Buy a Twin Cities Home And Try Becoming a Landlord: Sell the homes later at a profit from rising home prices if you determine the rental income is not for you:
January 1, 2014
More Twin Cities homebuyers are seeking to begin the adventure of investment buying by learning how to buy a home for rental income, which is a property offering a cash flow that is higher than the rent and all the expenses of owning and maintaining the property.
Minneapolis' place as number nine on a list of the top 10 cities for developers, according to PwC, a research and advising firm that co-authored a report with ULI. Which is not surprising given our Twin Cities housing market gains in 2013. In an article title "Is the REO-to-Rental Sector Here to Stay" Matt Scully commented in the Inaugural REO-to-Rental Securitization released January 22, 2014.
Glenn Coistello, senior managing direct at KrollBond Rating Agency sat on the panel and commented: "If home prices continue to rise (12% nationally in 2013) and we assume rents do not rise alongside that, rental yields may not be as attractive to institutional investors". With less outside inventor interest, Twin Cities homebuyers find the competition less fierce than that of 2013.
Minneapolis - St. Paul housing markets ranked high nationally for the tightest rental markets in December 2013. The thousands of new apartments and multi-family single-family homes that were added tot he Twin Cities rental income housing market did not balance housing supply and demand. Typical rental unit vacancy rates in the metro by the end of 2013 ranked 2.8 percent with the average rental home price rising 0.9 percent to $1,017, according to a quarterly survey of rental markets from Reis Inc., a New York-based housing data research firm.
Urban Institute puts forward an example of how the profits of a rental home may work:
"If a home sold for $90,000 and needed $10,000 of repairs, for a total cost of $100,000, and it could be rented out at $1,200 a month, or $14,400 a year. That home would be generating a gross cash-on-cash return (often referred to as a gross capitalization rate) of 14.4 percent ($14,400/$100,000)." Those profits must cover many expenses for the homeowner, including property taxes, home insurance, any homeowners’ association dues, and all emergency upkeep and routine home maintenance. if the property remains vacant part of the year, an agency may charge fees to manage rents. Additional fees to market for and screen potential tenants must be calibrated in. Tenant turnovers often include costs to repaint the home and either clean or replace carpet. "Let us assume these fees total $500 a month, or $6, 000 a year. Taking all these expenses into account, the property owner would be left with a net cash-on-cash return (net capitalization rate) of 8.4 percent ($8,400/$100,000), plus any property appreciation," concluded the report.
Many Twin Cities home buyers are seeking a deal when buying potential income properties. Little time is often put into a Minnesota home foreclosure to prepare them for a sale, so if you are seeking to buy a distressed home, be prepared to take on a home fixer-upper . Since the Minneapolis real estate market is recovering faster than the national average, finding the right foreclosure bargain home is becoming more challenging. Enlisting the guidance of the right agent will help you buy a home for rental income.
Getting started in buying Twin Cities homes for rental income requires a throughly knowledge of current market conditions. While there is no way of predicting the level of success you can gain, starting out with a few investment home purchases before making any monumental financial investments will help you gain hands on experience and confidence. Read our article with guidance for Twin Cities homebuyers seeking fix-er upper bargains.
Positive Economy Is Spurring Buyers to Purchase Rental Properties
The basis for this declaration is strong job growth, a rebound in business and consumer confidence and strong activities in both the housing market and new construction. Of course, it is no secret that the “housing market continues to act as a tailwind for the economy.”
If you have a hankering in becoming a real estate investor, “carpe diem.” As the economy continues to recover, real estate investing is once again becoming a very popular investment strategy. Whether you want to invest in houses as rental property or warehouses or apartments, start now to build your portfolio. After all, real estate investment offers long-term financial security in ways that other investment strategies do not and just cannot.
Although it is not tough to plunge into buying homes for the purpose of real estate investing, it does require savvy, dedicated research time to avoid some common mistakes. Buying a home that is your principal residence is very different from a buy-hold-and-rent plan. Current programs that are meant as incentives to homeownership typically don't cover rental properties, making the two home financing opportunities very different from each other. Talk to your tax account before you get started. Leaning just how the tax code treats Twin Cities rental property is important in determining next steps and that fit your purchasablility; tax laws on rental homes are similar to running a business. There are tax write-offs on a rental property that aren't available to owner-occupied houses.
Research Twin Cities Community Use and Zoning Restrictions
Both owner-occupied and rental properties are subject to a community's use and zoning restrictions, which can include:
* Limitations on noise levels.
* Ensuring that property maintenance is completed to a specified level.
* The maximum number of occupants that may live in the home.
* If and what kind of business the owner or tenant may conduct on the property.
* Parking restriction to ensure snow route clearance and neighborhood safety.
* Local additional use restrictions. To comply with IRS rules that fully qualify the home as a rental property, the buyers may need to limit dwelling in the home to two weeks or less per year. Check to see your if local government agency imposes additional restrictions and licensing requirements on rentals.
Example: Eden Prairie License Requirements to Rent Out Eden Prairie Homes
Ever since March 2, 2006, the City of Eden Prairie put in place rental housing codes for all rental property to be licensed and inspected to ensure quality of public health standards, safety and well being of its residents. Read Eden Prairie's 5.72 Rental Housing License [PDF] and ask to review the 9.11 Rental Housing [PDF] to learn more about the licensing of rental housing in Eden Prairie.
How to Acquire REO Homes for Rehabilitation To Convert Into Rental Income
First Look, soon to be available nationally in additional locations throughout Minnesota and the nation, will identify REO properties and provide cities with the opportunity to purchase the properties once the redemption period has passed and before they are listed for sale through traditional mechanisms. This will allow homes to be acquired quickly, saving on expenses associated with prolonged holding periods by both the cities and the lenders.
The profit the owner of a rental home accrues is taxable income as a capital gain at the time the rental property is sold. In addition, if sold for more than the property's depreciated value, you will also have to pay depreciation recapture tax on the difference between the originally purchase price for the property and its improvements and the depreciated value. However, if the proceeds of the rental home sale are used to buy more rental property, you can structure the transaction as a tax-deferred exchange, and make clear next steps to defer all of your taxes. Read more benefits of buying a home for rental income on the Minneapolis Property Management website.
Policy Link Study of Twin Cities Housing Market 2013
From 2005 through April 2009, there have been 70,111 home foreclosures in Minnesota. The majority (68 percent) have been concentrated in the seven-county Twin Cities metro area. In some Saint Paul neighborhoods the median home sales price dropped close to $80,000 per home, or 43 percent of homes’ value During that same time frame.
How to Acquire REO Homes for Rehabilitation To Convert Into Rental Income
When a home ends up in the Minnesota Foreclosure Timeline and then fails to sell at a sheriff's auction, it "reverts" to the bank and becomes an REO, or "real estate owned," property. PolicyLink's Equitable Development Toolkit says, "Ninety-seven percent of properties that go to foreclosure auction end up in REO inventories (up from an average of 70 percent of properties that did not sell at auction prior to 2007). Properties are particularly concentrated in inner city communities – where they average 9.2 REO per square mile."
"There are a large number of abandoned homes and a large class of renters, but even when the housing market settles out and people’s credit is repaired over time, REO to rental is a growth area and potentially a permanent asset class, investors think." ~ HousingWire
My background and experience as a trusted Twin Cities Realtor has helped hundreds of families throughout Minneapolis - St. Paul residential housing communities make the right decisions. Call and schedule a time to learn how you can grow your assess by buying a Minneapolis home for rental income. Call 612-396-7832.
Jenna Thuening, a Twin Cities Realtor reports on the Twin Cities rental income housing market
Eden Prairie MN 55344
Jenna's home page: homedestination.com
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