With home prices retreating from fever-pitch highs, a new breed of real-estate investor is eclipsing the speculator: the landlord.
More Americans are hanging out “for rent” signs. Some were forced into the business after buying investment houses or condos at top dollar during boom times that they now can’t sell. But many are discovering their inner landlord on purpose, often buying properties well below prices from a year or two ago.
It can be lucrative. For the first time in several years, rents are rising in many places, in part because the subprime-lending crisis is making it harder for people with marginal credit records to secure mortgages, increasing rental demand.
Shantay Wakefield and Gerald Taggart, a couple in Fairview Heights, Ill., have bought two rental properties in the past two years. The two 30-year- olds figured they would be income- generating investments, though they didn’t foresee the pitfalls.
“You find out quickly that this is not easy,” says Wakefield, a high- school teacher. They expected repairs to one of their rentals to take four weeks; they took seven months, and costs piled up.
Nevertheless, she says, “The sense of accomplishment, that’s what we’ve enjoyed.”
At the National Association of Residential Property Managers in Virginia Beach, Va., membership in the past year has increased by more than 20 percent. In Nashville, Tenn., Wilson Group Real Estate’s property-management-services arm has nearly doubled to 250 clients in the past year, thanks to the landlord boom.
Getting into real estate remains relatively easy. Despite the difficulties in the loan market for higher-risk, subprime borrowers, there are lots of financing options available for investment real estate, assuming your credit is good.
But that doesn’t mean it is a good idea for you.
Tricky tax laws, obscure local ordinances and other imponderables can turn what looked like a no-brainer rental into a money pit.
Keep in mind that “you’re buying an income stream, not a pretty house,” says Paul Howard of the Florida Landlord Network, which provides services to landlords. A house will attract only so much rent. If you overpay, you can raise the rent only so much before your property starts sitting vacant.
Howard says he recently took a call from an engineer in Maryland who had just bought a waterfront Florida home and was looking for help finding a renter. “I ran the numbers,” and “even if this guy got top dollar for rent, he was still underwater by $800 a month,” Howard says. “He overpaid, and now he’s got problems.”
The first step is to assemble a small team of pros, especially a real-estate agent knowledgeable about local rental rates and other issues that will affect your bottom line. Consider retaining a local property manager who can help you navigate ordinances, set a fair rent, find tenants, arrange lawn services and handle worst-case scenarios such as evictions.
The downside: Managers tend to charge a month’s rent upfront and about 10 percent of the rent thereafter.
Wakefield and Taggart manage such duties themselves. One of their two properties has been smooth sailing. The other’s tenant is “calling every day with a new complaint,” Wakefield says.
Property managers are listed in phone books or online. You will want one that has been in the business full time for years. To track rental finances, many landlords use Quicken Rental Property Manager or similar software.
Running a credit check “is a must,” says George Heim, a retired policeman in Wall Township, N.J., who, along with his wife, inherited a home that is now a profitable rental unit. Landlords can sign up for services from providers such as Fidelity Information Corp. (gofic.com) to get these reports for small fees.
