Earlier this year, Jahmal Pullen and his wife, Angela, spent much of their spare time in their car cruising the neighborhoods of Durham, North Carolina. They were scanning the streets and avenues for good real estate deals. Sometime in 2008, they decided they wanted to be landlords. But, Jahmal, 38, and Angela, 41, didn’t want to leave anything to chance.
The Pullens were determined to thoroughly examine their investment before they signed any contracts. They combed the Internet, searched listings in local newspapers, and investigated local rent rates. They even studied property inspection procedures. They zeroed in on homes near shopping centers, universities, and corporate office parks. An important step in that process involved coming up with a detailed analysis of the carrying cost of the properties and the cash flow each might generate. Eventually, their work paid off. Last March, they purchased a three-bedroom, two-and-a-half-bath, 1,386-square-foot foreclosed townhome for less than $50,000. They rent the unit to tenants who pay $850 per month. After the Pullens cover their mortgage and maintenance and upkeep expenses, their investment nets about $370 per month in profit.
For potential investors who have good credit, some savings, and a dose of patience, the time is ripe for being a landlord. Like many potential real estate investors these days, the Pullens initially worried that the national trend toward reluctant to buy their own home is actually working in favor of new landlords.
However, as with any major purchase, the first step is to understand the landscape before jumping in. As the Pullens demonstrate, research into local market trends is still key. “We will never see prices for investments this low again in our lifetime,” says Bryan Chavis, real estate investor and author of Buy It, Rent It, Profit! (Simon & Schuster; $17). “Capitalizing on this market while benefiting from strong demand for affordable housing can create wealth.”
The Pullens went about their property search in textbook fashion. Before they began looking at properties, they determined how much they wanted to invest and got a loan preapproval from a mortgage lender. Their real estate agent, Tiffany Elder of Realty Executives, had experience working with rental property investors. However, once they identified properties for which they wanted to make bids, they were quickly confronted with one of their biggest challenges: They were competing with many other bargain-hunters. And despite the slow economy and tight lending environment, there were buyers outbidding them or scooping up properties before they got a chance to bid on them at all.