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Real estate prices are tumbling across the U.S. That may spell trouble for homeowners, but it may be good news for interested buyers or investors. You can get much better deals today whether you are looking to rent a single family home or small residential property.
“Now is not the time to buy and flip properties for quick capital gains, but it is a good time to get value property below the inflated prices that used be two years ago,” says Walt Clark, president and CEO at Clark Capital Financial L.L.C., in Columbia, Maryland.
Finding a profitable rental property takes research and resources. Not every cut-price property will be a winner, and not everyone is cut out to be a landlord. There are plenty reports of rental properties going into foreclosures due to the owner’s inability to continue paying the mortgage.
Real estate gurus say that those who do have what it takes may find rentals to be a good way to build wealth. Here’s how to shift the odds in your favor:
1. Set goals. You can bank on your rental property appreciating in 10 years, but in three to five years you could see it loose value, Clark cautions. At the same rate, the longer you own the property, the more you will need to plan on investing in maintenance, repairs, improvements, and unexpected vacancies. Even though rental income can supplement your savings, it pays to have a substantial cash reserve after buying a rental property. Clark says the cardinal rule is to have 10% reserve capital for an older unit, less for newer properties.
2. Find the best location. When you’re buying rental property, invest in a neighborhood where people want to live. Churches, parks, and schools are good tell-tell signs, as are amenities such as access to large department stores and chains such as Wal-Mart, notes Clark, who owns primary residences and rental properties in Florida and Maryland. New housing development is another factor. If you see houses boarded up or many for-sale signs, you may find it difficult to attract tenants who’ll pay ample rents.
3. Network to find good deals. Talk to other owners to find out about properties selling at low prices. Consider joining a local landlord or property owner’s association to help make contacts. In many areas, you can join such a group even though you don’t own rental property yet, notes Wallace Gibson, who heads a property management company in Charlottesville, Virginia.
4. Kick the bricks. “Use the same criteria [buying rental property] as you would when buying a house for your own residence,” says Damon Dyas, a certified financial planner with Ameriprise Financial in Southfield, Michigan. Have an inspector determine if the building is structurally sound, he adds. Once you get the inspector’s results, factor those findings into your financial forecast. Problems such as peeling paint can be corrected fairly easily, but a need to replace the heating system could