With listing prices down across the United States and many foreclosures and bank owned properties on the market — the time is certainly right for buying property. It is also the perfect time for real estate investors to enter or re-enter the market. There are rental shortages in various markets in the U.S. The low inventory and high demand for rentals is driving the cost of rental properties higher. Now is the time to purchase single family homes, duplexes, four plexes, and commercial apartment complexes. A lower vacancy rate coupled with a predictably higher return on investment makes it an attractive time to invest in real estate.
According to an article published by the Daily Real Estate News in April 2011, “The cost of renting continues to rise as vacancies remain low. The number of renters increased 8 percent nationally between 2007 and 2009, according to Census Bureau figures, and rents climbed 3 percent nationwide.” Online sources concur. In 2010, rental prices soared even more. HotPads.com, a highly trafficked and well-respected real estate website, reports that “rent prices nationwide rose 11.6 percent in 2010, from an average of $1,181 in January to $1,319 in December.” Multiple sources report a trend in rental property price increases nationwide.
As a property manager in the Williamsburg, VA real estate market, I have seen rental property prices increase over the past three years. A single family home that used to rent for $900-1000 per month now costs $1,100-1,250 per month. As more and more people feel the strains of the present economy, renting is their only option. Its more challenging to purchase a home now than before. The homebuyer must have a down payment, be willing to pay closing costs and have a high enough credit score to qualify for a mortgage.
For property investors looking to purchase a single family home or duplex, a traditional mortgage will apply. However, if the investor wants to purchase a multi-family dwelling, fourplex or an apartment complex, a commercial property loan is needed. When investors choose the latter, I encourage them to review the rent rolls. This will include the rental history of the property. Rent rolls are an indispensable financial tool for making the decision to buy. Currently, rehab loans are only available on primary residences not on rental property. This means investors should also have the cash available to repair, update or rehab a property, in addition to the down payment and monthly mortgage.
Real estate can also be an excellent tax shelter. Rental properties can be depreciated on taxes. Repairs, maintenance, property management fees, travel to and from a property and other expenses related to the property are all tax deductible. If a real estate investor wants to defer taxes, he or she has the option now to place the real estate property into an IRA or charitable remainder trust.
Compared to other types of investments real estate is less risky. The owner has more oversight and control over residential and commercial property investments. Its true that real estate investments may lose value over the short term, but historically, property investment has been established as a reliable way to create and keep wealth over the long term.
As investors enter the real estate market after several years of sitting back, they will want to secure a reliable and experienced property manager to maintain a good, even cash flow. With rentals absorbing up to 50% of most household incomes these days, it could conceivably become more difficult to collect the monthly rent. A savvy and aggressive property manager will ensure rents are collected in a timely manner and that repairs are made on the property when tenants request them.
Real estate investment is not for everyone. So, think carefully about whether acquiring property is the way to go before making a purchase.
For more information on residential and commercial investment properties or property management services, visit http://www.voncannonrealestate.com.