For almost a decade, real estate prices skyrocketed, making it tough for average folks to make much money on rental properties. If an average-sized three bedroom, two bath ranch house is selling for more than $200,000, it’s pretty hard to recoup that cost - especially on a monthly basis. But, as more and more houses are bankowned or in foreclosure, there are likely some buying opportunities, particularly in distressed properties. Now is a good time to get a good price on a bank-owned house. Offering a quick settlement, taking a property in ‘as is’ condition, and cash financing can all be very attractive to a selling bank, especially if they are sitting on multiple properties.
Of course, one house will not make you rich. But if you consider it an addition to your investment portfolio, it might well be worth it. Financing an investment property will require more work as there is a greater risk of failure. Typically it will require a much higher down payment and carry an above-market interest rate. Be prepared to put up to 25% down. Also, have your plan together prior to sitting down with a lender. Interview a few reputable property management firms, create a pro-forma business plan showing when you anticipate income to come in, and have a back up plan for when something goes wrong. Banks simply want to aleviate their risk. If this is your first rental, banks will have a lot of questions about who is doing the work and collecting the rent. For the first few, we highly recomment a good property management firm to help you learn the ropes.
You will also want to have a back up plan for when things go wrong - because they do. Lenders will look for your ability to pay for the new air conditioner when it goes out. That said, go into this with some back up cash and a plan to have positive cash flow for each property. What if the amount you spend per month is about equal to what you bring in? It's not great news, but not the end of the world either, because there are other financial benefits to having an investment property. When it comes to taxes, depreciation from the home would help save money on our taxes and portion of the mortgage would be paying towards principal.
The team at ICON Realty Partners has been very successful in advising potenial investors on the realities of the business and would be happy to assit you as well.