Rental property ownership may not be for everyone. But for the focused investor, it could prove to be a highly worthwhile endeavor. In today’s post, we’ll talk about how you can diversify your investments and potentially earn extra monthly income by being a landlord.
Why the Rental Housing Market?
If focusing on your long-term financial investments is one of your New Year’s resolutions for 2020, consider the opportunities that may lie in the rental housing market. Currently, the nation is facing a housing affordability challenge (crisis is a word we feel to be a bit too extreme). However, recent data shows that while rental prices are continuing to rise, the rate at which they are increasing has cooled down in the past year.
According to Apartment List’s December 2019 National Rent Report, the national average year-over-year rent growth rate is 1.4%. This is lower than last year’s average of 1.5% and is well below the national average rate of hourly earnings growth (3%). This tells us that rental prices are leveling off while hourly earnings are going up, making the cost of rental housing more affordable for hourly wage workers across the nation. However, because housing markets can vary widely among local metros, and not every renter is paid an hourly wage, the perceived relief may not be beneficial to everyone across the board.
Still, investors looking for a way to diversify and bet on something with a lot of long-term equity potential may want to turn to rental housing. After all, rental prices are likely to continue to increase, even if it is at a modest rate. And once enough equity is built in the home, the investor can sell the property, ideally for a nice hefty profit.
Is now a good time to take on an investment property purchase? If your overall financial picture is in good shape and you’re ready to commit to the responsibilities of being a landlord, the answer could be a resounding ‘yes!’ For starters, mortgage rates are staying low–despite some recent upticks–and investing in a property during the market’s slow period (typically winter) could give you enough time to remodel/renovate and prepare the property for the spring moving season. Just be sure you have enough cash reserves to cover the first few months’ mortgage payments in addition to the remodeling/repairs.
If you’re able to invest in purchasing a rental home in turn-key condition, you can go ahead and start renting it out immediately. Again, the winter is usually the off-season so putting your property on the rental market during this time may go one of two ways: either you’ll quickly secure a great tenant because the demand for rentals is higher than supply in your area; or it may take you a little longer to find the right renters, in which case again, you should ensure you have enough cash reserves on hand to cover the first few months’ mortgage payments.
Securing the right mortgage for an investment property purchase can seem complicated. For many first time investors, the process may be overwhelming and once they discover the additional hurdles associated with traditional financing for rental homes, they can become discouraged. Not to worry though. There are alternative options for investment property buyers and Luxury Mortgage has one that may work for you.
The Investor Cash Flow Mortgage from Luxury Mortgage is a unique loan product designed to help creditworthy investors–both new and experienced–qualify for financing based on the cash flow of the subject property. No tax returns or employment verification is required and there is no limit to the number of financed properties allowed. Through this program, investors can effectively build a portfolio of income-generating properties.
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