Purchasing Rental Investment Property in a Down Market

Rental properties are red hot right now. Every metropolitan area in the country, and many rural areas as well, are experiencing a housing crunch in the form of too many renters, not enough rentals. First of all you should understand that the housing market is tanking; new housing starts are at a low not seen in decades and older houses are sitting on the market, just rotting away with nobody in them. It is a golden opportunity to become a landlord right now. Being a landlord can be a short-term gig where you purchase property and just ride out the storm while people pay you back on your investment. It can also become a long-term job where you are the landlord to multiple places throughout the country; the choice is yours to make.

First of all, you are going to want to remember the golden rule of real estate; location, location, location. Find a house that is supported by travel infrastructure such as trains, bus lines, freeways, and major highways. Second, the property should be ideally situated to take advantage of supermarkets, schools, and parks or places of recreation. Finally, the house or property should be close to where the jobs are; in other words, a downtown area or large employer. These three factors will make your prospective house more attractive to renters.

Now that you have your property, you need to know a little about buying it. The over inflated prices are gone. Some houses are straight off the market and have been sitting in a bank’s portfolio for some time. Others are from those people who still think flipping will work in this economy. Both are excellent targets for your future investment. Never go higher than a 15 to 20 percent discount of the asking price. If they balk, you walk. Remember you’ve got the money so you are holding all the cards. Once you have your property, you may need to improve it a bit, but do only what will make the place habitable and moderately attractive; don’t think flip-like improvements.

Now you have your house and you have your location, now you need renters. The majority of renters are hard-working people who were taken by shady lending practices, or perhaps even lost their job and had to take a lower-paying one. Most renters will have had their homes foreclosed on and their credit rating will reflect that. Some landlords had been using credit scores as a test of the worthiness of their potential renters, but that practice is kind of sketchy now, given the amount of foreclosures and layoffs in recent months. Instead, we recommend you interview them (or have a representative interview them); some people got blindsided by the down turn and even well-respected white collar workers are needing to downsize. Interviewing will be a better gauge of their worth than an abstract number that doesn’t even mean anything anymore.