Rental property may be smart choice in tight market

October 15, 2015

 

michael blower

Michael Blower

Many homebuyers are finding the availability of single family homes is still limited in some of the more affordable parts of the Central Valley. Savvy homebuyers are are looking at other options for purchasing real estate.

Duplexes, triplexes and even small apartment complexes can be smart investments because rental properties are in high demand, and many landlords are commanding top dollar for units throughout the Central Valley.

In Sacramento County alone, rents have reached their highest quarterly growth since 2005, according to MPF Research, which measures rental property data. This pushed year-over-year rent growth to 7.3 percent – well above the national norm.

What Fannie and Freddie have to say

Multi-family properties present a unique opportunity not only to find a great place to live in a desirable neighborhood, but also as a means of helping pay the mortgage through rental income.  

According to the loan underwriting guidelines of Fannie Mae and Freddie Mac, as well as the Federal Housing Administration (FHA), you can purchase a one to four-unit property with traditional home financing, as long as you intend to use one of the units as your primary residence.

The typical down payment for an investment property starts in the 20-25 percent range. However, if you intend to occupy one of the units, the down payment will be considerably less.

Studying the potential of college areas

Some potential rental properties you may want to consider are located near the more than 20 colleges in our region. With 13 community colleges and nine private and public colleges and universities, there is tremendous demand from students for rental units. Most schools do not build enough on-campus housing, and that leaves students scrambling for nearby rental options.

Increasingly, students are looking beyond apartments to houses, duplexes and triplexes that offer a more home-like feeling.

Investing in rental property in a college community is a smart move because there will be a reliable demand for that type of housing. And as professors, academic staff and parents of students continue to buy and sell homes to be near campus, your property value will likely to increase over time.

Ask for help

Buying a property with rental potential can be tricky. There are many details to consider about the purchase itself as well as the responsibilities of being a landlord.

That is why it is prudent to engage an experienced real estate professional to help you with the process. An agent or broker can help you search for available properties, and they can provide insights on everything from pricing rental units and screening tenants, to insurance and other protections.

Certainly the idea of sharing space with strangers or renting to college students can seem like a risky proposition, but rest assured there are safeguards available that can protect your property and your peace of mind.

Michael Blower is president of the Central Valley Association of Realtors and an agent with Grupe Real Estate. You can reach him at mblower@gogrupe.com.

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