Come Out, Come Out Wherever You Are: Great Opportunities for Rental Property Investors

Come Out, Come Out Wherever You Are: Great Opportunities for Rental Property Investors

Click to Print

By Elaine VonCannon, ABR, SRES, Associate Broker, Notary, Team Leader, Property Manager, Award Winning Agent

Over the last year the real estate market has shifted to a buyer's market. In addition, mortgage rates have increased, homes stay on the market longer and there has been some trouble in the sub-prime mortgage market. These real estate market trends may seem foreboding, however, in my article Navigate the Shifting Sub Prime Market with Commercial and Residential Real Estate Investment I explain how sub prime lending problems are opening doors for residential real estate investors. After five years of the seller's market frenzy, residential real estate investors have a unique opportunity to make money through rental properties if they act now.

Timing Is Everything: Start Looking for Good Rental Properties

According to the National Association of REALTORS web site, http://www.realtor.org, in a June 25, 2007 article May Existing Home Sales Show Market is Under Performing NAR President Pat V. Combs says, "Although mortgage interest rates are trending up, they are historically favorable." "The good news is buyers have more negotiating power with a fairly large supply of homes available in much of the country. Buyers who've been on the sidelines may want to take a closer look at current conditions in their area - if they wait for sales to rise, their choices and negotiating position won't be as good as they are now," Combs continues. In Virginia, potential homebuyers with marginal or bad credit are choosing to rent since they aren't able to buy with no money down. The market is primed for buyers to get the best deals and rental property investors are tapping in to a larger pool of tenants. I provide property management services for over 30 rentals in the Tidewater and Hampton Roads region of Virginia. My rentals are on the market anywhere from one day to one month. Luxury rentals are generally rented in about four weeks.

Know How to Make Smart Residential and Rental Property Investments

Any investment is a risk and rental and residential real estate investment is no different. It is essential to consult an experienced real estate agent and make educated decisions about rental properties that will bring financial success. According to the Long Term Rental Property section of the National Association of Residential Real Estate Investment Advisors web site http://www.narreia.com, "It is very critical that you perform an analysis on each and every property you purchase. You need to understand how much you must put down. Know how much the closing costs are going to be. Will you be able to roll them into the loan? What kind of loan program are you qualified for, and which is the best for you? What is the rental market doing, how much will rent be, and how long will it take to place a tenant?" You want to investigate Home Owners Association (HOA) fees, Private Mortgage Insurance (PMI), Property Management fees, taxes, and insurance. Also find out the anticipated appreciation for the area, your pre-tax monthly cash flow, and decide if you can tolerate a slightly negative cash flow.

Rental Property Investments You Want to Consider

  1. Single Family Homes
    Single Family Homes have a number of investment advantages. 100% mortgages might not rent for the mortgage payment, which creates a negative cash flow but can be useful for tax deduction. When choosing a rental property explore areas with few rental properties or a high number of tenants moving in regularly. Neighborhoods near military installations, major university or colleges are good choices.
  2. Second Homes
    Another great strategy is for investors interested in second homes. Parents of college students can invest in a second home in markets close to the campus. The benefits include the tax deduction of home ownership, then two or three years later your second home can become a rental property. Make sure there are no town home or HOA restrictions for rental properties. If the property is for your child, consider a property to rent, rehab and resell. Money can be made in updated kitchens, baths, flooring, and windows.

Rental Property Investment Tips

Never buy an investment property with an emotional attachment. Review the property with objectivity and a critical eye. What are the positive characteristics? Where is the location? Always consider resell, property values and appreciation. Is it suited for young adults, or a family? What amenities are near the home to attract the right tenants? Rent your properties for a reasonable amount, even if you have to take a negative cash flow.

If rent is too high, the potential tenant might decide to buy or rent an apartment as an alternative. Always remember town homes and single-family properties are more desirable than apartments. For more information on residential real estate and rental property investment please visit my web site at http://www.voncannonrealestate.com.