By Christine Schlittenhart, Sierra Pacific Real Estate
As home prices fall and rents rise, some investors are plunking their money into real estate, chasing the cash flow that comes along with becoming a landlord. For the first time in a long time, you can buy that home and can get a cash-on-cash return immediately.
There are a lot of places in the country where an investor can buy a single-family home, rent it, and get a positive cash flow. In fact, investors bought 20% of all the homes sold in April, according to the National Association of Realtors. Some of them are buying with cash. But even if they do finance part of the purchase, they’re able to turn around a profit much quicker than they would have been able to in the past. The return on rentals can be much better than returns on other investments these days.
In the past, investors would subsidize their monthly payments on a property with the rent they were able to collect, and the big payoff was the price appreciation he or she would accumulate. Now, investors can come in with a 25% or 30% down payment, finance the rest, and the rent they collect often can cover the mortgage payment, taxes and insurance — with additional cash left over. Investors are looking at these properties on a monthly income generating basis. They can start to realize instant profit margins, even as the market goes down more. There’s a turning point where the cost of owning a home is less than the cost of renting. I believe we are there, and when that disparity grows, we will see a push from investors to pick up investment properties.
Before investing in a rental, make sure you’ve considered the harsh realities of becoming a landlord. I’m a landlord, and I’ve been blessed with wonderful tenants, past and present. But my experience is not always the same for everyone. Remember, often the best investment is a home you wouldn’t necessarily buy to live in yourself. These days, foreclosures can be snapped up at bargain prices, and as long as you have the means to make required repairs, they can represent good opportunities. Let your local Meadow Vista Merchant Realtors show you the great deals out there, so you can start making some positive cash flow!