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Investors Focusing on Rentals and Texas Real Estate

Investors Focusing on Rentals and Texas Real Estate

During the housing boom, many individual investors went deep into debt to buy investment properties such as rental homes and condos in hopes of selling quickly to cash in on soaring prices.

Despite the end of the speculative craze, a number of markets in the fragmented real estate world continue to lure investors willing to adjust their expectations.

As rents take off, buyers are increasingly focusing on multi-unit rental properties instead of the single-family condos and homes that were popular during the housing boom.

Some investors are also shifting money into regions of the country where they expect prices to continue to rise, such as Texas, and developers are also crafting special promotions, such as guaranteed rental income for as long as five years.

More investors are focusing on the fundamentals that guided the market before the housing boom, especially cash flow, the ability to actually make money from rentals, rather than from quickly selling the property. They are sticking with properties that turn a profit after factoring in interest payments, taxes and other expenses. Making a minimum of $50 to $125 monthly on each house is what many are shooting for and then in six or seven years sell the property.

With home prices softening in many markets, some advisers are counseling clients to focus on multifamily and commercial properties. Homes and condos are not the place for a person who wants to make good, solid real-estate investments. Small apartment buildings and commercial properties are now more stable investments.

There is an increased interest in commercial properties because asking prices for many residential properties are unrealistic, with investors expecting the property to at least pay the mortgage with a 20% or 25% down payment.

Many speculators who bought property during the boom may now be facing a tough choice. They can either lose a moderate amount of money each month while they wait for the market to rebound, or they can sell and take the pain all at once.

As the market for homes and condos has cooled, some developers are unveiling special promotions designed to appeal to investors worried about cash flow. Some condominium developers are offering rental-assurance programs that stretches for as long as five years, but investors should approach such offers cautiously, as the market is seeing a lot of developers and builders breaking their promises to buyers.

Reference: The Wall Street Journal Online

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