Becoming A Landlord Do You Have What It Takes?

Over the past few years many homeowners have watched the value of their real estate holdings plummet and their investment portfolios sag on unstable economic conditions and a soft job market. While conditions are far from perfect there has been some good to come out of the recession. For example, now may be a good time to considering investing in real estate by purchasing rental properties. After the subprime mortgage meltdown, Fannie Mae and Freddie Mac and various lending institutions began tightening their lending guidelines to try to reduce the number of mortgage defaults in the marketplace. Long gone are the days of easy qualification and 100% financing on all types of properties. Today, most lenders require a 20%-25% down payment for investment property loans*. Minimum required credit scores have inched steadily up, and high unemployment has caused many households to go through a financial rough patch, often damaging their credit. The result of these tighter restrictions is that more people are being forced to rent homes thus bolstering the rental market in many communities. When you couple the rise in rental demand with diminishing financing options and todays lower real estate prices, there look to be some good opportunities for the right investors with the necessary capital to enter the market.

The big question that a potential property owner needs to address is if they feel that they can be a productive landlord and real estate investor. Lets face it, there are many people out there who are not cut out for dealing with unruly tenants or chasing down overdue rent checks, or are not disciplined enough to keep detailed finances for IRS reporting or actively keep up with government building codes and compliance guidelines. Landlords need to be prepared to provide service to their renters and should have an understanding of home maintenance or be prepared to hire a property manager who can help in these capacities.

Making money from investment property ownership is not as cut and dry and calculating your monthly rent intake versus your monthly housing debt obligations. All real estate owners will attest that the cost of homeownership far exceeds simply your principal, interest, taxes, and insurance payments. Real estate investors need to put themselves in position to deal with minor and major household repairs as they are needed. Whether its $10,000 for a new roof or $500 for a new dishwasher, the landlord will need to be able to maintain their home in a habitable condition as defined by the local government and the terms of their lease agreement with their tenants.

One of the best resources I have found for potential rental property owners is on Fannie Maes web site at: efanniemae.com/lc/publications/pdf/landlord.pdf

Fannie Mae has compiled an 80 page handbook that delves into many important aspects of real estate investing. From making the decision to become a landlord and finding tenants, to hiring a property manager, to creating a operational budget, their team did a great job putting together a very useful resource. Their publication also contains a self study exercise which can help prepare one to become a knowledgeable and successful renter property investor.

* There may still be some private lenders out there who do low or no money down rental property loans but I am not aware of any at this time.