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Property Investing Musings: The Donald And You

In a world…

What would a world with Donald Trump as a US President look like? And more importantly here, how would it materially affect the way property investors run their respective businesses? I’ve been contemplating these two theses as the Trump juggernaut rolls through this Summer of Presidential Inconsequentiality. And my conclusions shouldn’t really surprise most pundits – or experienced property pros either. Basically, I have concluded that, for all his bombastic behavior, he’s all sound and fury…signifying nothing (sorry, Shakespeare).

Trump as cheerleader for domestic economic growth

While somewhat debatable, I think most would agree that lower unemployment in general tends to yield a more robust housing market. Employed folks are more prone to take out mortgages, and look to move to their “next” home – affording families a step up in the process. This is part of the American Dream. Any chink in the chain, as it were, will tend to break the model down. As the Dow rolls like a roller coaster, businesses tend to act more conservatively, creating a ripple effect in the economy, as job security is place in jeopardy en masse in an extremely macroeconomic way. The result: a skittish economy, with the hallmark being a “frozen” worker mentality of hold onto what you got, hunker down, don’t make waves. And whatever you do, do not take on a new, larger mortgage. The net effect has a chilling effect on the national economic picture, as the depressions years from 2009 to 2012 truly showed.

What can Trump do?

Can Trump steer the economy to a positive, cheery disposition? Well, as a cheerleader, possibly. But don’t expect him to really understand the true workings of the Federal Reserve Bank. His biggest decision would certainly be his choice for Fed chairman. He claims to know who best to place in positions of power…I’m not convinced, based on his track record in business, if that is necessarily true. Ultimately, I really don’t feel he – or any other potential candidate for that matter – will singlehandedly be able to somehow change the course of the US economy. Business cycles tend to run independent of politics. Even with a Republican President and a Republican Congress, you still have that pesky Democratic majority in the Senate to contend with. More gridlock? I think that’s assured…

Trump as tax code reformer?

While I think Trump can create a more positive spin for our economy due to his bluster (as opposed to a candidate that appears catatonic by comparison…well, yes, Ben Carson does come to mind), I don’t think he can change the course of any true business cycle. And I certainly don’t feel he will be a champion of heavy changes in the tax code that will place the well-off in any serious mode of panic about higher tax rates for the rich (despite his bombast to the opposite). With these two components in mind, I truly believe he will have little effect on interest rates. They will most assuredly be going up very modestly within the next three to six months with the aid of the Fed. But by next year’s election, rates should be stabilized for another year. I do not believe Trump, or any candidate in either party, will be able to unilaterally create an environment of lessening of national regulations from the Frank-Dodd Act for banking institutions. Thus, look for current tight credit to remain rigid overall nationally for mortgage seekers…including property investors.

Taking his act on the road…

While Trump may be entertaining as all get-out, I (along with most political experts) think his buffoonery will ultimately do him in. The honeymoon with the American public can last only so long, after all. The “act” that is his actual boorish personality will get old. It won’t get old fast. It’ll just get old…in a slow, grindingly offensive way. I wouldn’t be surprised if a candidate not currently in the race now in either party suddenly pops up within the next few months (and I don’t mean Biden). Regardless, the institution of the American Presidency is only a figurehead nowadays…a giant cheerleader for the country. Save for appointments to the Supreme Court, there is simply not as much power imbued in the Presidency nowadays compared to past decades in US history. And certainly, the US economy is a train that the President tends to have little control over of late.

photos courtesy of barnorama.com, cnet.com, gazelleindex.com, theswash.com, dailykos.com

How To Flip Houses: Choosing Your Agent

The selection process for a great agent

Choosing a real estate agent to help you in your search for investment properties when house flipping is usually a smart move. A good one will be able to narrow your focus, and run pointed searches for potential investment properties you may not be aware are currently on the market. They also can be invaluable in helping to negotiate your transaction once you locate a potential cash cow of a property. In addition, they can point you to the right local lenders that offer flipping money.

However, how do you go about selecting one, and not get stuck with an idiot? Besides the old tried and true method of having family or friends refer a Realtor they’ve worked with and like, then using that agent to represent you, try utilizing these three methods to select a good real estate agent to help you in your locating process when flipping houses…

Acid test #1

Call them. If your reach them, are they engaging, or do they simply not have time to speak with you, and blow you off? If you leave a message, will they return your call (either with a text or a call) within 10 minutes? If not, you’re using the wrong Realtor to aid you in your search for flip houses! Even if a Realtor is showing homes, they can easily text you back a template “I’m with clients right now” just to let you know they got your message. The way they treat you will be an easy indicator of how well they will work for you…

Acid test #2

Ask them to run a search for you. Be as specific as possible about what you’re looking for….include your price range, areas you’re most interested in purchasing in, as well as type and style of properties you’re looking for. They should be able to spit out search results to you within an hour. If not, move on to someone else – fast. Like acid test #1, you’re trying to locate an agent that works hard for your business – and speedy service is a great way to ascertain how willing they are to go the extra mile for you. In addition, speed is a necessary ingredient when locating houses to flip.

Acid test #3

When you locate a great potential acquisition for house flipping, ask them to run a Comparative Market Analysis (CMA) for you. CMAs take a good Realtor a couple hours worth of work to prepare properly. If they are simply using the software program built into their local Multiple Listing Service (MLS) to get their CMA prepared, do not use them! A good agent will take the time to go through and analyze – using their own head – each of many different comparable items (like lot size, building size, date sold, amenities, etc.). Then they will apply an amount to deduct or add to each comparable property relative to the property you’re considering buying (the subject property). It’s this attention to detail that should gain your business – and trust.

photos courtesy of tmgnorthwest.blogspot.com, orlando-mortgage.org, prw.net.au, money.cnn.com

Look Out For These Property Investor Risks

Property risk definition

Any novice property investor is prone to make rookie mistakes when investing in property– and being unaware of the basic pitfalls that investment property can present is chief among them. After all, investing in real estate is a time consuming, largely capital-intensive way of making money. In addition, even if you are choosing to own shares in real estate funds like Real Estate Investment Trusts (REITs), the basic underlying problems remain. Here are some of the key risks involved in any real estate investment – be they investing in houses, commercial real estate, foreign investments or time shares for that matter.

Some sage property investment advice

Novice investors should be wary of any real estate project that involves negative cash flows. Second homes and land speculation are prime examples, however even simple “fixer-uppers” can become disastrous for throwing off large sums of negative cash flow (also known as “negative gearing”). Unless you’ve had experience with land development, steer clear of this form of property investment. In general, be as conservative as possible when numbers crunching for fixer-uppers. Obtain several contractor estimates for the scope of work to be done prior to even making an offer on a rehab project. Without a doubt, investing in negative cash flow real estate should be attempted only by those with deep pockets, looking to shelter other forms of income from the tax man. The losses thrown off by negative cash flows will aid in reducing the bite of their overall tax bill. So, in effect, negative gearing makes sense for them…but not so for the novice investor actively looking for profits from the outset.

What is investment property?

Investment property is any real estate designed to earn a profit for the investor. And this means it can be located anywhere in the world. However, if you’re considering foreign property investment, think again. The novice property investor should be aware that buying foreign real estate is fraught with inherent risks. (Are you an expert in the politics of the country involved? Are they stable? How many trips abroad are you considering making to watch over your property? And what are the costs involved with those trips? Who do you call when a problem arises with the property in an emergency? Other major risks that can be found in in foreign real estate buys include fluctuating currencies, different real estate laws by country, as well as the singular lack of real estate protections afforded property here in the U.S. compared with other countries. These are all concerns – and inherent risks – only the well-experienced should address. In addition, I have always advocated buying close to home. You know your home area better than any other, and you won’t be considered an absentee owner. Too many tenants like to take advantage of the property and its landlord when they know the owner lives far away…

Owning property – sort of…the risks of time shares

Another important risky real estate area are time shares. They represent some of the highest levels of property investment risk. Time shares are very risky because it’s difficult to predict what, if any, value will accrue over time, the longer you hold onto them. They are very sensitive to market fluctuations, and can drop in value quite suddenly as well. In addition, time shares are very hard to predict with any degree of certainty their future positive cash flows based on prior years performance levels. Finally, these time shares can be difficult to sell when you need to, which can create an ugly financial situation for you when you are most exposed.

photos courtesy of kristinandcory.com, wilmothpropertyservices.com, sellworldmarktimeshares.com, foreclosure-support.com

Choose The Best Contract Painters

An integral part of your property investing team

Just like the other members of your property investment team, your painting contractor is the one you’ll want to stick with over and over again. The more you utilize one home painter, the more discount you should accrue for each succeeding project that you employ his services. In addition, painting contractors tend to be very linear in their cost approach to estimating a project. That is, after a few projects, you should become quite adept at estimating within ten to fifteen percent of what your local painter will charge you, based on the size of the building, and the general condition you’re buying it in.

Repeat business

Unlike with plumbers or electricians, or even carpenters, estimating your paint contractors cost is much more simplified – and constant from project to project. After a while, I knew just by looking at a potential property acquisition what my painting costs would be for painting services with my steadily reliable painting company. By using the same local painter again and again, not only was I benefitting from a discounted price for repeat business, but I was becoming expert at estimating this particular renovation cost myself when I searched for other investment properties to acquire.

Owing allegiance to you

One of the most important facets of finding a good panting contractor, is to work with someone that can give you his priority when on the job. Many painting companies have several crews out on multiple projects every day. I like to find a painting service that only does one job at a time, and the owner/head painter is on the job with his workers every day. If a painting service is so large that you never have the same crew for each of your projects, you can never develop a rapport with them. And, when it comes time for you to ask your painting contractor for suggestions that will save you money on a project, you never know if you can trust their advice if the crew is constantly changing. Stick with one local painter and never vary. You’ll be developing a long-term relationship, and your painting contractor will become yet another valued and integral part of your entire investment property team.

How does your painting contractor stack up on project one?

Like with other trades, your first project will be the most important one with your choice of a local painter. You’ll be measuring them to see how well they work with the other trades people, which will be critical. Many tines a carpenter says he’ll be ready for the painters to come in by a certain date, and he’s not. Then the painters take another job, and can’t come back to you in a timely manner, essentially delaying your entire renovation schedule. But if you have a painter who works well with other trades people, they can ask the right questions to determine the best fit for their schedule, based on how the project is proceeding. In essence, a good local painter is very aware that time is money – and looks for every way to help keep you on your schedule – not simply fit you in to his.

Bidding a project out

In deciding upon your choice of painting companies, you’ll want to check out their references – and actually visit local paint jobs they have done. Certainly price is a major component. But don’t let it be the lowest bidder wins. Make sure you obtain at least three price quotes when selecting a painting contractor. And make absolutely sure they are all written out, and for the exact scope of work as each other. Otherwise, you’ll be comparing apples with oranges. In addition, ask your general contractor or carpenter who they’ve had good experiences working with in the past. If they’ve already worked with someone they trust and work easily with, chances are their recommendation will be a good fit for you as well. You can also check with family friends and your real estate agent for referrals of local painters. Regardless of the list you decide to winnow down, make sure you obtain those written estimates first, so you can best compare their respective price quotes.

photos courtesy of danielpaintingservice.com, painting-contractors.regionaldirectory.us, indigo-construction.net, pinonpainting.com, paintingtampabay.com

Best Rental Property Investment Strategies: Landlording Now!

Investment opportunities abound

Indications are that this year is a great time to begin your real estate investing activities. Investment opportunities in rental property continue to abound. In addition, current home ownership levels as a percentage of overall U.S. population continue to dip. Even with the advent of the current economic rebound across the country, renting is still preferred over home ownership…even when home ownership affordability has continued to get better. According to recently released statistics from the National Association of Realtors, with home prices increasing slightly the last two years in a row nationwide, coupled with relatively historic lows in mortgage interest rates, it is now an excellent time to become a home owner.

Renter insecurity as a market force

As a percentage of average per capita gross income, monthly costs of home ownership (with mortgage debt) are running about 16 percent of gross income, compared with 21 percent a year ago. Clearly, most new home buyers want to stay on the sidelines, preferring to rent instead. This is most probably due to their feeling insecure about their job situation, or the stagnation in their gross incomes over the last few years. Regardless, investment property becomes much more attractive when renters continue to rent – and rents keep rising in the process.

Now is the time – calling all landlords

According to an article posted on MainStreet.com, now is a great time to become a rental property owner. In the article (“For Passive Income, It’s a Good Time to Become a Landlord,” MainStreet, by Brian O’Connell, 2/3/15), Mr. O’Connell points out that “this is a good time to change your life and buy a rental property…a key part of wealth creation is creating passive income — money you earn while not actively working for it, and that’s where being a landlord can help. The idea is simple: Buy a property, rent it to reliable tenants and let them pay down the mortgage for you until the home is paid for. At that point, the entire value of the home is yours, along with any rent you earn after the mortgage is paid off.”

Do you have the right stuff?

Mr. O’Connell goes on to sum up what is primarily necessary to get into the real estate investing business: “It really does take the right stuff to be a great landlord. An entrepreneurial spirit, a hands-on, can-do approach and some good old-fashioned business savvy (along with time) are the ingredients in mastering the rental property game. And right now, it’s a game that’s paying off handsomely for the right players.” I think special attention needs to be heeded to his choice of words when he says “the right players.” This requires a fair amount of personal self-reflection in order to succeed.

And the right temperament?

In essence, this writer’s point is that it takes the right temperament and personality to be successful when real estate investing in rental property. Will you be the property manager for your investment property? if so, be prepared for those late-night emergency calls and some difficult tenant situations, not to mention the chore of screening tenants. Or, you can pay a property management company to do these activities for you. Just be prepared to spend between ten and fifteen percent of your gross monthly income (whether your installed tenants pay or not). It’s your choice – but be sure you run the numbers as to the feasibility of choosing the property management company route. Either way, you’ll want to maximize your investment opportunities now while, as Mr. O’Connell points out so very succinctly, “this is a good time to become a landlord.”

photos courtesy of houstonmortgagetexas.com, zillow.com, lawofficewalterjennings.com, tenantscreeningblog.com, anchorloans.com

Property Investing Basics – The Right Of First Refusal

One more useful tool of the trade…

The right of first refusal (or ROFR) is another excellent tool a property investor can use to manage risk and rewards. As a seller of investment property, the first right of refusal allows you to get something extra in return for providing a legal option for the potential buyer. As a buyer, this first refusal option allows you to lock down a property at some point in the future…sometimes at an agreed upon price, sometimes at a price to be negotiated later. In either case for a buyer, this right of first refusal real estate essentially creates a monopoly for one – you. All your competition gets eliminated in the process…a nifty arrangement for any buyer.

ROFR = financial benefit gained

In the case of a seller offering the right of refusal, some financial benefit usually accompanies the largesse of providing right of first refusal language in a formal agreement. Many times, it is a tenant who wants to take advantage of the prospect of a “rent-to-buy” scenario. I have done this on occasion with tenants for my single family houses. A fixed purchase price is arrived at between the parties, and incorporated into their lease as a first right of refusal real estate option. The tenant then has the right to purchase the property at the pre-negotiated price. They are usually given a set time window in which to exercise this ROFR option. At the end of that window, if they have not exercised their option, or if they have turned it down, then the seller has the right to place the property on the open market for sale.

Above market rents as option fee

In this scenario, the seller may be able to receive a higher rent from the tenant for their “buying” of the legal option. In addition, many times a portion of the increased (above market) rent can be applied towards the purchase price as part of their (already paid in) down payment on the property. Another point of negotiation between the parties may be the percentage of rent that will be applied to the down payment. If they choose not to exercise the option, the buyer effectively “loses” the amount they have been paying for rent that is greater than the “normal” market rent for the property.

Buying time to secure financing

If the property investor is the potential buyer of a piece of rental property, a right of first refusal gives them time to secure financing for the property, over and above a normal sixty to ninety days. Usually, a property investor buyer will need to pay some sort of ROFR option fee for this privilege. As mentioned above, this legal option effectively eliminates any competition for the property. Therefore, it has some value attached to it. And that option fee is a negotiated amount between buyer and seller.

The importance of the written agreement

All right of first refusal language should be written by an experienced real estate attorney. Language must be very specific to cover many possible scenarios. The stronger the language, the less chance the transaction can end up in court somewhere down the road. There are many variations and conditions that an attorney will make sure are clarified prior to the parties signing the agreement. As an example, there will traditionally be a limited amount of time in which the transaction must close once an option is exercised. Also, the ROFR option may be transferrable to another party (known as assignment). Again, all conditions need to be negotiated prior to the agreement being fully executed. Overall for the real estate investor, right of first refusal makes for another useful tool in their property investing arsenal.

photos courtesy of landthink.com, thompsonburton.com, pittsburghlegalbacktalk.com, jayfalone.com, robertgsarmiento.org

The Purpose of Title Insurance For Rental Property

Chain of title

The chain of title, or who actually owned a piece of real estate, is a construct from merry old England from the days of feudal lords. When real estate investing, title ensures an owner is the rightful owner of a rental property, and that there are no other claims, past or present, on it. And the purpose of title insurance is to protect anyone acquiring real estate (and if a mortgage is involved, their lender as well) from having a claim of title placed on the property. In actuality, anyone can make a claim as to ownership of a piece of property. However, title insurance companies relieve the purchaser of anyone investing in real estate from having to worry about settling any claims on it in the future. The title company, in essence says: “It’s our problem now, you go out and worry about only your investment opportunities.” Naturally, title companies run complete chain of title checks to make sure they protect themselves, prior to any closing, and insurance being taken out on a property.

The ordering of title

Title is traditionally ordered by the buyer’s attorney for his client. This occurs after a property investor has either agreed to a purchase price and terms for all cash, or if there is a mortgage involved, he has been approved and received a mortgage loan commitment from his bank. The title company then performs an intensive search of county records to determine an accurate chain of title to the property. This search is a comprehensive review of all the mortgages, deeds, easements and liens on a given property that have ever been recorded. Recorded is the key word here, because without a property sale being recorded, no one else can make a legal claim on it in the future. Without a sale being recorded, it’s as if the sale never occurred – legally, that is.

The title search

Any title company property search will be sure to include all records the local municipality has on file for the investment property. This will include any outstanding water or tax bills, special assessments, tax liens and any other item that could conceivably affect the title. Traditionally, building department records are also checked to ascertain any outstanding building permits (opened, but never closed as completed), or similar code violations. Once title is completed, a title report is prepared by the title insurance company. It is sent to all the attorneys in the property transaction for their review.

If there are any current problems (for example, an unaddressed easement that was never disclosed), the attorneys need to hash out a solution prior to a closing. Similarly, if a building code violation comes up in the title report, or, as another example, the title picks up an existing, illegally built shed (that was built without a building permit), the seller will need to obtain a building permit (or tear down the shed), prior to the closing. Once the buyer’s attorney is satisfied that all outstanding violations have been removed, and that his client, the buyer, will be able to purchase the property with no encumbrances on it, the title is deemed to be “clear.” And a closing can finally be set.

At the closing

At closing, the buyer who has purchased title insurance is given his policy. This ensures that his title rights are fully protected, subject only to any conditions set forth in the insurance policy. An example of a condition could be any kind of pre-existing easement on the property (for example, a right of way for a trail path, or utilities right of way). And the bank holding the buyer’s mortgage is also named as an insured member on the policy. The cost of the title policy is a small sum to pay amongst all other closing costs, especially given the protection it affords the buyer (and his lender).

photos courtesy of business-law-pa.com, askgreganddanielle.com, welchgroup.net, massrealestatelawblog.com

The Republican Sweep And Rental Property Investment Strategies

The mid-term elections recap: little change for real estate investing

The mid-term elections have come and gone on Tuesday this week, only just two days ago. And because both houses will be controlled by Republicans starting in January, it doesn’t necessarily mean that the party of big business will take existing banking laws and revamp them en masse, along with their protections to the American people. Current banking loan standards will most assuredly stay in place, and the concomitant tight credit atmosphere that comprises today’s investment property mortgage market shall unfortunately remain unfettered.

On the downside for property investors

The investment property mortgage marketplace will remain as is, with very tight credit available. There’s simply too much downside for Republicans if an easing of current banking reforms (created since the banking crisis of 2008) were to be repealed, and a new banking crisis were to develop anew. Of course, President Obama would never allow any stripping of current banking mortgage protections, would the Republican majority try to proffer any revisions to current law. Obama would simply use his veto power to stop any changes in their tracks.

Minimum wage laws – some good news for property investors

Even with the Republican’s sweeping into a Senate majority, thereby controlling both houses of Congress in two months, don’t expect any major change in effects for property investment opportunities. Republicans will be quite averse to legislating anything that could hurt big business (and, to a major extent, small business as well). Before the election, there was at least a hint of a Democratic push for a major hike in the federal minimum wage. That will be tossed to the junk heap now. In addition, the wave of Republicans winning major state governorships on Tuesday, will mean that, even on a state by state level, minimum wage hikes will most probably remain at or near inflationary levels only. Even with the mass of protests by fast food workers this past year, expect the prospect of a $15 per hour minimum wage to be a pipe dream for at least several more years.

Keeping costs down

How does this affect the average property investor investing in real estate? Simple. If you don’t already do the menial maintenance work around each of your rental properties yourself, then you probably hire others to clear the walkways of snow, rake the leaves, empty the gutters, etc. As you keep adding on investment properties to your empire, these seemingly small costs become quite large when taken together. Whether you hired the labor yourself – or had your property manager do so – you still end up paying for this maintenance on each rental property you own. The prospect of a hike in the minimum wage would have definitely put a dent in your rental property cash flow. So with the Republicans being victorious on a national scale, expect to keep your maintenance costs at or near current levels. And that’s some good news that property investors can cheer about as a result of Tuesday’s elections.

photos courtesy of nola.com, socalfools.org, myweathertech.com, trashitman.com

The Ups And Downs Of Leverage

The seesaw swings both ways with leverage

Unlike other forms of investment, real estate investing affords property investors the innate ability to leverage their assets to obtain much greater returns over time. While this is a tried and true investing fundamental when purchasing real estate, there are also pitfalls one must be aware of before jumping headlong into the property acquisition process and obtaining any investment mortgage loan. To better protect yourself, here are the main pros and cons you’ll need to be very cognizant of when using leverage as you invest in rental property and take out investment property loans.

The main advantage of leverage

When utilizing leverage, the property investor is trying to use as little of their own investment dollars to act as a springboard to greater wealth. Return on investment (ROI) is traditionally much greater utilizing leverage than when only using one’s own

investment dollars to fund your projects. By obtaining a rental mortgage on one or all of your investment properties, you’re able to leverage the most amount of investment dollars while keeping the absolute amount of your own dollars sunk into investing to a minimum.

As an example, if a $100,000 rental property acquisition cost has a down payment of 30%, then you need only put up $30,000 of your own funds to lock up the property. If market appreciation is 4% a year, the property value in this example would increase to $104,000 on the rental real estate. But your ROI on it would be 13.3% ($4,000/30,000). And as you continue to grow your business, slowly adding properties, you can take out mortgages on each one, eventually using the equity in each prior one to help defray your new acquisition down payment costs.

The main drawback of using leverage

Traditionally, home values have remained quite stable over time. However, in periods of great flux or recession, they can decrease in value. And if you need to get out of the market at any given time, this can create a dangerous scenario for real estate investors. If, using the example from above, the $100,000 property decreases in value by the same 4% in a given year, the property would be worth only $96,000. And you, the property investor, still need to make interest and principal payments on the loaned amount (in this case, $70,000), regardless of the current market valuation. If you have leverage multiple properties, and we hit a bad real estate market all of a sudden, well…you can see the potential for financial destruction that could ensue.

Beware the dangerous housing “bubbles”

Luckily, these periods of “correction” or housing bubbles come few and far between.

But nevertheless, it is imperative when buying rental property that any prospective property investor understand the conceptual financial risks inherent when taking on investment property mortgages, thereby increasing their leverage. While leverage is one of the fundamentals of real estate investing, if you’re willing to take moderate risks, you’ll be able to manage using leverage to your advantage. However, always weigh the illiquidity of property investments, as well as the lack of diversification if you only acquire properties in, say, residential real estate and/or in one geographic area.

photos courtesy of leverage-your-resources.com, mathforgrownups.com, mediacenter.dw-world.de, petetheplanner.com

The Changing Nature Of The Investment Property Market

Current effects of the millennial generation

If you haven’t noticed, the entire landscape of the residential property investing marketplace has been going through a seismic shift over the last several years. Coinciding with the financial crisis that begain in 2008, demand for single family homes has plummeted. At the same time, rental prices have skyrocketed, making residential rental properties hot commodities of late.

Millennial characteristics

One of the main reasons for this is the millennial generation. They have come of age, and are taking their place in rapidly increasing numbers into the workforce. However, unlike their predecessors in the Baby Boomer and Gen X demographic models, millennials stay at home with their parents much longer, don’t feel this is a major social negative in doing so, are not fiancially prepared to obtain mortgages for their first home, and are quite scared of losing their jobs. Hence, these reasons effectively keep large numbers of them on the first-time home buying sidelines.

An increasing trend

However, statistics are now showing an increasing trend for millennials to start purchasing investment property to live in as their first home. Buying two to four family homes, and living in one of the units, allows them to offset the normal investment property expenses, pay their mortgage each month, and even create a small positive cash flow in the process. In addition, they are treated to the loophole of being able to utilize FHA and VA style mortgages, since they will be owner-occupants. This makes obtaining a rental mortgage much easier.

Friends with benefits

Many in the millennial generation also are purchasing multifamily homes with friends to offset their costs. The millennial generation (born between 1977 and 1998) share some rather unique characteristics that make then especially suited to do this style of investment property acquisition. Generation Y characteristics include a celebration of diversity, with an overriding sense of optimism about the future. They tend to be rather inventive. And while they may be used to individualism, they consider their friends quite dear – so much so that they may equate their friends as family.

Creating their own rules

In addition they are used to creating new rules, and they are certainly well-versed in the internet and the concommitant communication style that entails, including an easy acceptance of all new technological advances. They’re excellent at multitasking, and are used to feeling nurtured. All of these characteristics make them better suited for the ability to trade off the traditional first time home buying process for the non-traditional role of first time owner-occupant-landlord.

Priced out of the current first-time home buyer market

When coupling these characteristics with the fact that, in today’s real estate market, rental prices are very high, first time home prices are also quite high, and most first time buyers are unable to afford to buy a home in an area that they would like to live in, these millennials are basically priced out of the home real estate market. But not so with the owner-occupant multi-family rental property market.

The entree into the real estate market

The average first time investment property buying millennial has never bought a home before, and sees the rental property as his entree into the home buying world, while at the same time creating an inflationary hedge in real estate. They effectively get in on the ground floor, utilizing their rental units in the process. Again, many millennials may jointly purchase an investment property spreading the costs, while also renting out other units for cash flow. Remember, they hold their friends in high esteem – and aren’t afraid to live with them in the next unit over as co-owners. This is one of the many characteristics that give generation y the ability to make these bold, new, trend-setting investment property moves.

photos courtesy of loyalogy.com, immersiveyouthmarketing.com, screenmediadaily.com