As the inventory of reasonably priced homes becomes a thing of the past and as low, low inventory spurring bidding wars become the norm instead of the exception, there will be an onslaught of potential buyers who will unfortunately have to revise their expectations in their plans to purchase or consider renting.
As I have explained in a previous column, many should be thinking of trading off to an HOA, condo or co-op. One must do whatever is possible or necessary to leave their rentals or their parents or in-laws’ homes to take advantage of the benefits of ownership (appreciation over the years, building their wealth, tax write-offs and being in control of their destiny by becoming their own landlord). However, for those who cannot consider purchasing for now due to financial or other reasons, then either a yearly or short-term rental will be the option or just staying put where they currently are living and saving more money.
The bidding wars that I have experienced myself and other stories that I have heard have caused those buyers to rethink their strategy and to consider putting their prospects of buying on the back burner.
For so many who want to stay local, rentals will be the hot commodity going forward. As an investment depending on the state and location, however, those who already own are in an enviable position to be able to have positive cash flow. This is all predicated on when they bought, the costs of renovating, monthly expenses etc. Due to the current non-eviction laws in place those landlords who are not receiving any rental income are in a very precarious place as they are probably in a negative cash flow position and cannot pay their mortgages and/or real estate taxes.
Where is the fairness in the new laws for those who are trying to live off their rental incomes? Hopefully if you are a landlord and have had income difficulties due to non-paying tenants who lost their jobs/business, you were proactive and had previously applied for an EIDL (economic injury disaster loan). Depending on your situation, it could be turned into a grant whereby you would not be obligated to pay it back. If you never received any money or never applied, you have until April 30, 2021 to do so.
Under the Cares Act landlords can apply for up to $2 million in financing depending on their level of financial need (the SBA will determine the final amount) at a 3.75 percent interest rate, much lower than most commercial lending programs. Also with your tenants’ permission a landlord can apply for a PPP (payroll protection plan) on their behalf to assist in their monthly rental payments. There is so much information about the various loans/grants. Just Google The Cares Act and there will be a multitude of facts and guidance for those in financial need.
There is available money through the SBA (Small Business Administration) for those who want to invest in rental real estate as long as they occupy part of the property. There are specific qualifications that are needed. Also there is another way to secure money via a standard commercial SBA 7A loan. Here is a link for more info:
The most important facet for investing in rental real estate is the R.O.I. (return on investment). Crunching your numbers and knowing what the rental market is within the area and the condition of the property by doing a mandatory inspection will provide you with a clearer picture as to whether or not the property profile is a good fit so you can earn money. After analyzing all the information and understanding what your yearly expenses will be, including mortgage, taxes, insurance and an allowance for repairs, you should be able to determine your gross profit.
N.O.I (net operating income) can be calculated by subtracting the yearly operating expenses from the gross income. Then subtract any debt service and that will provide you with the N.O.I. or cash flow. Over the last 10 years as more and more properties became investments, further reducing the available inventory, and while construction has not been able to keep up with the pace of increased demand, rental properties are now and will be the shining stars for the foreseeable future. As long as they are not growing more land, the value of rental properties will be strong and there has never been a better time to invest than now. As long as the numbers make sense in the brain, they will make sense in the pocket.
- Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has 39 years of experience in the Real Estate industry and has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S). For a “FREE” 15 minute consultation, a value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email: Phil@TurnKeyRealEstate.Com Just email or snail mail (regular mail) him with your ideas or suggestions on future columns. with your name, email and cell number and he will call or email you back.