This is a guest post from Michael.
The economic situation across the world – and particularly in America – has made it a horrible time to be buying a property for any reason. Many have said that the nightmare has to end fairly soon, but will it? Is now the time to increase your portfolio by buying a home to rent?
There are a number of things to consider, of course. It is well documented that house prices have fallen almost 40% since they peaked in 2006, couple that with almost record low mortgage rates thanks to banks and lenders competing with each other and you might be forgiven for signing on the dotted line straight away.
But, some experts say that the market will continue to slump by as much as 20%, so will using a mortgage calculator or a broker get you a worthwhile deal? Well, with buyers still struggling to be accepted for mortgages and purse strings still tight, if you have the right mix of credit score and capital this may well be a brilliant idea. As many as 70% of renters would like to buy but can’t, so many feel like they should strike while the iron is hot. The first thing to do is consider these two points.
Run the numbers
Whether you’re opening a business or doing a family budget, there are a number of different types of data and metrics that you need to run through. Whether you have a sufficient credit score or capital in the bank or not, you can’t spread yourself too thin. There will be people who make a lot of money from real estate but the world is also full of people who have seen the cons of buying to rent in a big way.
If you’re confident then deal with it yourself, if not then lenders and planners will talk to you about your assets and how this might change through investing. Be sure to consider times of vacancy, many advise to half six months worth of payments in the bank for this or if repairs to the home are needed.
Location, location, location
OK, so it’s a cliché, and probably not important as when you bought your primary home. But, having said that, you have to be aware of who you want to rent to (young couple, family, etc) and who will be in the market for a rental property in your area. Populated areas that tend to bring in high rents are the ideal spots to buy because there is always likely to be someone looking to rent. Think of things like crime rate, schools, malls, public transport and other amenities not just to help renting but also for when you might want to sell the property at a later date. Also, it is often recommended to have the property near your home in case of emergencies.
The housing market is at the risk of fluctuations all the time, but with potential buyers struggling to fit the numerous criteria, if you have some capital then this could be the right time to purchase a rental property. Consider the points above, alongside things like bigger isn’t always better or being realistic and see if the rewards may just outweigh the risks on this one.