Tips For Buying a Rental Property

Buying rental property is a great investment right now.  Thousands of foreclosures have flooded the market and are dragging prices down, and the end is not in sight.  But where do you start?  It doesn’t have to be overwhelming if you break it down:

  • Get your financing in line first.  How’s your credit?  Trim down on that extra (unnecessary) spending and start planning for your first purchase!  Figure out what you can spend and how you’ll pay for the property.
  • Find your target neighborhood.  Before I bought my first rental property I drove several neighborhoods, none of which were further than 30 minutes from my house.  Drive through at all hours of the day, talk to homeowners . . . they will give you precious details about the area/residents.
  • Talk to other, seasoned investors who’ve been there, done that.  Join a landlord association.  Read books.  (Mine is a good one. Lol . . . but seriously, it offers tools, tips, techniques, forms, products and advice to simplify the process.)  In other words, don’t go into this blind.
  • Decide on multi- or single-family rental properties.  Multi-family will bring in more money but is more labor intensive.
  • Look at your personality, work life and home life — do you have the time, etc. to manage your own properties?  Not everyone is equipped to do this work.  Some people have time constraints that prevent them from doing it, others have personality constraints that make it difficult.
  • If you’re not going to do much of the work yourself, find honest, reliable subs before you buy.  You’ll want to hit the ground running as soon as you close on a property, so you’ll need to have your workers all lined up and ready to go.

There’s so much involved in buying rental properties, especially as a first time buyer.  But it’s fantastic for income and long term investment, and now is an excellent time to consider jumping in . . .

So prepare well, trust yourself, and go for it!

Tax Credit Extended and Expanded

The government was hoping to clear the shelves of lower-priced homes and foreclosures by offering the tax credit to first-time home buyers.  This tax credit of up to $8000 helped somewhat, and now lawmakers have extended the time frame.  The offer was due to expire on December 31st, but has been extended into 2010.  In order to qualify, buyers have to sign purchase agreements before May 1, and close the sale before July 1.  Lawmakers were under pressure from realtors, mortgage bankers and builders throughout the country, who had seen modest improvement in their businesses due to the tax credits offered to first time buyers.  As of last August, about 1.4 million first-time buyers had taken advantage of the tax credit.

To sweeten the pot even more, the tax credit has been expanded to include buyers who  have owned their current homes at least five years.  These home owners will be eligible (subject to income limits) for tax credits of up to $6500.  Of course, these credits are available only for primary residences (not vacation homes), and the home must cost less than $800,000. 

Many argue that expanding the tax credit to include current homeowners will do little to improve the state of the economy.  After all, when you purchase a new home and take advantage of the $6500 tax credit, even though you’re buying a home, you’re also putting your existing home on the market to sell.  You’re merely replacing one with the other.  This isn’t helping the over-supply in the least.

Fannie Mae is in on the assist, however.  It’s offering borrowers who are on  the verge of foreclosure an option to stay in their home and rent for a year.  Rental rates are established by current market rates in the area.  The family transfers title to Fannie Mae for a year, avoiding foreclosure.  This helps the family avoid damaged credit from foreclosure, saves Fannie Mae the costly process, and many people are able to get back on their feet within the year.  One-month extensions are also possible beyond the year point. 

Hopefully, the number of foreclosures will start to decline in the near future.  Coupled with that, there has been a modest surge in home sales due to the tax credit to first-time home buyers; the extension should help the housing market and related businesses in the long run.