Time For Investors to Get Back in the Market

Now is the time for investors to begin to look at residential foreclosures as investment vehicles. As recently as a few months ago, the residential investment market was less than ideal for investors. However, due to incredibly low interest rates, increased tenant applications, and an increased supply of income properties for sale, it's time for investors to hit the ground running.

Financing has been a hurdle for many. Because of the banking crisis, investment financing was difficult to come by. However, the new stimulus plan has eased up some financing requirements for investors. And, interest rates for investment properties are at their lowest rate in years. Now, with a decent credit score, it's possible to purchase a property as an investor with better terms than we've seen in a very long time.

The large number of foreclosures has had several effects on the market. Specifically, tenant applications have increased because of the number of foreclosures. These previous homeowners have to live somewhere; and in general, make great tenants. Since they've been homeowners before, they make better tenants because they're accustomed to taking care of a house. This will bode better for you as a landlord since your main job is maintenance. And, there are lots more of them out there looking for a home to rent.

Obviously, bad credit will be an issue due to their foreclosure. But, an investor can overlook this problem if job security is good and if they can afford a little higher security deposit. Generally, I recommend asking for two months of security deposit for someone with bad credit.

Thirdly, although foreclosures seem to be leveling out, they have recently hit an all time high. There are many deals for an investor to look at. Generally, you want to buy a house that is valued at 100 times the monthly income. In other words, if you expect a house to rent for $1,500 per month, then the house should sell for no more than $150,000. If you use this rule of thumb, then the home should generate some decent cash flow.

While we have seen some minor reductions in asking rents over the last six months, those seem to be leveling off as the residential housing market starts picking up steam.

So, despite the fact that there are still some hurdles that the economy must face, it appears that now may be the best time in a while for investors to get back into the housing market. With patience in shopping for your property and with a good supply of probable tenants, it could prove a good time to increase your cash flow and your net worth.