Homes for Rent
Homes for rent can be a profitable niche for real estate investors. In addition to offering rental homes, investors can also use properties to engage in lease options, seller carry back mortgages, and other types of creative financing options.
Many investors offer homes for rent in popular tourist locations such as mountain retreats and beach bungalows. Others offer rental properties as Section 8 to obtain guaranteed rent payments from the government. Some investors specialize in affordable housing, while others focus on luxury rentals.
The need for rental homes has significantly increased in the past 3 years. Much of this stems from the abundance of property owners who have lost their home to foreclosure and can no longer qualify for bank financing.
In order to earn profits in the rental market, investors must take time to understand the needs of tenants. The majority of tenants require affordable housing in crime-free neighborhoods with easy access to interstate systems, school districts, and shopping. It is important to consider these needs when purchasing investment property intended for use as a rental.
One source investors are turning to is Fannie Mae's Home Path Mortgage program. Fannie Mae homepath properties encompass foreclosure homes across the nation. Investors can purchase properties below market value with a minimal down payment and special financing options.
An additional benefit of buying foreclosure houses through Fannie Mae Home Path is many of the properties qualify for grant funds offered through HUDs Neighborhood Stabilization Program. Investors can apply for up to 5 NSP grants when they purchase real estate in areas with high rates of foreclosure.
Another option is to buy real estate owned (REO) homes through banks. These properties consist of foreclosure homes that did not sell through public auction. REO properties are typically sold at 10- to 20-percent below market value. Some of the more popular banks offering discounted real estate include Chase, Bank of America, GMAC mortgage, Fifth Third, and Wachovia.
Investing in foreclosure and real estate owned properties is a good way to buy discounted property which can be used as rental homes. Although distressed properties generally require repairs, with a bit of work these houses can easily be transformed into affordable homes for rent.
Investors can also earn profits by offering lease-to-own terms. When tenants enter into a lease purchase option agreement they provide investors with a down payment and monthly rental income. Lease options generally extend for 2 to 3 years to provide bad credit buyers time to restore their credit to qualify for bank financing.
In order to fully capitalize on the rental market, investors should develop a long-term plan to determine which types of properties will attract the type of tenants they desire. Short-term rentals offered in hot vacation destinations can sometimes generate more income than long-term rentals. However, investors must provide furnishings and thoroughly clean the home after each rental.
Long-term rentals are generally less cumbersome than short term, but have a higher rate of contract default. Investors must be aware of landlord / tenant laws and follow proper protocol if eviction is required.
Lease options can be a good choice if investors want to sell the property, but care should be given to evaluate market conditions. Sellers can elect to lock-in the purchase price when lease-to-own contract is drafted or require buyers to pay fair market value when the contract expires.
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Published on October 11, 2010 at 02:20 AM
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