During the real estate boom back in 2004-2006, investors came to the Reno area and bought homes to use as rental properties. They withdrew equity from their existing homes to place a down payment or paid cash for homes that they planned to use as rentals. Can this strategy backfire? Yes, as evidenced by the three years of foreclosures and short sales in residential rental and commercial properties we’ve seen.
I don’t want to be a landlord anymore: I received a phone call from a landlord in Sparks recently who asked, “What can we do about our rental property? We’ve already refinanced the home twice. We were fortunate to rent out our three-bedroom home to a small family but the repairs and maintenance come to an average of $400 per month. Now we’ve decided it would be best to let it go.”
Asking the right questions can help you avoid or get out of a bad situation.
Q: If we decide to put our property into a short sale, what are the qualifications?
A: I met with this Sparks landlord and his wife to find out where they stand financially and see if they qualify for any financial hardship. I found that their monthly expenses exceeded their monthly income by 35 percent. They have serious financial hardship every month, which will qualify them for a short sale on their rental property.
Q: Can the bank that owns my rental property put a lien my primary residence property?
A: Only if you used your primary residence as collateral to buy your rental property.
Q: How do I determine if my rental property is financially sound?
A: A good investment should put you in the positive every month. Your rent should cover all of your expenses.
Q: Where should an investor buy rental properties?
A: Investors should buy properties where there are renters and a large population. So if you own a rental property in downtown Sparks you will have a larger pool of tenants to choose from and quickly.
Q: What kind of conditions should an investor look for in a rental property?
A: There are two types of investors here. One is an all-around handyman cash investor. This type of investor buys properties in cash and tends to buy in an older area. Therefore the properties are cheaper and most likely require significant improvements. On the up side, this investor tends to resell the rental property more quickly to generate quicker cash accumulation.
The second type of investor is the landlord. This investor prefers to buy smaller properties that require minimal repairs or improvements, and therefore can be rented out immediately to reduce expensive vacancies. They usually buy properties closer to town and closer to the financial hub where the jobs are. The landlord prefers to hold onto the properties longer to build smaller positive cash flow.
Q: What are some other factors an investor should be concerned about?
A: Most investors avoid buying homes that comes with high monthly homeowner association (HOA) dues, high property taxes, high maintenance fees, etc.
Q: Why are investors hiring property managers?
A: More investors are relying on experienced property management companies to find renters, draw up leases, check credit, etc. It’s also a way to cover them legally. Property management companies can effectively interface with the HOA on rules and regulations and schedule regular maintenance and repairs so the investor can focus on purchasing more properties. Property management can keep up with current landlord tenant laws so both parties’ rights are protected. Hiring a local property management company is extremely beneficial to both landlord and tenant when the owner lives out of town. This way, the property can be properly taken care of and everybody is happy.
What’s better than a happy landlord and a happy tenant? Just make sure that if you are looking into renting out your property, you contact a professional to help guide you through all the steps. A rental property can be a good investment with the right planning and preparation.
Annie Christian is a real estate broker and owner of The Annie Christian Real Estate Group. She helps with everything from buying and selling to foreclosure and short sale. To submit a question, call 351-5117. Her website is www.anniechristian.com.