A safer route is to find sellers who need to sell but who have equity in their homes. A real estate agent may be able to help, Hatcher said.
As part of HomeVestors, Robertson is behind the “We Buy Ugly Houses” advertisements. That’s how she comes across investment properties.
Buying an investment property
Investors can take advantage of low interest rates but should expect to pay higher than what they would pay for a primary residence, Hatcher said. Investors often must have a larger downpayment, too, of about 20 percent. Investors will also need money in reserves and cash for upgrades and closing costs.
“Collateral and skin in the game is pretty much what they want to see,” Hatcher said of lenders. “The theme would be cash is king.”
Lenders will look for buyers who have liquid funds, such as lines of credit, or cash in the bank, or money available in 401(k)s or IRAs, Hatcher said.
A lot of beginning investors think they’ll handle renovations themselves. Hatcher and Robertson recommend hiring a general contractor instead.
“Home inspectors are really picky,” Robertson said. “We make sure we use licensed trades so we do a good job for the consumer.”
‘Flip’ or rent?
During the boom, a lot of investors were interested in “flipping” properties — buying them and quickly reselling them at a profit.
That’s still occurring, but to a lesser extent. The buyer pool has shrunk because lending requirements are stricter.
Some buyers now are temporarily renting investment properties, in hopes of selling them when the market improves.
Other buyers are “keep and hold” investors who plan to act as landlords by renting the properties instead of reselling them.
Robertson said investors are getting more rental income now than ever before, because rental payments are up and housing costs down. Rents more than cover mortgage payments, she said.
“You have instant cash flow from your rental. It’s never been a better time to be a landlord,” she said.
To help determine whether an investment property is a good buy, a buyer would want a real estate agent to conduct a market analysis on comparable properties, Hatcher said.
A keep-and-hold investor may only need to get the property for 75 to 80 percent of market value after it’s rehabbed. A flipper would need to acquire a property at around 60 percent market value after rehab costs are factored in, he said.
Robertson, who started investing four years ago, thinks it’s a good time to invest.
“Most people have their money in the stock market right now earning zero, or in the bank earning half a percent. Real estate is on the bottom. It has to go up,” she said.
Time to buy?
•Low interest rates
•Prices lower than they have been in years
•Buying at a trustee’s sale can be risky because you can’t see inside the property or get an inspection ahead of time