If you are interested in owning rental property, this might be an excellent time to buy:
* Home prices are down. The Standard & Poor’s/Case-Shiller 20-City Composite Home Price Index recently reached its lowest level since April 2009. Thus, home prices are back where they were during the 2008-2009 financial crisis.
* Mortgage rates are down. Thirty-year fixed-rate mortgages now charge an average of 4.7%, one of the lowest rates on record. For investment property, you’ll probably pay a higher but still very reasonable interest rate, perhaps in the 6%-7% range. You’ll also have to produce a large down payment in many transactions, perhaps 35%-40% of the purchase price.
As a rule of thumb, you’ll have a good deal if the monthly rent you can expect is at least 1% of the purchase price of the home. With anticipated monthly rent of $1,800, for example, you could pay $180,000 for the house and expect to have positive cash flow: more money coming in than going out.
Just be sure to have any home thoroughly inspected before making any commitment. In these days of mortgage defaults and foreclosures, houses on the market may not have been properly maintained.
