Tuesday, September 06, 2011
Rental properties = $$$$$$
There is not much news out there that is positive: home prices are falling and foreclosures are on the rise.
On the other hand, there is some good news: the rental markets are in high demand which equals high rents. This is mostly due to the 4 million foreclosures of previous homeowners becoming renters. Also, people who are able to buy right now are more reluctant than before because lack of security in their job and they are scared the housing market has not hit "rock bottom" yet.
For many investors, the best time to buy is when most others are sitting on the sidelines twiddling their thumbs. If you are thinking about investing right now, here are a few things you need to know.
Mortgage rates are at an all time low and so are many of the homes that are available lately. All the while, demand for rentals has risen in most areas across the county and because of this it has also allowed landlords to charge more. Hotpads.com
, recently reported that rents in over 500 cities rose 11.6 percent in 2010 to an average of $1,320 a month.
Typically you will need to hold your property for at least 10 years, according to National Association of Realtors
. If you can hang on that long, you have a good shot a solid gains. Marshall Sonenshine, a professor at Columbia University
was recently quoted as saying, "Whereas leverage is dangerous when buying stocks, it can be a good long-term strategy with real estate."
Investors are now required to have a down payment of at least 20% to 25% and evidence you have enough cash to cover six months worth of mortgage, tax and insurance payments.
Buy a property that is close to where you live. You want to only have it be a 10 minute drive. There is saying out there that goes "Investment property is like produce, its best bought locally!"
Make sure you work with a realtor that knows the area and has experience with rentals. They should be able to help you find a great property that most tenants are attracted to.
To figure out what rent should be ask the previous homeowner for a copy of their leases. Also you will want to go on Craigslist
to compare what properties are renting for in the area.
The overall goal for this is the make sure your rental income will at least cover your mortgage payment, plus a 20 percent cushion to handle repairs, vacancies and property management. Also, be aware that mortgage rate will be at least a half-point higher than rates on owner-occupied proeperties.
Remember you are now not only a landlord but someone who is in the PR business as well. When your phone rings at 2 am because of a furnace being out, aswer with a smile. You want your renters happy! Happy renters usually mean they will stay longer in the property and take better care of home as well.
Best of luck!
Scott Wollmering is a long time and an award winning Realtor with Re/MAX Results in Apple Valley. He is also the team lead for the WE Team, one of Minnesotas top selling teams with agents covering all of the Twin Cities area. Scott is the co-host of a weekly radio talk show on 102.5 fm or 1130 am, The Minnesota Real Estate Show, every Saturday from 11 am -12 pm.
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