The rental homes market in the U.S. is growing rapidly. According to a study by Harvard University, the number of renter households reached 10 million between 2004 and 2016. This is partly due to many people’s difficulty in buying a home. The average price of a home has more than doubled since 2002, while wages have remained stagnant. As a result, people were willing to capitalize on the rental market at the time.
Now it’s even a better time to enter such a market. Homes have skyrocketed through the roof, reaching a staggering $420,000 average cost per new home. People are looking to rent a home now and waiting for the price to settle. If you’ve been planning to be a landlord for quite some time, now is a great time to get started. Don’t worry; if you don’t have that much money, here are some ways to become a landlord without spending too much money.
Go Loan Shopping
You can’t purchase a home outright if you don’t have too much money to start. The most viable option for you is to find a home loan. These loans are aplenty, and you can find one that doesn’t require a down payment or a very low downpayment. You should still have money for other things like maintenance fees and repairs.
When going loan shopping, you should visit at least five different lenders. This gives you a better chance of finding a loan with terms and conditions that are favorable to you. It’s important to compare the interest rates, the monthly payments, and the loan length. You don’t want to be stuck with a 30-year mortgage when you can find a 15-year one with lower interest rates. Of course, you should also have a good credit score to qualify for such loans in the first place. If you don’t, you can improve your credit score by paying off your debts and making all your payments on time.
Use an FHA Loan
An FHA loan is a government-backed mortgage, and it’s an excellent option for first-time home buyers since it has less stringent requirements than other types of loans. You can qualify for an FHA loan with a down payment as low as 3.5%.
It’s a good option if you’re buying a property for the first time. However, there’s a caveat: you’ll have to live inside the property for at least a year. You can’t just purchase a property and rent it out immediately. You should also be aware that there are limits to how much you can borrow. The loan limit depends on the county or parish in which the property is located.
The other downside of an FHA loan is that you have to pay mortgage insurance. This insurance protects the lender if you default on your loan. The good news is that you can cancel this insurance once you’ve reached 20% equity in your home.
Look For a Fixer-upper
A fixer-upper is a property that needs some repairs or updating. These properties are usually sold lower than properties in good condition. You can use this to your advantage and purchase a fixer-upper at a low price. Just be aware that you’ll have to spend money on the renovations.
The best way to find a fixer-upper is to look for foreclosures. Foreclosures are properties repossessed by the bank because the owner couldn’t make their mortgage payments. Banks are usually eager to get rid of these properties as soon as possible and are willing to sell them at a lower price. You can find foreclosures online or contact a real estate agent specializing in foreclosures.
Another way to find a fixer-upper is to look for houses that have been on the market for a long time. The longer a property is on the market, the more likely the owner is willing to negotiate the price.
Look For HUD Homes
HUD homes are properties foreclosed and owned by the U.S. Department of Housing and Urban Development. HUD sells these properties at a discounted price to low- and middle-income buyers. You can find HUD homes on their website or through a real estate agent specializing in HUD homes.
These kinds of homes are easy to finance since many programs are available to help you with the down payment and closing costs. You can also get a lower interest rate because other buyers don’t seek out HUD homes.
There are some drawbacks to buying a HUD home, though. First, you have to be a first-time home buyer or haven’t owned a property in the past three years. Secondly, you have to occupy the property as your primary residence. You can’t purchase a HUD home and rent it out immediately. You need to wait at least a year for that. Lastly, there’s a bidding process, and you might not get the property if someone else offers more than you do
You don’t need too much money to start your landlord career. There are several options to start by choosing one of these four ways. They are: using an FHA loan, looking for a fixer-upper, looking for HUD homes, getting a VA loan, or purchasing a multifamily property. Be sure to do your research and talk to a professional before making any decisions. Good luck!