The times they are a-changin’…
The current spate of rallies sweeping the globe, spurred by the Occupy Wall Street protests, taps into a great underlying fear for property investors: namely, is capitalism dead? Most of the protests stem from the wide disparity between the rich and the middle class in today’s economy. While the anger is certainly well-founded, property investors should be asking how they can utilize this current social volatility to their favor.
Any investing of your hard-earned income into rental real estate requires some faith that these unsettled times will abate and calmer waters lay ahead. However, investing in a storm of social and political upheaval can still yield great dividends. The main reason being, people are always looking for a port in a storm.
These days, the residential rental market remains quite strong, due mainly to the concept of simple supply and demand in this current storm of upheaval. With fewer people purchasing (and/or refinancing) homes, and credit markets remaining quite tight, renting becomes an extremely viable alternative. Renting is now a great housing substitute for a) potential first time home buyers, b) those who have recently lost their homes to short sales and foreclosures, as well as c) those who sold their homes, but have decided to wait before purchasing another home in such declining real estate markets.
Thus, residential rentals provide a true port in the proverbial storm for such psychologically changing times. And with current interest rates at historically low levels, this also represents a unique opportunity for property investors to jump in, and/or augment their residential rental real estate holdings.
The time is now for more leverage
It would make sense that the more rental units you can afford to leverage at this time, the better. Keep in mind that five family and larger houses and apartment buildings are considered commercial buildings. And lenders typically offer better rates and terms on residential property. Also, consider three and four family properties over single family or duplex houses to increase your leverage.
Take into account that in such volatile times, offering solid, attractive rental housing can bring greater positive cash flow due to your ability to raise rents on a very regular basis. People will pay more for that psychological feeling of security and serenity in their home environment – and you can be the one to provide it to them. They also don’t have to worry about the real estate market constantly going down and their homes losing value if they stay on the “sidelines” and rent, until residential real estate values begin to level off and rebound again. But that rebound now appears to be at least several years off.
So use these shifting social and economic times to your advantage. Look to augment your rental property investments by adding to your multifamily portfolio at this strategic and historic point in time.
photos courtesy of valcortraining.wordpress.com, blog.amnestyusa.org, activerain.com, myccknowledge.com