Interest rates have been down for an extended period of time. The stock market has been doing well lately but its hard to forget all the losses accumulated when the dot-com bubble burst. Is this a good time to invest in rental property?
I think this is a great time to invest, especially if you want to keep the property for a period of time. There are a lot of homes on the market because of the large number of loans made to people with less than stellar credit during the recent housing boom. Many of these loans were made with adjustable rate mortgages. Some homeowners have seen their initial monthly payment double after an end to the 2-3 year freeze on the interest rates. People are also losing homes because they are losing their job. I’ve never before seen so many foreclosures in the marketplace.
Before you invest it is wise to determine why you want to invest in real estate.There are many different reasons that draw people to the real estate arena. You might want to invest for additional monthly income (cash flow). You might want to invest for retirement income (appreciation). You might want to accumulate a lump sum of money. You might want to to get extra money for your child’s education. Or you might have inherited property or moved from a home and want to turn it into a rental property.Knowing your end game will help you make a wiser decision when making that purchase. If you want monthly income the cost of the home must be kept low so that you will have a nice margin between your mortgage amount and your rental income. If you plan on selling the home when you reach retirement age or when your kids go off to college you want to make sure you get a home in a good stable neighborhood where the value will appreciate.
Once you’ve done your homework, don’t be afraid to buy that first investment property or add to the ones you already have. One word or caution: It’s easy to buy right now but its hard to sell. Make sure you have the financial stability to hold on to the property for a period of time if necessary. Don’t use money that you’re going to need in the near future.
Financing Real Estate Purchases with Your Own Money
There are lots of ways to finance the purchase of you investment property. There are, of course, two major categories: your money or other people�s money. In this article I want to talk about using your money.
The advantage to using your own money is that you do not have to share the profits. Financing the deal yourself may be easier than you think. A small down payment may be all that is needed to get the property. If you have a decent credit score you may be able to take over the payments on the property.
There are many motivated sellers out there that are desperate to move. Some are willing to walk away from any equity they may have in the property just to prevent a foreclosure. Others may have been forced to move because of a job relocation and are now trying to support two homes.
Don�t assume that you need deep pockets or a pot of gold to invest in real estate. Don�t be too quick to look for partners or outside financing. Not having to split the proceeds when you sell or rent can make it worthwhile to be a lone ranger in your next real estate purchase.
Determining The Tenant Rental Rate for Apartments
Have you ever wondered if your rental rates need to be changed based on market value. If your occupancy rate is 100% and there is a waiting list I know that you could probably raise your rentals. The first step is to raise the rate for your tenants. If you are still able to attract new tenants then you know you didn�t raise it too high. Owners usually raise the rent about 5% at a time. That�s $25 on a $500 apartment. If you still have a full house over the next 3 to 4 months, I�ll raise the rates again. This is a no risk method. It�s easy to lower the rate if the phone stops ringing.
Once I have established that the market will bear higher rents I then take a look at my current rent roster. Since I use month-to-month leases I can change anyone�s rent with a thirty day notice. I personally don�t like to raise the rent on tenants who have been renting from me for less than a year. It�s also a good idea to check the rate of your major competition before you determine how much to raise a current tenant�s rate. Tenants will move if they feel like their rent has been raised unjustly. It is not necessary to take current tenants up to the rate of new tenants. Unless you�ve made visible improvements in the building you won�t raise rates over $25 at a time. (Of course, you can raise the rent much more if you�re dealing with luxury, high end apartments.)
In general, you would raise rents every year. Even if it�s only $5 or $10 per unit. Most people don�t even complain about such a small amount. Tenants certainly won�t move to save that amount. Plus, it gets them in the habit of getting rental increases. A $10 per month increase on a 20 units apartment building will add $2,400 to the bottom line for the year. That�s a $24,000 increase in the value of your property!
There is a time when you didn�t raise rents at all. The economy was bad and the rental market was very soft. Every building had �rent specials� signs hanging from them. Many were offering free rent or no move in costs. You can�t raise rent when there is a glut of empty apartments in the area. Wisdom not rules is the key to success.