Now is The Time To Invest in a Rental
CNN Money recently featured an article that points to an open door of opportunity in these dismal economic times: now is the time to invest in a rental property! Sure, you need to make sure all of your ducks are in a row, as you would with any investment decision but here’s the breakdown…
Aside from the fact that mortgage rates are at a 40-year low, landlords are also able to charge more in rent because demand is up. Just think, most of those that have gone through foreclosure in recent years are now renting instead. “Hotpads.com, a real estate research firm, reports that rents nationwide jumped 11.6% in 2010, to $1,320 a month”. In addition to the hardship of foreclosure there are also many facing unemployment, or at best an unstable income, both good reasons to choose renting over buying.
If you’re one of the lucky ones who aren’t facing foreclosure, or unemployment AND you have good credit and are able to provide 20-25% in a down payment, then investing in a rental property could provide some solid long-term gains. However, one of the catches in investing in a rental property in the current climate of the housing market is that you must be willing to hold on to the property for at least 10 years. According to the experts, 10 years is a safe amount of time to depend on a turnaround in the market. Anything before that and you’d seriously risk losing money.
When searching for the property, try and keep it as local as possible. This will save you a lot of hassle in the future. It’s a good idea to be familiar with the area in which you’re buying. If you buy outside your area of expertise, you run the risk of surprise nuisances like noisy street traffic around the property. Plus, you’ll be close by for maintenance issues. And speaking of maintenance issues: if you’re not already a handyman (more power to you, if you are), one can be hired for around $50 an hour. Ask the realtor your working with for plumbing and maintenance references. Agents usually know the best and the most trustworthy in town!
Another obvious concern is tenancy. Craigslist is a great resource for running rental ads, but please screen all applicants! Have each interested party fill out an application that provides their past rental history, personal and professional references, and information for running a credit report. It’s your property, so why not be picky? Choose someone with a history of being financially responsible. In addition, cover yourself by having the tenant sign a 6-month to a year lease.
As mentioned before, it’s best to buy locally, but CNN Money notes Bakersfield and Stockton as two of the best cities to buy a rental. “The cities were ranked by estimated future returns compared with the projected national average return”.
Courtesy of CNNMoney and yourfinishrichplan.com
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