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Investment market too risky?

Asked by , Thu May 17, 2012

Hi, I have 3 rental houses, interested in adding 1 or 2 more. However, the awful housing market has me scared. I know I can buy at a good price, but how is the rental market? And what if I want to sell in a few years, I may not be able to sell it without suffering a huge loss like everyone is seeming to do lately!

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A few thoughts for you...

If the property cash flows and you make an 7.5% cap rate or better, it's a decent return. I see opportunities for 15-25% returns when leveraged with a mortgage.
if you can lock in 30 year debt at these interest rates, plan on keeping the property as long as you can.
if you want the flexibility to sell in only a couple of years, you need to add value quickly like when flipping a property (or get a really good deal). Otherwise, you may be giving back most of your profits in selling expenses.
Prices are going up in many areas as inventories dry up. look at your local supply and demand chart to see what the absorption rate is - how many homes are selling that are listed each month. A balanced market is about 65%.

It's a great time to buy rentals - that is where all my money is going.
1 vote Thank Flag Link Fri May 18, 2012
Thanks to everyone, I really appreciate it!
Linda
0 votes Thank Flag Link Fri May 18, 2012
Many investment properties are priced just right. 10% CAP rates are not uncommon return.

Great properties, Great cash flow and even structured properly there are great tax benefits.

The other question is do you finance or pay cash?

Cash is always king, no matter what the interest rates are. Don’t have to apply or qualify and your privacy is protected.

However, with low interest rates, even commercial loans for investment properties, the leverage option is very good too.

Basic rule of thumb is the monthly rental income should be no less than 1% of the purchase price, including closing costs and fix up.

So if you are Charging $1,000 / month rent, then the maximum paid for the property is $100,000.

And no these properties are not dumps, but great properties.

Find the average monthly rental prices in your market, Craig’s List will do, and work off those rental rates to determine which homes, areas and prices you will pay.

Sticking with a the simple 1% rule and you will almost never get stuck in a UP or DOWN market.

Paying to much for properties and over leveraging can and often does lead to challanges.

Good Luck

Tom
Allen Tate Realty
http://www.allentate.com/tombohlmann
http://raleighhomesinfo.wordpress.com/
0 votes Thank Flag Link Fri May 18, 2012
I think rental homes are an awesome investment for 2 reasons: cash flow & asset accumulation. With interest rates so low and so many affordable / negotiable homes now, it's a perfect time to buy.

Check out my blog: http://www.trulia.com/blog/dddrealtor/

Good Luck.
0 votes Thank Flag Link Fri May 18, 2012
Look at it this way...everyone needs a place to live. Consider yourself fortunate that you have options. I think this market is phenomenal. When you buy the right house, at the right price, do the best renovations and hire the best agent to market it, someone will be proud to call it home. Call me directly at (804) 908-7374 or email Tanya@TanyaJWinston.com if you want to know more about some great deals that you can sell without suffering in a few years.
0 votes Thank Flag Link Thu May 17, 2012
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