Tuesday, February 23, 2010

Come And Get It

Hi People/ Investors.
An article came out by The Wall Street Journal and it says now is a good time to invest in rental property. I disagree. It is a great time to invest in rental property.
Prices have fallen faster than rents, leaving a delicious capitalization rate (Take the net income, not including mortgage payments, and divide it by the purchase price. The higher the number the better.). Back in '07 you would be lucky to get a San Diego cap rate of 5%. Now, even a lowly duplex will get you at least 7%. Plus the interest rates are nutritious (Couldn't let the "food" analogy drop). That's good eatin'. But, if everything else sucks (Everything does not suck. We live in San Diego) what are the down falls?
Glad you asked. Now a days you will need at least a 25% down payment. That ain't chicken gizzards. Add in the closing costs and you're out of pocket for some heavy change.
Unemployment is a kick in the wrong spot (Imagine your 2nd most painful spot. Now imagine that it's painted like a soccer ball. Now imagine you're in a country that cares about soccer...). If people don't make money they can't pay rent.
Those are scary issues, but with any investment their are risks. People will live in Southern California and people will pay to stay somewhere.
Also, remember that when you buy rental property you have bought a job (Unless you hire a property manager. He'll charge you approx 10% of gross rents. Not a bad idea if it doesn't cut into your pocket). 1st, make sure you do your homework before you buy. What are rents? Projected rents? How are the schools? Are there jobs in the area? Public transportation? Does it pencil? Are you being honest with the #s? 2nd, how much will it cost to get the property in top rental market shape? You want to be the cat's meow. if people are looking to rent you want them in your place, not your neighbor's.
Again, if you have the cash, the credit, the time, the ambition and the stomach to jump in, then jump in. People make a lot of money renting out real estate, if they know what their doing. Also, flips are dead. I don't care what HGTV, A&E or ESPN say (Unless you're buying all cash at an auction. Another time).
Check out the article by clicking on the title.
God Bless.