Like every other business, the real estate domain in the US has also witnessed an immense impact of the pandemic. Rental property owners have been hit hard because keeping current tenants and securing new ones is definitely a challenge today. Vacancies are rampant as people have lost jobs and pay cuts, leading to mass migration to smaller towns. Similarly, travel restrictions and the closure of international universities have hurt the prospects of getting new tenants. With all of this said are you still interested in buying a rental property?
In these circumstances, sustaining your rental business should be your top priority as a landlord. Moreover, you will probably want to understand the future prospects if you have plans for buying a rental property as an investor. Things are getting better as the pandemic fears gradually ease. So it makes sense to consider the decision amid the post-pandemic recession. You must also bear in mind the risks, challenges, and mitigation strategies as an investor. Here is some helpful advice if you plan to buy a rental property in the new normal.
Buying a Rental Property
Be ready with financing
Finding a mortgage right now could be a tad tougher for investors, though things may improve down the line. Portfolio lenders are apprehensive about extending loans as enforcing leases seems to be a big deal in the new normal. The pandemic saw high rent default rates, which translated into high landlord loan default rates. But things are looking up as lenders are ready to issue rental property mortgages again, although you can expect tighter lending terms now.
If you plan to invest in the American rental market, make sure that you are financially ready before buying a rental property. Thankfully, there are ways to finance deals anyway, provided you are creative enough. You may tap the equity in existing properties you own through a home equity loan or line of credit. Alternatively, you can try negotiating seller financing. Many urgent sellers may be more than keen to finance the deal. You may also consider the option of unsecured business lines of credit.
Cover the risk of rental default
A large part of the workforce in the US is either unemployed or underemployed right now, and recovery may take time in the future. Many tenants are in serious financial trouble, and landlords face the risk of rent defaults in the recessive period ahead. It is a factor you must bear in mind while planning for buying a rental property in the post-pandemic phase. Are you willing to take the risk? If yes, it makes sense to have a mitigation strategy in place even before you invest. Dealing with defaults can be taxing, and eviction can be even harder on landlords.
It is vital to be selective about tenants once you buy the place and go ahead with the rentals. Those living in large cities like Los Angeles need to be extra careful with tenant screening. The best approach would be to collaborate with a reputed los angeles property management company that can handle the entire aspects of buying a rental property as well as rental property management for you. Since they have relevant experience, they can help you pick your tenants wisely. Nothing is easier than having an expert getting credit reports, criminal background checks, and nationwide eviction history reports for you.
Understand what eviction is before buying a rental property
Eviction is a serious matter for rental owners, and they become all the more critical in the pandemic era. There is a possibility that you may not be able to enforce the lease agreement as usual right now. Eviction suspensions could happen because of government rules, banning them for a certain period. Moreover, you will prefer not to go through the hassle of a rent court hearing. It is a part of the process to remove defaulting tenants from the property. Before you go ahead with buying a rental property, make sure that you have a fair idea of everything that goes into eviction.
But you can still adopt some measures to address the risk. Most importantly, skip the location with an active ban on evictions. It is crucial to check the regulations in the jurisdiction because ones with landlord-friendly regulations assure safety and higher returns. Avoiding the conventional government-backed mortgage loans for funding the purchase is a good idea for now. If you buy and encounter an eviction situation, serve a notice immediately once allowed because you can expect long eviction backlogs. Once again, aggressive tenant screening can save you from trouble in the first place.
Have a plan for sustaining your business
Even before buying a rental property and jumping into the business, you must have a plan to sustain it. You may have to settle for a lower-than-usual rental price to rent out the place initially, but it will give you a start at least. Moreover, showing understanding and flexibility gets you in a good place and consolidates your prospects in a competitive market. Apart from settling for lower rentals, you may also have to plan options to match the current landscape in the new normal. Rental owners are allowing installment payments, extra time, and contract extensions to retain their business in the current times.
Having a seasoned property manager to handle the rentals gets you in a safe place, so you must collaborate with one right from the start. They can take care of the rent negotiations and payment terms before you lease out the place. It becomes even more vital if you are just starting and have little idea about how things work in the business domain. Ensure that everything is in writing so that there isn’t a chance of legal hassles in the long run.
Final Thoughts on Buying a Rental Property
Vaccine rollouts are in full swing, and the curve appears to be flattening, which is good news for real estate investors. But you must still be cautious and forward-thinking if you plan on buying rental property in the new normal. Knowing what to expect and working out ways to address the challenges makes sense. You will be far more confident about the investment if you already know a professional property manager who can handle the rental arrangements for you.