives you a $600 difference. From that amount comes management fees if you pay someone to manage it for you. It also pays for lawn care unless you turn that over to the renter. Plus, for every month it goes unrented between renters, you carry the entire amount. 

Positive Cash Flow

You decide to manage it yourself and have the tenant take care of the lawn. Presuming no major systems require repair during the first year and you rent it within a month, you receive $27,500 ($2,500 x 11) in rent. You pay out $22,800 ($1,900 x 12) leaving you with $4,700 positive cash flow.

Assuming you never have to spend anything on repairs, maintenance, increases in taxes or refurbishing between tenants, it will take you 12 years and nine months to make back your down payment. Of course, if you raise the rent every year or so, you’ll shorten the time to repay the down payment, but you may lose more tenants.

Is It Worth It?

Yes! After year 12, your profits increase. But only if you follow these guidelines:

  • Do buy in a nice, livable area where people want to rent.
  • Don’t overspend for the property.
  • Avoid frivolous upgrades with low R.O.I.
  • Vet your tenants.
  • Remove tenants that damage property or don’t pay rent.Use a property management and marketing service to reduce unrented months.
  • Know the property owner and tenant laws in your municipality. 

Some properties are more profitable than others or are profitable sooner. Your investment real estate professional knows the difference and can help you choose the right property for your investment situation. If you want to invest in real estate, let your professional agent guide you.

About the Author
Author

Dotson Skaggs

Living in Denver continuously since 1960, Dotson has witnessed The Mile High City mature to become one of the nation’s top metropolitan statistical areas.  As one of Denver’s elite real estate salesman with 2,000+ homes sold and $600,000,000+ in sold volume, Dotson is annually one of the top 15 agents out of 5,000+ members with the Denver Metro Association of Realtors.

     Based on the principles of service, professionalism, and our Realtor Code of Ethics, Dotson sponsors and donates his time to numerous community service projects such as dumpster day, shredding day, a community garage sale weekend and a neighborhood young entrepreneur’s career fair.  Dotson also distributes American flags to neighborhoods for the Fourth of July, helps sponsor a neighborhood picnic, prepares and distributes HOA directories to various communities and sponsors a neighborhood annual photo session with the Easter Bunny.  Dotson also serves his fellow Realtors by volunteering on the Denver Metro Association of Realtor’s Professional Standard’s (Ethics) Committee.

     To better serve his clientele with the principles outlined above, Dotson left his own independent real estate company after 22 successful years and joined the nationally acclaimed Kentwood Real Estate in 2005.  Dotson has been blessed with the opportunity to serve countless homeowners and buyers with their individually unique and diverse needs.

     In addition to real estate, Dotson’s passions are spending time with his growing family, working out, playing golf, reading and observing the political scene.  He dreams to one day possess a golf game which is commensurate to his real estate career.  However, Dotson is also known to be overly optimistic when it comes to his golf game.

Dotson’s Favorite Quote is:  “Never Give Up.  Never Give up.  Never.  Never.  Never.”            Sir Winston Churchill (1941)

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A BRIEF SUMMARY OF DOTSON'S CREDENTIALS AND REAL ESTATE EXPERIENCE:

Over 30 Years of Real Estate Experience in Negotiating the Sale, Purchase and Leasing of Property (20 Years Broker/Owner) 

Over $600 Million in Sales Volume 

2,500+ Homes Sold in the Denver Metro Area

2014, 2015, 2016 & 2017 Wall Street Journal - Top 100 producing agents in Denver Metro Area

2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016 & 2017 Kentwood Champion’s Club Recognizing Over $17 - $31+ Million of Annual Sales

2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016 & 2017 Denver Metro Association of Realtors Gold Roundtable of Excellence Award with $17 - $31" Million of Sales Volume 

Prestigious Certified Luxury Home Marketing Specialist Designation

Member of the Colorado Association of Realtors’ Ethics and Professional Standards Committee for the Past 25 Years 

Member of National Association of Realtors

Member of Colorado Association of Realtors

Member of Denver Metro Association of Realtors

Member of Denver Metro Area Multiple Listing Service

     In addition to possessing a true love for assisting homeowners and buyers with their real estate needs, Dotson is just as devoted to his family's needs. In his leisure time, Dotson enjoys activities such as snow skiing, golfing and camping in the beautiful Colorado mountains.  Dotson has also contributed to the Denver Metro area community by being an active supporter in many local groups and charities. He served in the Big Brother's organization for 10 years and has supported and contributed to the American Zang Foundation. This organization provides assistance for low-income and minority students in locating, applying for and obtaining college scholarships.

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OVER 30 YEARS OF TRUST AND EXPERIENCE

SERVING THE ENTIRE DENVER METRO AREA

  • MBA, BS, CRS, GRI, ABR, CDPE, LHMI, MCNE
  • Top 10 Brokers - Denver Board of Realtors
  • Top 15 Individual Sales - Denver Board of Realtors
  • Top 10 Transactions - Denver Board of Realtor
  • More than $500 Million Career Sales and 2,500 Transactions

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EDUCATION

  • Masters of Business Administration - Marketing
  • Bachelor of Science-Business/Land Management