Fredericksburg, TX: Buying Investment Property

Wednesday, December 10, 2008

Buying Investment Property

When the stock market is zooming up and down like a theme-park ride, the solidity and tangibility of Fredericksbrug, TX real estate as an investment is increasingly appealing to many people.

If you are considering becoming the new owner of an investment property, some things about today's economy are in your favor. More people are renting, because it's harder to qualify for a mortgage and because some people are genuinely scared to buy a home they might believe is still overpriced. So there is a large pool of potential tenants. And there are many houses (and a scattering of duplexes) to choose from because so many properties are on the market.

This is not an investment for the faint of heart. Being a landlord requires a good deal of time and money, possibly over many years. You need to be willing to make repairs or hire someone to do so. You have to be responsible for collecting rent, dealing with unruly tenants and finding new tenants when vacancies occur.

For Lloyd Lindsay, 25 years of owning investment properties has had more positives than negatives. "I bought this house for retirement income," Lindsay said. "For 25 years it's been a good investment."

If you're thinking of taking the plunge, here are some tips to consider:

1. Sell your house, buy a duplex, rent out one half of the duplex and live in the other half. This is a great way to start out as an investor/manager. Learn how to manage property, collect rent and take care of needed repairs in the first few years. Also, just by moving from your house to a duplex, you immediately have someone else paying a portion of the mortgage. Fredericksburg is chronically short of duplexes for sale, so in this option will require some patience.
2. Buy a single-family home and rent it out.

Experiment with one nice single-family home that is close to where you live. You will have to be at the property frequently to collect rent or to make repairs, and it is easier and simpler if it is close by. In a market like Fredericksburg, remember that location is key. Better-located properties rent for more and rent more quickly (they also typically cost more to buy). The closer-in properties historically hold their value better and are less prone to the normal market cycles.

3. As a general rule in the Fredericksburg area, expect to pay $160,000 for a starter rental house and about $185,000 for a duplex. Duplexes in more expensive neighborhoods can cost $300,000 or more.

4. Do your homework. The most important part of the homework is figuring out what you can collect for rent and whether this will cover your expenses as a property owner.

You can only get for rent what the neighborhood will bear. A good agent can help you figure out what a reasonable rent would be in your neighborhood. You can also drive around and call the numbers on signs advertising "duplex for rent" or "home for lease" to help you get a feel for what rents are like. Also, check the Fredericksburg Standard real estate section weekly.

5. Calculate your expenses as a property owner. These will be your mortgage payment, property taxes, insurance, any possible homeowners association fees, maintenance, repairs, any utilities you decide to cover as the landlord, and advertising costs when you have a vacancy. You might need to add property management fees to this amount if you are not planning to manage the property yourself. Figure out whether your rental income will cover all of this, as well as leave you some extra money each month that you can put in a savings account to cover future repairs. Again, a good investment property agent can help you calculate these figures. Don’t forget to factor in a reasonable appreciation figure as well as the usual tax advantages of owning real estate.

6. Consider a duplex over a single-family home because there will probably always be some rent coming in. If you own a single-family home and your tenants move out, it might take several months to find another tenant, and in the meantime you will have to cover all of your property expenses out of your own pocket.

7. Be aware that because credit is harder to find in today's tight market, most lenders are requiring a 20 percent down payment for investment properties.

8. Be a realist. Be very conservative with your expectations of how your property will appreciate. And unless you are handy with repairs, buy a property that's in above-average condition. Repairs can hurt your cash flow.

9. Finally, it's always good to have an exit strategy. If it's not working out, you can hire a professional to manage it or you can sell it.

Labels: fredericksburg texas tx real estate