When it comes to investing, rental homes can be a steady source of income for many years. There are plenty of advantages to this type of real estate investment. Rental homes can be relatively low maintenance, especially if the owners decide to use a property management company. Often rental homes can also be sold in the future at a profit as well. While finding investment properties in many areas is no problem, it may be difficult in a hot real estate market with low inventory and high demand. Here are three tips for buying a rental home in this type of market.
Pay With Cash
In a hot real estate market, buyers need to take any possible advantage that they have and use it. Offering cash for a home is one advantage that can make a big difference when it comes to whether or not an offer will be accepted. Many sellers, even in really active markets, will accept a cash offer over an offer that involves a loan. The main reason that cash offers are more attractive is that there are no loan contingencies to deal with. There are a variety of factors that can lead to a loan not being approved. However, a cash offer is most often a done deal. Closing can also take as little as 7 days with a cash offer compared to the 30 to 45 days it can take when a buyer has a loan.
Consider An Owner Occupant Loan
For those looking to get into the rental property game, competition can be fierce in hot housing markets. This is especially true for investors who aren't able to make all cash offers. One way to invest in a rental property is by living in it before renting it out. Owner occupant loans require that the buyer live in the residence for 12 months before renting it out. The main benefit is that these loans can be obtained with a lower down payment and often have better interest rates than loans typically used for investment properties. This is a great way for investors to start out as investors in a hot real estate market.
Location Is Important
In areas where inventory is low it may be tempting to snatch up anything that's available. However, even in a hot real estate market this can be a mistake for investors. When it comes to rental properties, location is still king. Renters are often looking for proximity to things such as public transit, grocery stores, schools, and entertainment. Homes that are close to these amenities will rent better than ones that aren't. It may be difficult to find properties in sought after areas, but it can make more sense for an investor's bottom line.
Purchasing a rental home in a hot real estate market can be difficult. Investors should consider paying cash, if possible, in order to have an advantage over other buyers. Owner occupant loans may also be a good choice for someone looking to invest in a rental property in a hot real estate market. It's also important to not forget about the importance of location. Even if inventory is low, purchasing in an area that's sought after and has high rents is going to be the best choice financially.