Buying Property for Rental Income No Better Investment for 2017

Is there any investment opportunity, Including the latest market rally, that can beat income generating real estate over the long term? Let’s not forget the appreciation from the asset along the way as well. We are going to look at both the investment portion but also the financing prospects for 2017.

Cynics might point to cash flow issues and big unseen repairs as key reasons to be wary of rental properties. You’ve seen those issues on TV shows, the reality is; those shows on TV are just shows, entertainment, do they ever show a bad deal? Smart investing in the right area of the U.S with good financing, strong property management and sound planning are the keys to success. As an example; set aside expense accounts are very important to overcome debilitating expenses like a new roof, boilers, water heaters etc. I always suggest 2%-5% of monthly cash flow for just those type of emergencies. It also creates a nice fund if in fact you’re one of the lucky ones who never have a major issue. The primary reason for this decision; Let’s say you’re netting $5500 a year on one of your properties. 6 years into your good fortune “wham” you need to replace a roof that was supposed to have 10 more years. The price on the roof is $22,000 and you without a set aside fund need to dig deep into your pocket to pay the expense. You are about to blow 4 years of rental income and go negative on your investment.

Factors that Support Investing in Income Rentals

There’s a housing market crisis across North America and demand for rental apartments, condos and houses will continue to stay high. It’s unlikely a quick solution will happen to generate housing for everyone. It’s a sure bet that rental property is going to be a hot investment sector through 2017.

Here’s 10 Reasons You Should Take Rental Income Investing Seriously:

1.growing number of Millennials are marrying and starting families, with $1 Trillion in education debt home ownership is not part of their game plan in the coming years.

2.mortgage rates are not forecast to rise much through 2017

3.rental prices can stay high because employment is getting better and renters have no other option.

4.you can deduct mortgage interest and real estate taxes on rental properties.

5.you can write off utilities, insurance, repairs and maintenance, yard care, association fees.

6.write off upgrades such as decks, pools, tankless water heaters, and even landscaping.

7.write off depreciation of your rental property.

8.write off solar power generation unit.

9.the income won’t become taxable until you run out of upgrades/repair costs

10.the renters must cover any cost of living or mortgage rate growth

Rental income properties have built in safety and tax features that make them a no brainer. All you must do is find financing, so let’s talk financing.

The biggest burden has been finding the right money at the right rate and ratio to make the deal work. Finding a lender who is creative and on the front lines of the lending industry, our favorite; Realestatelenderusa.com

The creation of quasi-conventional programs is now replacing those high interest rate programs offered by Companies like: Lima One Capital, Lending One and Velocity Mortgage. If you see yourself as a professional investor, why do business with retail lenders like the names shown above? There is no reason to be paying 8% for a term loan when you can do quasi-conventional at 6.0% - 6.5%.

Even weak credit scores below 550 can get term financing now for non-owner occupied rental properties.

When you decide to buy a house for less than $50,000 you take risk of "no loan" to a very dangerous level. In today's lending evironment loans below $50K are not going to get done. Why, because there is no profit for a cheap loan today in the term marketplace. You will end up paying cash, which is not an attractive choice. Most lenders today will not finance a term loan below $100K, with good reason. In certain markets Real Estate Lender USAeal Estate Lender USA can go as low as $65,000.

is becoming very competitive today. Rates are now offered as low as 8% and 90% for acquisition and Rehab funding. Here is where you need two things in your favor: 1. A good FICO score over 620 and 2. Experience. Though we lend to new investors they must “earn their stripes” before they can expect single digit rates. Plan on 11%-12% for your first efforts. But the days of 16% - 18% are over. Keep this in mind; 12% per year is 1% per month. That is still your cheapest expense when rehabbing your new property.

Forget the desire to do ‘no doc” loans, they are leading you to the higher rate programs you don’t want. The newest loan programs through Real Estate Lender USA are nowhere as intrusive as conventional loan applications but you need to accept the fact some information will be needed to progress to a close. You will always need to have the property appraised prior to being accepted, plan for it. Here is a simple approach to rates: The more documents you provide the lower your rate. Once you get in the habit it is all downhill. If you know you will be doing multiple properties each year gather the documents once and keep them in files for quick distribution. If you struggle with your credit score, get help. FICO is your key to low rates.

Finally let’s talk leverage. If you think buying the asset for cash is the right approach let me make it very clear right now. “Leverage is what makes our market work best. “cash on cash” return should be your primary consideration when doing a deal.” The more leverage you have right now the better your return. Don’t be fooled by all cash investments, they are equivalent to buying a corporate bond. With low interest rates, most deals cash flow very nicely and the leverage gives you great return on money.

Top Tips for Buying the Right Rental Property for You

§ Decide which city has the best potential for rent prices and purchase price

§ Decide what kind of property will work for you, SFR, duplex, multi-unit or apartment buildings.

§ Determine how much capital you have to work with and how much you can sink into improvements

§ Don’t buy a property that needs rehabbing unless you connect with a good contractor first. I see too many new investors buy then seek assistance, it never works out.

§ Buy a home with the best likelihood of being rented, in other words stay in rental demand markets.

§ Consider a property management firm that can handle maintenance and renter screening.

§ Keep cap rate returns your primary focus. Too many times I see first time investors buy a $25,000 property thinking they got a deal, they forget the type of neighborhood that house is in and the type of tenant you need to attract. Section 8 housing is an investment strategy unto itself. You will pay more for a better property in a better neighborhood. You will also get a better tenant who pays a higher rent rate to live in your rental. Most likely appreciation will be a higher component when selling if you buy in a better location. Look forward, Cities like Detroit, Baltimore, Memphis have great deals and great problems too.

§ RENTER STATISTICS:

§ Growth in rental demand was largest for people with incomes lower than $25,000; a group that accounted for four million new renters over the past decade.

§ Growth for people with household incomes over $50,000 accounted for 3.3 million new renters.

§ There was an increase of 1.6 million renters for those with incomes over $100,000 a year.

§ The amount of rental stock also grew, and the single-family house share of the market increased from 34-40% of the total rental stock

§ Vacancy rate was less than 5% in 75% of the United States largest cities by 2015.

In closing, don’t approach the rental market like one would investing in penny stocks. Do your homework. At Real Estate Lender USA, we will run complimentary reports on any investment property for free. From criminal statistics to education and rent rates. Keeping in mind private funding doesn’t suffer from “redlining” we can refuse to lend based on the strength of a neighborhood. Develop a game plan, stick with it and remember: “There is always another property to buy.” Don’t buy the hype.