Is it a good time to purchase rental property?
Millions of foreclosures have turned former homeowners into renters. According to a USA Today analysis of U.S. Census datanearly 35 percent of occupied homes were rented. with 25 cities including Baltimore, Minneapolis, Salt Lake City and Sacramento went from having more than half homeowners in 2000 to majorities of renters in 2010.The data looked at more than 500 midsize and large cities. Significant jumps in the renter-occupied versus the owner-occupied homes occurred in Irvine, California (from about 40 percent occupied rented homes to 49.8 percent between 2000 to 2010). During that same period Philadelphia increased from 40.7 percent to 45.9 percent and Birmingham, Alabama, saw a nearly 5 percent increase to reach 50.7 percent. Baltimore, Minneapolis, Sacramento, and Salt Lake City saw major shifts from owner-occupied to renter-occupied.
If you're becoming a landlord for the first time by choice (investment property) or because you can't sell your home now, here are a few tips to consider.Understand how debt affects your ability to qualify for a loan with Freddie Mac guidelines typically requiring a maximum debt-to-income ratio of 45 percent.Be prepared to put more money down up to 40% of the loan amount possibly and none of that amount can be from gift money. Owner-occupied properties have the advantage of requiring a smaller down-payment than investor mortgages.Know your market history researching the number of rental properties available, what the monthly lease amounts are, and the trend of neighborhood occupancy in that area. Ask yourself what is the reasonable range the property can be rented for? What is the availability of comparable property? What are your goals and how do you reach them?The number of renter households has grown, on average, by nearly 700,000 a year since the housing peak in 2006 and the number of owner households is shrinking, on average, by just over 200,000 a year. This could be good news, but supply and demand are key components so before you buy a house, apartment, mobile home, or duplex for rental purposes do your market research carefully. How long will this trend continue is uncertain. However, some experts say that there will be a boost in rental growth for at least the next couple of years due to foreclosures, housing prices being uncertain and causing people to wait to buy, and government homeownership subsidies being cut.If the market gets soft, then know when to reduce rent. Experts advise that if a rental home is listed for longer than about 30 to 45 days, it might be time to reduce the rent. Also, keep in mind that rental properties are just like other for-sale properties, needing to be kept in good condition and have their upgraded amenities showcased. Owning a home still preferred and remains the American dream; 74 percent of renters think owning is superior to renting, according to a recent survey by mortgage giant Fannie Mae. Is rental property investment the right decision for you? With the right property in the right neighborhood at the right price? Do your research and make a decision that works with your goals.