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Good time to invest in a rental?

By Judy Martel ·
Wednesday, August 17, 2011
Posted: 3 pm ET

Home prices and mortgage rates are low, the number of potential renters is increasing and the stock market is in the midst of bear-market gyrations. So is this a good time to invest in rental real estate?

Investors seeking ways to diversify their stock portfolios are eyeing real estate-buying opportunities ahead of potentially higher borrowing rates in the future, following Standard & Poor's downgrade of the U.S. credit rating. But real estate investment comes with risks.

Analysts are painting a grim picture for a speedy housing recovery, so investors can't expect to buy and flip for a quick profit. Real estate should never be considered a liquid investment, and with the recent stats on the state of the housing market, it's definitely a long-term buy.

The good news for those seeking to buy investment property is that there seems to be no shortage of renters. Census Bureau data show that homeownership rates in the second quarter fell to 65.9 percent, compared with its peak of 69.2 percent in 2004. But as a landlord, you'll have to figure the cost of insurance, maintenance and taxes into your profit projections.

Aside from lack of liquidity, this past recession has made it clear that real estate values aren't stable and generally take longer than the stock market to recover. Some areas of the country are on the mend, while others languish. There's no guarantee that values in your area will rise anytime soon, or that prices have hit bottom.

Before deciding if holding real estate is right for you, calculate the estimated return on investment and how it will mesh with your overall asset allocation and time horizon.

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1 Comment
August 19, 2011 at 10:26 am

I put my 401k into a self directed IRA. I bought a 5 year old home in Las Vegas for $68,000 and I get $749 a month rent for it. I net $575 after property management, taxes and insurance. Much better returns than the Wall Street Casino.

I am looking at putting the rest into buying an apartment building. $150K down and $4,000 a month net after mortgage payments and expenses.

And in both cases, if inflation comes back, I can raise the rent in step.