Rental homes whether they be single-family detached properties, condos, two, three or four-unit properties share many of the same benefits. Most people instinctively understand many of the working parts because they are the same as their home. They have a basic understanding of value and how to maintain the property. The service providers for a home would be the same for a rental home.
These properties allow an investor to obtain a large loan-to-value mortgage at fixed interest rates for up to thirty years. They appreciate in value, currently exceeding many other assets; have defined tax advantages and allow an investor more control than many alternative investments.
Most lenders require 20-25% down payment and will finance the balance at rates close to owner-occupied homes. Buyer closing costs will add another three to four percent to the amount of cash needed to close. It is also prudent to have available funds for repairs and maintenance.
There are successful real estate investors in every price range and part of town. If your ultimate goal is to have the rent handle the holding costs and to sell the appreciated property at the end of a seven to ten year holding period, it might be advantageous to stay with a predominantly owner-occupied neighborhood. They usually appreciate faster and will appeal to a buyer who wants it for their home. Chances are, this type of buyer will pay a higher price than another investor would.
By staying in an average price range, or possibly, slightly lower, you’ll be able to appeal to the broadest group of not only buyers but also tenants while you are renting the property. Even during the early-80’s when the FHA interest rate was 18.5%, buyers were still purchasing average price range homes; while higher priced homes have a tendency to slow down during trying economic times.
Ask your real estate professional what price ranges sell the best, rent the best and have mortgage money available.
Some investors manage their properties themselves and others don’t want to be involved. Professional property management has advantages like expertise, established contacts, operating statements and economies of scale. The main disadvantage is the cost factor but if they can rent it for a higher price and keep expenses lower than you can, it could minimize the difference.
Understanding the landlord tenant laws would be particularly important to an investor managing their own property, but regardless, the investor needs to have a basic familiarity of the law. There can be civil as well as criminal aspects. Examples might be that a landlord being required to change the locks on a property for a new tenant; the number of days before a landlord must return a deposit and what to do if there are damages causing all or part of it to be withheld.
For more detailed information, download our Rental Income Properties and contact me to schedule a meeting to talk about the possibilities.