Residential Property For Investment
Property market (Photo credit: Alan Cleaver)
Now might be an excellent opportunity to buy residential property to operate as a rental.
Single family homes, condominium units and small (4 units or less) apartment buildings are looking to be very attractive long-term investments for several reasons:
All of these types of properties can qualify for conventional 30-year fixed loans, which may not be around for very long (or not available on favorable terms) if the government is successful in abolishing Fannie Mae and Freddie Mac as they have indicated.
Home prices are low and are continuing to fall in many areas.
Interest rates are still very low by historical standards (check the bottom of the blog for the latest Freddie Mac interest rate survey).
Demand for rental units will continue to be strong as the economy recovers.
Many people don't want to or can't buy a home but still need a place to live, which makes for the perfect opportunity to invest in residential property and convert to rental use.
The most important thing to remember is that cash flow is king:
When reviewing property listings, do a careful analysis of the monthly cash inflows and outflows based on realistic (slightly below-market) rent and slightly higher operating expenses.
I use Craigslist to research rental rates
If there isn't positive cash flow with conservative financial projections, don't buy the property - move on.
Also, you need to make a careful investigation of the property to make sure you are aware of all of the issues and also what the cost will be to fix-up the property to get it into shape to rent.
You'll also need to plan for repairs and maintenance after you own the property and include that in your cash flow budget.
Make sure you have a good real estate agent who understands investment property (even better if they own a few themselves) and can write an offer quickly - this is especially important when dealing with banks
Be prepared to pay 25% to 30% down, depending on lender requirements
Also consider using a property manager if the monthly cash flow allows - unless you want to fix leaky faucets and change lightbulbs yourself
