Buying Rental Property In A Down Market

MarketWatch's Marshall Loeb Gives Some Tips On Profiting On A Depressed Housing Market

(MarketWatch)  Prices on property are dropping in many areas and while that is bad news if you're looking to sell it puts the ball in your court if you're interested in buying. Buying rental property in a down market can be a lucrative investment but there are some factors you should consider before you jump in.

From Consumer Reports, consider these four tips on how to find a good rental property:

Find out where renters want to live.
Location, location, location takes on added economic urgency when purchasing a rental property. Ask your real-estate agent to show you properties that have an established rental track record going back two or three years, during which vacancies were limited to no more than three months at a time. And make sure that you see the income and expense statements on the properties for at least two to three years to find out what has been spent on repairs and general maintenance.

Do the math.
Before you buy, figure out whether the rents will cover your expenses and leave room for profit. To determine how much yearly rental income you are likely to receive, ask real-estate agents for the going rates and scan the classifieds for comparable properties in the same neighborhood. Don't forget to take into account the possibility that the property may be vacant for a month or so. Then subtract annual mortgage payments and operating expenses -- insurance, utilities, projected repairs and maintenance and landscaping. Ideally, income tops outlays, and what's left is called cash flow. If outlays top income, producing negative cash flow, the property is too expensive. Either negotiate a lower price or continue hunting.

Assess the tax consequences.
Anything left over after expenses is taxed as ordinary income. You can depreciate the cost of residential rental property, but not the land it sits on, over 27.5 years -- even if it is increasing in value. Suppose you paid $400,000 for a triplex on a sliver of property assessed at $50,000. Depreciation would come to nearly $13,000 a year, or, put another way, you could have that much rental income without paying taxes on it.

Choose tenants carefully.
Neophyte landlords often fail to conduct a thorough background check on prospective renters, says Vito Simone, a broker at Simone Real Estate in Baltimore. Such a lapse can be costly if the tenant stops paying rent or damages the property. Don't approve tenants until you have checked their credit and criminal histories and talked to references and employers. The lease should lay out rules about pets, parties, rent due dates and late fees. If tenants already occupy the property when you buy, you will have to honor their lease until it expires.

[ozarkbard]

"Neophyte landlords often fail to conduct a thorough background check on prospective renters"

You''re kidding, right? One out of every ten Americans are convicted felons now... they have to live somewhere.

[hotwitch]

Twice in this tiny article it says "Ask your real-estate agent..... " Talk about pulling something out of your arse ! Do your own research, if you have to ask someone else, then it''s probably not a good idea to start renting properties for fun and profit.

[againdtz]

Hold off for now. I hear there will be tons of waterfront property available after Israel kills off all the Palestinians.