Hi. I am a beginner RE investor. I am thinking of buying my first property (a single family home) but I am wondering if it will be harder than normal to find a renter right now. The reason for this is that it is a buyer’s market right now and many people who otherwise would’ve rented can easily buy a home now at a discounted price. Has anyone noticed that it is harder to fill their properties with tenants right now because of this?
Also, are rent prices lower right now to compete with the depressed real estate values of homes? Thanks.
sonriffic,
While the answer to your question varies by market, here in Ohio the rental market has greatly improved. It is a huge buyer’s market here, but that doesn’t mean that people who otherwise would have rented are buying homes. Quite the contrary. Anyone who could have fogged a mirror a year ago has already bought a house, including many who should not have done so. Now, interest rates are up and lending practices have tightened. There is a huge wave of foreclosures pending and there is a glut of inventory on the market. Prices are headed down and sales are EXTREMELY slow! People are losing their homes and are once again becoming renters.
So, at least in my little corner of Ohio, the rental market has greatly improved. The tenant pool is much better than a year ago. I am almost at full occupancy and rents are up!
Mike
Mike,
Wow! What a thorough answer. Very encouraging.
My goal is obviously to cash flow on these properties so I can eventually quit my job and do RE full time. With that in mind is it best to buy the ‘traditional’ way and put 5% down with a lender and try to find a renter to cover the mortgage cost…or is it truly ‘the way of the wise’ to use some of the creative RE tricks like ‘subject to’? If I am putting down 5% on a 200k house each time (10k) it’s going to take a long time to own enough properties to replace my income. Any thoughts would be appreciated. Thanks again.
is it best to buy the 'traditional' way and put 5% down with a lender and try to find a renter to cover the mortgage cost.....
This is a GUARANTEED path to failure. Not putting 5% down, but simply trying to cover the mortgage cost. You are correct that this is the “traditional” way that new investors buy rental properties and is the number one reason that the vast majority fail in a short period of time. I would strongly suggest that you study and research the business - you must learn about operating costs; cash flow issues; dealing with tenants etc, etc, etc, before you buy if you want to have a chance to succeed. In addition to studying the rental property business, I would suggest that you look at 100 houses (inside and out) for sale in your target investment area. That will allow you to learn the value of the properties in your area. You also should join your local REIA (real estate investors association) and make friends with the SUCCESSFUL investors in your area. Putting in the hard work now and for the next few years will allow you to replace your income and be free from the 9-5!
Good Luck,
Mike
There are additional market forces at work besides a “buyer’s market”.
Having done rentals for 25 years, the ready availabilty of credit is one major factor. The 'subprime" market meltdown, and with lenders tightening credit, more people than ever would not qualify for credit, adding to the demand for rentals.
Through the years, I’ve found there is always a market of people who for the moment choose not to buy. Besides, not having good enough credit, or not enough down payment, other reasons include:
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Young recent graduates who has yet to decide where they’ll put down roots.
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Newlyweds saving up to buy their new home. Yes, there’s “zero down”, but many rather wait a year or two to see if they’ll have kids, whether they’re still married, and where they want to eventually live. When I married my wife, though we had money to buy a house, we wanted to see how the marraige goes before we bought, regardless of the “buyer market”.
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The newly divorced, and not ready to buy another home, after selling the one they shared with their spouse.
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Corporate relocatee’s, moving into the area, and want to know the area better before they buy, or only planning to stay a short time before moving on, and don’t want to be stuck with a house. My brother in law just relocated for the fourth or fifth time due to a job change (moved yesterday), in the last 12 or so years, and decided to keep his home, and renting where he’s relocating to, since he was tired of selling and buying new homes, which would have been his fifth time in the last 12 years. He stays on the average two to three years, and it took him almost two years to get this one up tho his standards, including spending 50K on a new kitchen, plus numerous other costly improvements. In addition, the cost of selling his old home, the cost of buying and improving the new one is finally taking it’s toll, since it cost him over 50K everytime he moves.
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Renting in a “good school district”, as the school district they can afford to buy in has terrible schools. School districts are cracking down on people that lives in one district and falsely claim to live in another. For the first time in over 20 years, i had to sign affadavitts for new tenants attesting to their tenancy before their children are allowed tp attend the local schools, the LL agreeing to reimburse the schools for tuition if the certification is a false one.
I manage to fill my rentals good markets or bad because everyone needs a place to live, and not everyone wants to OWN their own home, sometimes for the moment, for whatever other reason.
A few years ago, people want to know where to get tenants in a “seller’s market” because everyone CAN BUY, with lenders throwing money around. Not so. Because of all the above reasons, renters who wanted to rent were squeezed out, had to scramble, because many landlords sold rental homes into the hot market to cash out. I even sold a few.
Jim,
Please read the forum rules before you post again!
Thanks,
Propertymanager (moderator)
Sonriffic - Call on ads for houses for rent that are similar to yours and see if they’re still for rent…Call 1 week, 2 weeks, 1 month, etc. after the ads are placed and you can see how fast the rentals are being filled up…If you’re constantly getting “it’s already taken” vs. “it’s still available”, you can figure the rental market should be okay, but remember all the vaiables (season, etc.)…and look around to see what the available rental supply is in your area…If there’s tons of rentals all the time, it might be buyer beware for the landlord…