Even as home prices and mortgage rates rise, there are still bargains available for borrowers looking to purchase rental properties.
According to the National Association of Realtors’ 2013 Investment and Vacation Home Buyers Survey, investment-home purchases accounted for 24 percent of all sales in 2012, the second highest mark since 2005.
“Investors have been very active in the market over the past two years, attracted mostly by discounted foreclosures that could be quickly turned into profitable rentals,” Lawrence Yun, NAR chief economist, said in a statement.
While rental properties are certainly appealing, offering the promise of monthly cash flow in addition to long-term appreciation, investment properties have a number of costs that are both visible and hidden, says Michael Whitbeck, real estate investor and founder of Residential Mortgage Underwriting and Processing Institute, a mortgage underwriting training firm in West Bloomfield, Mich. Even the most obvious expenses, like the monthly mortgage payment, might pack a few surprises.
Before you start searching for rental properties, run the numbers to understand whether investing in a rental property will be a windfall or a money pit.