Rental Properties : Type of real estate investment Property that ordinarily gains value over time unlike many other real estate investments that may rise and fall quickly and without warning. The problem with any investing property is that far too few people can actually afford to hold and maintain multiple properties over an extended and indefinite period of time while waiting for the value to rise. Many property investors manage to overcome this by renting the properties to tenants during the time when the property values are rising. This allows the tenants to essentially cover the note on the property and makes the venture a little less risky though there are risks involved when dealing with tenants (such as property damage, failure to pay the rent, and possible legal woes-the good tenants generally outweigh the bad).
Some facts about renters in the United States: (Source : MSNBC)
NUMBERS: About 32 percent of U.S. householders are renters, rather than homeowners; they occupy about 35 million rental units.
In San Francisco, a full-time worker needs to earn nearly $30 an hour
to afford a modest two-bedroom apartment without spending more than 30
percent of income. In West Virginia, the same “housing wage” is about
$10 an hour.
National Low Income Housing Coalition says there are 9 million
extremely low- income renter households and only 6.2 million units they
can afford at 30 percent of income or less.
A bill pending in Congress would establish a National Affordable
Housing Trust Fund to build or rehabilitate 1.5 million low-income
housing units over 10 years.
When is the excellent time for investors to buy rental properties?
As the housing market beginning to cool and interest rates on the rise, this may be an excellent time for investors to buy rental properties. Stats shows that during the peak of home ownership in 2004, more than 3 out of every 10 Americans still rented the houses in which they lived. In the last week of July 2006, the Mortgage Bankers Association reported that applications for home loans had reached a four-year low. These figures indicate that more people are being forced to rent until market factors adjust to make home ownership more feasible.
When is the bad time to invest in rental properties?
With home buyers having more difficulty financing their dream homes, it appears as if the rental market will continue to strengthen for some time, at least until a market correction brings down home prices, which have been spiraling significantly over the past few years. As more and more people begin to look at renting as an option while they wait for that correction, savvy investors may be able to experience increased profits by adding more rentals
to their inventory.
Harvard University study identified a number of demographic forces that are combining to strengthen the rental housing market, especially echo boomers and second-generation Americans. The fact that investors are having to pay higher interest rates to buy rental properties has also translated into increased rents over the past few years.
Tips for rental property investors:
It makes sense to seek expert advice
before committing your money.
– Research the area & market you are planning to buy. Real estate rental agents will be able to advise you on rental levels and demand.
– Prepare a budget and stick to it. First thing you want enough rent to cover your mortgage/loan costs. Also in the budget you need to include service charges (for flats), repairs and
– Demand-Supply issues – If looking at areas where there is a lot of new developments make sure that supply of property does not outweigh demand.
– When taking on new tenants remember to take at least one plus month of rent in advance. That way if the tenant cancels
their standing order a month in advance of leaving then you have still
got money in case of damages.
– Choose your tenants carefully. Meet them in their own home if possible when
completing the rental agreement. If their home is in good condition
then hopefully they will treat your property the same way.
– Provide new tenants with a detailed inventory. As well as including
furnishings remember to state whether carpets have been cleaned or the
decoration updated. The more detail you supply will result in less
disputes with tenants.
–Consider the neighborhood and remember that you may well be called
there in the middle of the night, to tend to some tenant’s emergency.
– Keep enough cash at hand. Expect routine cash outlays. Rental properties aren’t all about money
coming in. You’ll probably need to paint apartments (or offices)
between tenants and every few years for remaining tenants. Rugs will
need to be replaced, locks changed, various repairs and upgrades made.
If you want to attract and keep tenants, your property should look
clean and decent.
–Learn the rules and the laws governing rental properties (such as the
Fair Housing Act) so that you know how to deal with various issues,
such as the screening of applicants. One landlord recommended preparing
a summary sheet for each new tenant, listing your responsibilities and
the tenant’s. That can prove useful later on, if things end badly and
you end up in court. You’ll need to know things like when and how to
evict, and when you can and can’t lock someone out of the property.
You’ll also want to make sure you understand your insurance policy and
what it does and doesn’t cover.
–Personality trait :Assess your personality to see whether you have what it takes. You shouldn’t let people walk all over you, because some will
try to do that. You also need to be fair and even-tempered, and to be
able to read people. Some folks will have real problems that interfere
with their ability to pay you, but you may be able to work things out.
Other times, it will be hard, but you’ll need to evict them.
List of rental property resources:
15 common renters’ rights
renters’ rights vary by region, many are pretty predictable. Here’s a
sample of rights likely to be addressed in your state’s landlord-tenant
- The Fair Housing Act makes it illegal to deny
housing to a tenant on the grounds of race, color, sex, religion,
disability, family status, or national origin.
rental units should be habitable and in c
ompliance with housing and
health codes—meaning they should be structurally safe, sanitary,
weatherproofed, and include adequate water, electricity, and heat.
- Many states limit the amount landlords can charge for security deposits. (See this page on Nolo.com to find out if yours is one of them.)
Grad student Ethan Garner created CraigStatsSF, a site that slices,
dices, and visualizes CraigsList San Francisco housing rental listings
with Google Maps overlays.
Real estate may be all about location, location, location, as the old
saying goes, but most rental apartment listings offer very little
information on that critical point. A new apartment search website
called Hubbuzz hopes to fill that gap by giving rental-hunters a way to
get a better feel for neighbourhoods and communities.