Now seems like the time

[wewillsee]

I don't post too often on this board or the old MSN board but I lurk quite a bit. With all of the recent discussion on this board, as well as my past experience in dabling as a landlord and other experience in real estate, it sure seems like the best time I have seen to invest in certain residental rental properties similar to Phil and others on the board.

From where I live in the Chicago burbs, I have never seen single family home prices versus rents in such a favorable situation to a prospective investor. It appears that one can buy single family homes for under $200K and rent out for anywhere from $1,400 to $2,000 in decent neighborhoods. Given that lending requirements seem to be getting much tougher, fewer and fewer buyers will be able to purchase unless they have significant cash. Also, the renter pool for single family residences has probably increased because of foreclosure, job transfers, maybe other reasons too. Considering that decent two bedroom apartments rent for at $1,200, I don't think it would be hard to find renters to pay a few extra hundred per month to live in a single family. I think that if someone really wanted to build a mini-empire they could go out and buy a bunch of modest 3br/1or2ba single family homes, clean them up and rent them immediately for at least the next 5 to 10 years. Then years from now when buying a home becomes fashionable again and lenders loosen up and the government creates some other silly rules to encourage buyers, the landlords could sell these properties at a nice profit. Even if there is little to no appreciation for a while, the mortgages would be paid down and these properties would cash flow, but you wouldn't have taxable income because of mortgage interest and depreciation.

I don't know if these conditions exist in other parts of the country but around here it seems like a good deal, especially considering interest rates are still low. The only thing preventing me from doing this is having the down payments for buying these homes.

Thoughts?

[debtheaven]

I hope TBird chimes in because she is in the same area and also considering rentals.

I lived in Evanston for two years but that was many many moons ago.

[wewillsee]

Apr 1, 2011 17:16:59 GMT -5 @debtheaven said:

I lived in Evanston for two years but that was many many moons ago.

I lived in Evanston for a year as well, but that was over 10 years ago. I was thinking more of the suburbs with the houses built in the 1950s through 1970s that aren't that far out for commuting and jobs.

[debtheaven]

I lived in Evanstan MUCH longer ago that that! But there are at least a couple of you in the Chicago suburbs thinking about RE.

You might consider editing your post to include "Chicago" in the title.

Good luck!

[phil5185]

I think you are right - I'm age 72, I've never seen a time when houses were cheaper (relative to income) and interest was lower. Usually you can buy either when rates are low or the housing prices are low - but I've never seen both at the same time before. As you suggest, foreclosures, job losses, etc, have built a demand for rental houses, so the rental market is there.

Don't know your area - but I would go toward the new end of your range, a 1980's house will have 3-wire GFI code, maybe 200 amp electrical service. And structural concrete with structural rebar. And modern insulation, 2-car garage, etc.

I like the 3 bdrm, 2 ba 1100 sq ft to 1400 ft houses. They seem to rent better, young couples don't want 2000 or 2500 ft houses. And a 2 bdrm is hard to rent, even when the sq ft is the same as a house with 3 smaller bdrm. And 2 bath - pretty hard to rent a 1 ba in today's market.

As far a DP, refi your house, your car, your other car, etc. You'll be asked "isn't that risky?" And the answer is "you bet". Don't try to downplay the risk - (1) you will come across as naive, and (2) you need risk to build wealth. So let your lender know that you understand risk.

[Sum Dum Gai]

I see the same thing to a certain extent in our area of CA. The problem is that these homes are still fairly pricey, so you'd need a pretty big wad of cash to get into them. You won't find houses for the price of cars out here, which is more what Paul invests in.

As far a DP, refi your house, your car, your other car, etc.

But we follow traditional YM advice so our cars aren't worth jack. We just bought the house so there's no equity to pull out, and with the downturn quite a few people lost the equity they had anyway. The reason houses are so cheap is because it's really hard to come up with money to buy them right now, which makes it hard to get into the land lording business. For people who are a bit older and have larger savings built up, it's a pretty good time to get set up for retirement though. Or, it seems like it anyway. Life's risky, it could fail, but I'd be willing to risk it right now.

[debtheaven]

TBird kudos to you for moving forward but it sounds like you're trying to buy two places at the same time?

[debtheaven]

I know that things are much stricter now, never heard of those new rules but as you know I'm not in the US.

If that's the case frankly I would buy one and let the dust settle before trying to buy another, otherwise it may be incredibly time-consuming. Up to you of course!

[Deleted]

Congrats for moving forward tbird. Will this be your first rental property?

[phil5185]

Anyone else heard of this?

Ya, I think it has 'always' been true. A lender will use established rental income to qualify you for your next loan - and for your refi's. You must submit a one-year lease with your loan application. And I think there are more guidelines - at least 3 months, 6 months, 1 year of renter history.

[Deleted]

Apr 1, 2011 19:37:52 GMT -5 @tbird said:

My first home was a tiny little 3 unit - originally a sfh built in 1860 - frame - and cut up into 3 units. Sold that and bought the SFH we live in today, so trying to get back into the rental biz.

But it will be a bit different.

Ok! Best of luck

[Deleted]

Can anyone tell me where to find data on rental occupancy rates? thanks.