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.
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. Donâ€™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, Craigâ€™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.
Allen Tate Realty
Check out my blog: http://www.trulia.com/blog/dddrealtor/