Last week I discussed the possibility of purchasing investment properties with the intent of "flipping" them, or improving them and selling them in a short period of time. This week I want to discuss the goal of purchasing a property for the purpose of holding it for an extended period of time and renting it. This option can be a very lucrative adventure. If done properly, your rental income can raise your net worth and cash flow substantially. This article on Time Magazine's website suggested that all indications point to the beginning of a housing recovery. Interest rates are at "once-in-a-lifetime" lows. For investors, there are plenty of distressed(foreclosure and short sale) properties available at prices well below their improved values.
Not only are home prices down and interest rates low, but the guidelines used to qualify buyers are still rather strict. Higher credit scores and higher down payments are required, making it difficult to impossible for some people to get a mortgage and buy. What do people in this place do? They RENT! This makes holding onto a property to rent it much more attractive. In my market, Baltimore/Harford County, MD, rental properties are moving quicker than resale properties and rent prices are rising. This creates the perfect environment to purchase a property inexpensively, fix it up and rent it.
There are things to consider when taking this approach to real estate investment. The approach to rehabbing or fixing up the property has to be looked at differently. You cannot put the finest of all materials into a home that is going to be rented out. What if you get tenants that don't call you when they notice a leak under the kitchen sink and now 2 months later you have a ruined kitchen floor? What happens when the AC unit stops blowing cold air and the tenant thinks it's a good idea to put in a window unit and screws/duct tapes it into your beautiful trim work around the window? How about the tenant with the "very well behaved" St. Bernard? All of these things are very realistic possibilities when renting. When pursuing real estate investing for rental purposes, you have to look at all aspects. The type of materials you use and the amount of capital you put into a rental property has to be equivalent to the monthly rental amount. Don't install granite counters and Brazilian cherry floors into a property bringing in $500/month in rent. Sometimes, those renting a very inexpensive property don't take the best care of it. There are exceptions, but you have to consider all scenarios.
I found this calculator which allows you to plug in all of your info to see what your return on your rental could be. One thing not available to calculate is the toll being a landlord can take. It can be a very rewarding job, but it can also be very frustrating.
As with all investments, contact a tax professional to check on how an increase in your income will effect your tax liability. For more info on rentals or a list of available properties, visit my website at www.allhomes4me.com
Also, for up to date real estate news and properties, like my facebook page.