There are currently so many buying opportunities that the question is not ’should I be active in the real estate market’? Rather, ‘which is the best strategy to use in this opportunistic market’?
No one is going to ring a bell to declare the nation has hit the bottom of the real estate decline and everything from here going forward will again be growth. However, we certainly are near the bottom. The market may slip a touch more or we may have passed the bottom and are returning to the normal growth market. It’s going to be a little different timing in different regions of the country. And we might even bounce along the bottom a little but not for long.
This is a great time for real estate investors. What more could you ask for? Interest rates are down, there is plenty of inventory on the market to keep prices temporarily low, and it’s near the bottom of the market.
The question is which strategy to use? It needs to be a ‘hold’ strategy. Could be a long-term hold or a short-term hold. That’s a bit fuzzy still. The low risk strategy would be a long-term hold. With that decision made, it becomes a question of structuring the deal.
Today’s market is ripe to buy or lease residential rental property. This is another reason it’s such a good time to invest. While, I’m saddened by all of the families losing their homes to foreclosure, it is a business reality. And the reality is these people will need to rent for years to come.
Foreclosure does horrible things to their credit rating. Fannie Mae, the U.S. mortgage giant, sets the rules about how long after a foreclosure until they will accept a new mortgage from the buyers again. Fannie Mae requires buyers to wait up to seven years. They have recently adjusted the rules to allow for extenuating circumstances due to the economic times. The circumstance they are most likely to provide relief for are: death (of the primary wage earner), sever illness preventing employment, a mandatory job transfer, and an accident with severe injuries. One or more of these unfortunate circumstances can result in the waiting period being reduced to three years. But they are still likely to rent for a minimum of three years.
Now to be completely forthright, those rules only directly apply to mortgages that Fannie Mae purchases. Other mortgage holders are free to establish their own rules and policies. But most require mortgages comply with Fannie Mae standards and most underwriters also process mortgages based on Fannie Mae requirements. The bottom line is the residential rental market is going to grow as the foreclosure nightmare works its way through the economy.
In total, all of the pieces are in place to make a buy and hold strategy ideal for today’s economic climate. Buy at the bottom of the cycle and rent the property so it pays for itself. Another consideration is keeping the rental on a month-to-month basis rather than a lease. A month-to-month rental allows you to raise the rent as the rental market heats up and fewer rental properties are available. You’ll soon be deriving a good income from your rentals.
There are other strategies to consider in the rental market to be discussed in future blogs. Stay tuned for more ways prosper in today’s real estate market.