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Business & Tech

Opinion: Demand for Rentals Opens Doors for House Hunting Investors

The demand for rentals and the relatively low-price for homes are a good combination for people who are looking at ways to invest.

Have you tried looking for a rental property lately? Was there sufficient inventory to choose from or were you like many would be renters that had to settle for a smaller home or in an area outside of your area? You are not alone. A lack of rental  inventory brings new opportunities.

Someone once said that “The Greatest Investment is the single family home.” If that is the case, why not buy several? Apparently, the time is right to do just that.

Declining home values and increasing rents have opened the doors to investors.  Home purchases made by buyers identified as investors through surveys of members by the National Association of Realtors climbed to 17 percent in January, up from 15 percent in December and 12 percent in November.  

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The whole Eastside is experiencing an increase. Investors are prevalent at the weekly auctions of foreclosed properties. Thinking about finding an income producing property? These auctions are a great way to learn how the process works.

When asked if this year will be a better time to invest than in 2009, Jim McClelland, an investor in Chicago, does a good job of summing up the statistics.

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“There have always been foreclosures. The difference now is you get a better home for the same kind of money. You’re sitting on better inventory. People get into real estate for financial independence. It’s not a quick fix. It appreciates. It doesn’t happen overnight," McClelland said.

“We bottomed out in 2008, and in late 2009 prices stabilized and investors have returned,” said Mark Fleming, chief economist at First American CoreLogic. “It’s a different type of investor going after foreclosed properties and expecting to hold on for longer time frames.”

Many investors say they’re financing their purchases with cash on hand, rather than borrowing to insure a higher return on investment and an easier purchase.

For those who decided to refinance, there has been a change in Fannie May Guidelines when refinancing a foreclosure that has been purchased at the auction. If you have paid cash at the auction, you can do a cash-out/refinance up to 75 percent of the appraised market value, not the auction purchase price. This opens up so many windows for you.

NAR Chief Economist Lawrence Yun said, “Despite extraordinarily tight credit conditions for purchasing a second home, the market share for vacation and investment homes held steady." He also added, "A sizeable number of buyers made deals with all-cash offerings.”

Investors start out small, purchasing their first house with a 20 percent down payment or even all cash from savings, the stock market or even retirement accounts. The biggest challenge occurs when trying to find a lender that offers investment programs and a representative that understands how to present the loan package to the underwriter. 

Brad Toft, a partner in Clearwater Mortgage Bankers, works with private banks in order not to be hampered by the restrictions of larger institutions. Of course Brad likes to work with the savvy investor that understands the process, but, for those first time investors, he offers extra finance tools that compare different financing options so that the investor is comfortable in the outcome. His recommendation for a first step is to find a home that the investor can get his arms around. In other words, a home that will bring an income that supports the buyer’s goals.

Thinking that buying rental properties is in your future? Do some research. A good place to start is RealtyTrac, a large database of foreclosed properties throughout the US. Vestus, a Foreclosure Company, offers real time data, classes and auction funding for the would be investor. An analysis worksheet is critical and, of course, an attorney to explain your rights and to set up the paperwork.

A smart investor buys one house at a time using the cash flow to pay off the others. This is a powerful way to build wealth and insure a steady stream of income.

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