While a lot of the news on the housing front is pretty dismal, a bright spot in the coverage – for investors, anyway – is definitely the rental real estate market. Rents are rising; vacancy rates are plummeting, and with more renters in the market for diverse properties than ever before, there is no indication that this sector is going to slow down any time soon. However, many investors are hesitating to get involved, believing that they will be unable to finance the properties or do not have the wherewithal to hold them. Here are some things to consider to determine if buying rental real estate right now is right for you:
- How will you finance the property?
Investors with cash on hand are buying properties cheap and up front, but if you do not have the money to buy your rentals already in the bank, you’re not out of luck. If you have great credit and a sizeable down payment, you could qualify to buy using a conventional loan. However, many investors are buying rental properties using creative financing options like seller financing, lease-options and subject-to transactions. These options are attractive in this market to buyers and sellers because they enable people to buy – like many investors – who could not get conventional financing from a bank. - Are you prepared to hold the property?
Although some optimistic souls are predicting that home prices will bottom out at the end of next year and start rising by 2013, these projections are highly dynamic and you cannot plan on flipping this property for a profit in just a few years. In fact, according to a survey by the National Association of Realtors, typical investors in rental real estate are planning to hold properties for around 10 years. You need to have a long-term strategy in place for holding the property and to realize that you may have to sell at a loss if you opt to let it go sooner. - How will you manage the property?
One of the best things about being a real estate investor in today’s market is that you can buy anywhere, choosing the market with the best deals even if it’s halfway across the country. However, when it comes to rental property, remember that you will need to manage it, which can be hard from a thousand miles away. Make sure that you have a viable management strategy in place before you buy to insure that your tenants stay happy and your rents come in on time.
Are you buying rental real estate today?
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Your comments and questions are welcomed below.
I’m already a landlord, the most difficult thing that’s harder than managing the property (which I do myself, and all the repairs and yard work), is finding tenants who can pay. It’s easy to rent to deadbeats who have enough cash for the first few months, to let you feel comfortable with them, but it’s the subsequent months that drain you. Also I’ve kept the utilities in my name along with the deposit required by the utility companies. Because if worse comes to worse I simple turn off the power and water, the benevolence stops immediately.
are you buying rental re? Yes
Most new investors miss the mark when they buy. (“Oh look honey this 80k house is only 72k we should jump on it. Did I mention the repair, rent/ready costs? And where was the discount?) Think repair etc. cost off the top of a true value and then subtract 30-40% that would be a good deal. AND you can get it! Keep in mind you may need to resale it before your hold time line.
Keep in mind the property may not be rented for 12 months. (Go figure)
There is clean up or repair when the property is ready to go into the re-rent col. Allow for; a mortage payment or two, market rate changes, get the idea?
The best idea for purchase is a minimum of 2/3rds rental value. 100k house, mortage,insurance etc. say the payment is 950.00 then the rent better be 1,500.00+ (You know those repairs,move outs etc.) I wouldn’t do anything over 40% mortage to rent value. (Those deals are in the market) Example of this is mortage cost (Including the money into the deal with no less then 6% paid to me of course.) So rent is 1,000.00 my mortage with interest over 12 months is 40% of the rent. Do the numbers and see for yourself. Keep in mind this is an investment and aside from interest money you want a thing called profit from your venture.
Also a 100k for 50k may or may not be a good deal! Check the crime, the employment in the area, the med. incomes, projected growth, etc.
As A Master Property Manager and Broker who deals with single family homes, I think you have some good points. The days of flipping are over. Cash is king. The National Association of Residential Property Mangers (NARPM.org) is a great place to look for professional property managers if you need one. For me I am holding my rental homes and they are doing fine on the cash flow.
i am trying to buy rentals.It is tough to get financed.
there are so many great deals out there.I am currenyly a property manager in Orlando Florida.
Now is really the perfect time to buy rental houses. People are either hesitant to purchase or can’t get financing due to stricter underwriting standards.
There are lots of ways to get money to buy properties because owners are desperate to sell. You could buy subject to existing financing, use a 401k loan, ask the seller to finance it or set up a sandwich lease option.
I have a credit score of 819. I have a 50% downpayment and can’t get a mortgage loan for rental properties because “I have too many in my name now.” Go figure. I’ve been paying cash for foreclosures and flipping them…Yes, flipping still works if you don’t expect to make a fortune on every one.