Strategies to Buy Rental Properties in a Down Market

Posted by MoneySavvy on Jun 8th, 2010 | no comments home title

When home values drop, it’s quite worrisome for homeowners. But it’s good news for those who are looking to buy a home. And if you’re interested in buying rental properties, there’s no better time to take the plunge.

Still, it’s important not to get so excited that you make a mistake. Not every property or deal is a good one, despite the general direction of the housing market. It’s important to carefully evaluate each property you’re considering just like you would in a less favorable market. Here are some things to consider.

How much can you afford to spend? You’ll be making money when you rent the property out, but that might not happen for a few months. So you must be able to afford the payment in the meantime.

Does the property have an established rental history? If it doesn’t, what are some possible reasons? If it’s in a bad neighborhood, there’s not much you can do about that. If it’s in poor repair, you’ll need to consider whether it’s worth the asking price and how much it will take to fix it up.

Can you rent it out at a price that will cover your expenses and net you a profit? If the current owner is renting the property out, find out how much he is getting for it each month. If that won’t pay for your loan payment and other expenses, you may need to reconsider.

So where can you find the best deals on rental properties in a down market? Here are a few ideas.

Seek out foreclosures. When the economy isn’t doing well, foreclosures happen frequently. That means that banks are often in a hurry to get rid of foreclosed properties because they have so many of them to deal with. You can take advantage of this tendency and get a great deal.

Get a buyer’s agent. Realtors have access to MLS listings, but they may also be privy to homes that haven’t been listed. Tell your agent what you’re looking for, and there’s a good chance that she’ll be able to find it.

Check the “for sale by owner” websites and publications. Some homeowners try to save a buck by attempting to sell their homes without the help of a realtor. If they’re really motivated, you might find some terrific deals through these types of listings.

Rental property is a smart investment. But if you’re not careful, you could end up with a lemon. By all means search for great deals, because there are plenty to be had in a down market. But be sure to look before you leap.