In general, low risk is not part of the high return investment formula. However, today’s rental housing market offers a possible exception. The housing crash is producing rental home investment opportunities that should provide superior returns for years to come. My personal favorite areas to look are condominiums, townhomes, and multifamily properties. Many of these rental residential opportunities have had their values CRUSHED. Even better recent legislation and funding from the U.S. government are going to force large numbers of these homes into the market in the coming months. Combine this with a raft of mortgage resets on the horizon and the opportunity for potentially even better values is very real.
In one real example I am familiar with, a young college graduate completed purchasing a condominium at a price that will cover the mortgage by simply renting one bedroom alone.
In the Washington, DC market, one of the less damaged from events and where occupancy’s remain high you can acquire condominiums and townhomes that will generate between 8{cf291cfc7269490771c2e5c8f8cab8cac79ddb0009ca0d6c13a6d788af335a8c} and 15{cf291cfc7269490771c2e5c8f8cab8cac79ddb0009ca0d6c13a6d788af335a8c} annual returns on cash investment. These are homes in prime locations with great local transportation and sustained neighborhood strength over decades.
Enough examples, the investor should be looking for projects that offer the following characteristics:
- Strong neighborhoods with excellent shopping, amenities, schools, transportation and employment,
- Physical structures that promise minimal upkeep (one of the reasons I like condominiums is your responsibility is limited to the interior only),
- Potential seller financing options,
- Shortsale price reductions,
- Foreclosure auctions,
- Tax sales
Next, you should take the time to see what government officials plans are for development and employment in the area. Finally, take the time to verify the initial conclusions you have made about the neighborhood. The neighborhood should be strong and strengthening.
Finally, don’t steer clear because a cash purchase is needed. Other people’s money does not necessarily mean bank debt. In today’s economic environment you may be purchasing with investor capital and creating your returns from the management and development effort you put into an opportunity.
Smart investors who realize the trends described above will be rewarded for finding and capturing these opportunities as the constrained new construction of the past couple years comes to roost in the form of greater rental demand in the coming years fattening your returns still further. There has never been a better time to complete a rental residential acquisition. Today’s relatively strong returns are likely to be multiplied as traditional lending returns allowing more normal leverage levels and pumping up your income to investment ratio.