Real Estate Investments-Rental Homes

Rental Home Investments

Rental homes whether they be single-family detached properties, condos, two, three or four-unit properties share many of the same benefits.  Most people instinctively understand many of the working parts because they are the same as their home.  They have a basic understanding of value and how to maintain the property.  The service providers for a home would be the same for a rental home.

These properties allow an investor to obtain a large loan-to-value mortgage at fixed interest rates for up to thirty years.  They appreciate in value, currently exceeding many other assets; have defined tax advantages and allow an investor more control than many alternative investments.

Most lenders require 20-25% down payment and will finance the balance at rates close to owner-occupied homes.  Buyer closing costs will add another three to four percent to the amount of cash needed to close.  It is also prudent to have available funds for repairs and maintenance.

There are successful real estate investors in every price range and part of town.  If your ultimate goal is to have the rent handle the holding costs and to sell the appreciated property at the end of a seven to ten year holding period, it might be advantageous to stay in predominantly owner-occupied neighborhood.  They usually appreciate faster and will appeal to a buyer who wants it for their home.  Chances are, this type of buyer will pay a higher price than an investor who may not be willing to pay as high a price.

By staying in an average price range, or possibly, slightly lower, you’ll be able to appeal to the broadest group of not only buyers but also tenants while you are renting the property.  Even during the mid-80’s when FHA interest rate was 18.5%, buyers were still purchasing homes.  Whereas the higher priced homes have a tendency to slow down during trying economic times.

Ask your real estate professional what price ranges sell the best, rent the best and have mortgage money available.

Some investors manage their properties themselves and others don’t want to be involved.  Professional property management has advantages like expertise, established contacts, operating statements and economies of scale.  The main disadvantage is the cost factor but if they can rent it for a higher price and keep expenses lower than you can, it could minimize the difference.

A possible consideration might be to have a real estate professional place the tenant, check the credit and write the lease.  There would be a one-time fee for this, but the owner/investor could then, manage the property, saving the expense of a monthly fee.

Understanding the landlord tenant laws would be particularly important to an investor managing their own property but regardless, the investor needs to have a basic familiarity of the law.  There can be civil as well as criminal aspects.  Examples might be that a landlord is required to change the locks on a property for a new tenant; the number of days before a landlord must return a deposit and what to do if there are damages causing all or part of it to be withheld.

Another tool that can be very helpful for investors is an investment analysis that will assist them in selecting a property that is likely to provide a satisfactory rate of return.  Ask your real estate professional if they can provide this for you.  They should be more familiar with rents and expenses to be able to determine the cash flow and what kind of yield you may be able to expect over your intended holding period.

For more detailed information, download our Rental Income Properties and contact me to schedule a meeting to talk about the possibilities.

Vacation Home Sales Increase

Vacation Home Sales Up 44%

Vacation home sales are up 44% year-over-year according to the National Association of REALTORS® based on sales during the July to September period.  Not only are the number of units up, but they are also selling faster than in previous years.

On a national basis, 72% of existing vacation homes closed in October were on the market for less than one month.

The increased desirability and affordability of vacation homes, according to the National Association of Realtors, seems to be influenced by the pandemic and low mortgage rates.  The ability to work from home seems to be contributing to this increase.

Freddie Mac reports the average commitment rate for a 30-year, conventional, fixed-rate mortgage decreased to 2.83% in October compared to the aver commitment rate for all of 2019 which was 3.94%.

There may also be a safety factor involved with these decisions to purchase vacation or second homes.  Contagious diseases flourish more in highly populated areas like big cities and suburbs. The locations of the vacation or second homes are generally in areas with less residents.

The slower pace from the city may also add to the appeal of considering second homes.  Proximity to the mountains or water, whether it be the ocean, rivers or lakes, have become a lure to people who realize that if where they work doesn’t matter, they can select a place where they want to be.

Historically, Americans on the east coast left the cities during the 1793 yellow fever epidemic.  The same migration took place in the mid-19th century during three waves of Cholera and Scarlet fever.

Trends have yet to determine whether some of these new vacation home buyers may consider moving permanently or may reconsider the decision after the pandemic.  Currently, it does have broad-based appeal and offers a lot of flexibility to owners who can afford it.

If you would like any professional residential Real Estate advice, contact us at Paramount Real Estate Services.  1008 12th St. SE Salem, OR 97302  503-851-1645

Also, to mobilize us right away to help you move, visit us here:

brianandnina.com/buyers

brianandnina.com/sellers

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1008 12th St. SE Salem
Principal Brokers Licensed in the State of Oregon