In relation to the economy and the uncertainty of where the financial markets are heading, corporate bailouts, bank bailouts, insurance company bailouts and the overall picture of real estate uncertainty poses one of the greatest times to secure income based properties. This downturn in the economy is not something that we (those of us who have experienced the 60’s and the late 70’s & 80’s) have not seen before in varying degrees but not altogether very different than today’s economy. By that, I mean the down turn in terms, of interest rates either up or down, double digit unemployment, banking & S&L failures, foreclosures – large inventories of real estate residential and commercial and tight credit.
Is the picture taking shape, yet? If you will go back and do your research on foreclosures and real estate in general for the downturn in the economy and then compare real estate in the various categories; residential, commercial and multi-family you will discover which had real value. Well, since you want me to tell you I will, it is income based properties. The rate of return on a property has and will always drive the value. The key is what parameters do I use to determine what type of property to purchase. The property that offers solid contracts for 1 year or longer, evaluate the rental clientele (less likely to vacate), location, condition of property (new or rehabbed) and if you are an absentee owner check the reliability of the management company are all keys, plus many others to consider when investing in rental income property. I will give you a hint on the asset base of some of the richest individuals in the world, it is real estate properties with an income base.
Investing in rental income property is wise for the short and long term. Those values are based on the stability of the income received. Property should be, today, well below values of last year and should cash flow at the lowest level of rent available for the area. Special rental circumstances offer better rates and those are the ones you need to search out and evaluate. Tax incentives for buying properties and higher depreciation, if available, are advantages to you the investor. Take advantage of any government programs to assist in paying for the property and, also, in renting the property. Who has more money than our government and why not get some of your tax money back, it spends, at least, for now.
Hopefully you will do your homework and find proof positive that income property will hold its value when purchased for the right price with a net ROI of 20% or greater. Make no mistake that there are inflated properties out there with a rental rate that will not hold up as the employment rate increases. They offer incentives to purchase which is the first sign for the buyer to beware, then check out all the surrounding property and rental rates. Rental property can be owned and managed by you with you doing all the work or having a turnkey situation with a management company in place. How valuable is your time and what is it worth for someone else to deal with the problems has to be the obvious question that you the investor must answer.
With the current real estate foreclosure, REO bank properties, short sales and other depressed real estate properties, you the investor can take advantage of the best of both worlds. Low real estate prices from several sources and cheaper rehab pricing can produce a win-win situation for you the investor. Capitalize on the market conditions of today and start making money to secure your future with higher rents and appreciation in value in the upturn. Financing these properties can increase the volume of properties and income which is a smart move with the low interest rates. Financing is a different horse of a different color and will require more time and space which leaves the door open for a future topic.
Derrick is a Memphis native specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com