4 Crucial Reasons Not To Get An Investment Loan, Property

Posted on: February 2, 2012

Categories: Buy, Property Management, Things To Consider

Author: lbuen

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The Allure of Getting An Investment Loan, Property

The glut of real estate available, thanks to the avalanche of foreclosures, short sales, REOs and hard-pressed homeowners, have significantly pushed prices of investment properties further down. This is making a lot of real estate investors salivate as experts declare that now is the right time to invest in real estate. You may be among the scores of first-time investors raring to invest in real estate and become a landlord, intending to use rental income to cover for the costs of acquiring and maintaining a property, and hope to have the property’s value go up in the years to come. But is it really a great time to obtain an investment loan and property to rent out? If you are determined to do so, make sure to bulk up your landlord muscle to help you tackle the following hurdles.

The Snags of Obtaining Investment Loan, Property to Become a Landlord in 2011

1. Rising Vacancy Rates

Because of the boatload of people losing their homes and those who cannot afford to buy a home, you may expect more people to be seeking out homes for rent. Think again! Across the country, landlords are hounded by vacancies. This has prodded them to come up with incentives – usually a discount such as a 3-bedroom apartment for the price of a 2-bedroom unit, cheaper security deposit, a month of free rent, just so tenants would sign the lease contract.

The foremost reason why landlords lose tenants in the years between 2002 and 2006 was because these tenants were purchasing their own homes. Fast-forward 2011, the primary reason for losing tenants is defaults leading to skips and evictions. As a result, vacancy rates have shot up egging landlords to compromise, including their criteria for tenants.

2. Lenient Tenant Application Criteria

Owing to the discouraging occupancy rates, landlords are now willing to take in tenants whose qualifications would normally not pass the standards of years ago. Landlords used to turn down would-be tenants who have gone through a bankruptcy, foreclosure, or previous evictions. But now, with so many people having gone through such economic difficulties, they have become a whole new market segment in the rental industry. If you are planning to take in these people, make sure that you require them to at least have a job and bear a decent credit rating. Some landlords are ready to look past the credit score and some even consider prospective tenants who are jobless, but enjoy unemployment benefits.

3. Longer and More Challenging Evictions

The mounting number of foreclosures on rental properties and the increasing number of people losing their jobs have significantly contributed to the increase in the incidence of evictions, leaving the courts and the local law enforcement with a mountain of legal paperwork and evictions to carry out on their respective plates. As a result, evictions are taking longer than before, not to mention that there are a number of sheriffs departments that decline to serve eviction notices.

4. “No Pets Policy” Are Out

Would you rather take in a jobless tenant with no pet or a tenant with a good job and rental history with one or two pets living with him? Most landlords, nowadays, are willing to take in the latter. Besides, this type of tenants are inclined to pay additional fees just to have their pets live with them. They have become another segment in the market and some property managers have already taken action in luring this niche by providing areas for walking dogs and scoopers and bags for tenants to clean up after their pets. However, a wise landlord knows that he is boosting occupancy rates at the expense of the risk of flea infestations, noise and disturbance, and damage due to untoward toileting incidents.

These are some of the setbacks of taking the landlord role these days. It is up to you to weigh these against the benefits of generating rental income and possible property appreciation down the road.

While many are saying that now is the best time to obtain an investment loan and property, you have to acknowledge that there are also new challenges that a landlord could be facing due to the current conditions in the real estate market.

 4 Crucial Reasons Not To Get An Investment Loan, Property
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