Is your investing strategy “buy and hold”? Many flippers start their cash flow out that way; purchase a house, fix it up quickly and start renting right away. Seems like a smart move since many new studies are showing that renting is the way to go for more and more American families. But why is the renting market becoming so hot? With families needing the space of a home but not being able to afford one or unwilling to commit to a mortgage, there is ample opportunity for investors to make money in the rental industry Many investors are buying up houses and converting them into rentals, and government policymakers say it makes sense to encourage this. A smart investing move is flipping affordable rental units that not only help with your cash flow, they could help working families with low incomes, while also helping to revive residential construction jobs in your area. Seems like a win-win situation, right?

The rental market is for sure taking off. And you can see the growth with rental property management companies growing too. One  company added 5,830 new properties nationwide through the second quarter this year. The rapid growth has been primarily fueled by real estate investors, both large and small, who purchase single-family homes as rental investments.

Even though homes seem  very affordable now by many official measures, one of the most notable features of post-crash America is the rise of the renter. People who have lost their good credit record, lost their confidence in the housing market, or lost secure jobs have been shifting from being owners to renters. Young people who in prior decades might have been buying first homes are living with parents or renting.

While this is positive news for investors, others ask if it is a troubling trend. Despite a sharp plunge in home prices and the conversion of many properties from “owned” to “rented,” the typical family looking to rent has to pay more than 30 percent of its income for a typical apartment, according to an annual survey released Monday.

For the 1 in 4 renters who have very low incomes, moreover, it’s common to spend more than half their earnings on rent. By 2010, a US Census measure of homeownership had fallen from record levels of near 70 percent of households to about 65 percent.  And even many home buyers could justly be called renters for now because sunken home values have erased any buildup of equity when they make their monthly payments.

The pendulum shift is partly a reversion to the norm. But it also hints at a hard reality of housing: Affordability is still a big challenge – even at a time of low interest rates.

Renting can have many advantages over buying, the recent surge in demand, rising rents, and falling incomes have caused an increasing number of households to pay a crushing share of their income for housing. What do you think?

More on The Rise of Renters:

http://www.azcentral.com/story/money/business/2014/06/18/in-wake-of-the-housing-bust-more-americans-are-renting/10760775/

http://journalistsresource.org/studies/economics/real-estate/u-s-low-income-rental-housing-crunch#

To learn more about Part-Time REI visit us at http://part-timerei.com/

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1. Treat it as a Business

First and foremost being a landlord is different from being a private homeowner — it’s a business and you need to treat it as such. Although some lending requirements for personal mortgages have relaxed a bit recently, the requirements for rental property have basically remained the same. If you’re borrowing money for your first rental house, you’re going to need at least a 20% down payment. If you can swing 25% down, it’s likely to get you a better interest rate and lower fees. If it’s your first rental property, your current income is going to have to be enough to handle the mortgages for both your residence and your new property.

2. Don’t Bite off More Than You Can Chew

What we mean by this is start small. Starting with a single house or smaller multiple-dwelling unit, perhaps with a partner, would be ideal to see if the business really suits you. Save your condo buys when you can afford  a larger down payment and monthly association fees. Starting with a single home will allow you to get a feel for the maintenance, bookkeeping and other work required. Finding a good first tenant is also an important step. Beware of shady tenants!

3. Know Your Farm Area

Location, location, location. We can’t stress researching your intended investment market. A home that seems to be a steal might be priced lower because it’s in a neighborhood most people wouldn’t actually want to live in — one that has higher crime, noisy streets or poor schools. This will also be helpful when figuring out the right rent and rate of return. Make sure you budget for maintenance as well. A common rule of thumb that also assigns 5% of gross rental income to regular maintenance and another 5% to pay for the downtime and repairs that come with vacancies should cover you.

4. Happy Tenants, Happy Life

Be a good landlord, communicate with your tenants. Happy tenants are critically important. Remember that they are the customers of your business that we talked about earlier. By keeping the property in good shape and taking care of issues in a timely manner you can expect the same respect back when it comes to paying rent on time. Then you will both be happy and you’ll be building wealth with an investment you can feel good about.

To learn more about Part-Time REI visit us at http://part-timerei.com/

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We of course have mentioned before that investing in real estate even part-time is a great alternative to riding the stock market roller coaster. Let’s look at 3 converging factors that could make up the perfect investing market.

Interest Rates Rising

When the Federal Reserve begins to taper off its infusion of money into the mortgage industry, there will be more rate increases. This will hit first time home buyers the hardest, just as they were beginning to re-enter the market. First time buyer market involvement is down around 29% from a historical average of 40 percent. This will cause more individuals to rent thus leading you to more rent to own or leasing options for your flipped homes. Rising interest rates will become a barrier to many considering a home purchase.

The Problem for the Younger Generation

Both Generation X and Y are immersed in the largest student debt in history. Student debt now tops $1 billion and is growing. With student debt delinquency rates rising and now the biggest non-mortgage debt sector in the U.S., there just isn’t any money left for a mortgage or a down payment. As long as rental unit supply can keep up with demand, the younger buyers will stay out of the buying markets. A lack of wage growth and higher home prices and interest rates will likely continue the trend of a drop in home ownership for the young.

Baby Boomers 

Latest statistics show that about  10,000 Baby Boomers retire every day. Many of these retirees have little if any retirement savings. There will be a strong demand for entry level or affordable rental housing on a social security budget. It’s a niche market and not for all investors, but there will be a high demand for smaller homes and units near medical, entertainment and shopping facilities.

Being Prepared for the Storm

It is important to note that over the past year, about 30 percent of all home purchases were made in cash by investors. They are buying in bulk for institutions and large banking firms, turning the inventory into rental housing or first time home owners.

The smart small investor shouldn’t be discouraged by the big competition. Being aware of your market is the key. There are so many owners who lost homes to foreclosures that their only option is leasing or renting. And now with the younger would-be first time home buyers expecting to rent for years, there is going to be demand for something “better” than an apartment.

To learn more about Part-Time REI visit us at http://part-timerei.com/

Or connect with us