Shouldn't I be buying rentals now?

Question

I'm just considering my next steps...I'm liquidating some property. It seems to me there's a lot of foreclosures, and a lot of former homeowners (probably who never really qualified in the first place) looking for a place to live. It's also a buyers market. Would this not be the best time for me to pick up as many sensible rental properties as I can make happen?

Michael Rossi · Answer

Minna,

The rental property business is ALL ABOUT THE NUMBERS.  I don't know if you can find properties in CT yet that will cash flow.  As a general rule, you'll need to find properties that have gross rents of about 2% of the cost of the property (purchase price + rehab).  Since your 9-5 job is gone, it is critically important that every rental you buy makes money.

Good Luck,

Mike

Jon Holdman · Answer

That seems to be the general feeling around here.  Leverage short sales to get good prices and plan on holding them a while, either as rentals or lease options.

I have, however, read an article lately saying there may be a lot of rentals on the market as rehabbers end up stuck with properties they can't sell and rent them cheap just to staunch the bleeding.  Watching rental house ads in the paper, I see them come and go in a couple of weeks.  Driving around, I see only a few "for rent" signs on houses, even in areas with lots of for sale houses.  I do see lots of for rent signs on apartment buildings.  And we are supposed to have one of the highest foreclosure rates in the country.  Our vacancy rate seems to be falling, but rents are not going up.  Might be a good time to pick up some bargains in rentals.

Steve Nicewarner · Answer

That is certainly the way I see it. The only addition I can make is that the tightening mortgage market also makes lease-purchase deals more attractive, since more people will be in that gray area just shy of qualifying for a mortgage.

Richard Warren · Answer

What I am doing is a combination.  I like to do rehab projects but I am keeping some as rentals.  Of the 6 houses I purchased in the past 18 months I have sold 3 and kept 3 as rentals. If you are using rehab loans you need to refi when the work is complete.

8)

Mike W. · Answer

Yes,
Position yourself well and bide your time.  You will be able to find properties cheap over the next 12-18 months methinks and possibly longer than that.