INSIDE REAL ESTATE: Time is now to build a rental portfolio
Lack of new housing starts, particularly in duplex and multi-family, make it a good time for the small investor to enter the market. Multi-family permits are down 50 percent from last year with only 72 units permitted compared to 153 last year at this same time. Duplex permits are also down with over 42 units permitted compared to 64 in 2017.
Small investors shouldn’t be concerned about a reported 5 percent Multiple Listing Service vacancy factor if they take precautions when making a purchase. Condos are always a good investment because they require little management for a first time investor.
Let the home owners’ association do most of your work. Your job is to simply find a well-qualified tenant by having them complete an application that requires a Social Security number for a credit check and current employment.
One other piece of advise for a new investor is to make sure you have the right for a periodic inspection of the property.
Because the majority of Anchorage’s aging rental properties are two-bedrooms with one bath and no covered car storage, consider purchasing a three-bedroom condo with at least a single-car garage.
Newer is better than old. Even a condo built in the 1990s is now 28 years old so look for units built since 2000. Single-family homes are always a good investment and rent quickly due to lack of inventory. Since many older single-family homes are only three bedrooms, look for a four-bedroom home with a double-car garage.
Some smart first time homebuyers make their first purchase a duplex. They live in one side and rent out the other.
Then, after a couple of years, they move up to a single family home and rent out both sides. Both purchases can be used with low down, owner-occupied financing whereas nonowner-occupied financing usually requires a down payment of 20 percent to 25 percent. That’s an excellent way to begin a real estate portfolio.
Alaska has surprisingly high mortgage limits for duplex, triplex and fourplex financing. Duplex financing amounts vary from Federal Housing Administration limits of $507,900 to $870,225 for Veterans Affairs, Fannie Mae and Alaska Housing Finance Corp. owner-occupied loans. Fourplex mortgages can go as high as $1.3 million for VA, FNMA and AHFC.
FHA limits are $763,000. Nonowner-occupied loans can require reserves of up to six months of principal, interest, taxes and insurance.
Some mortgage investors also require professional property management if the purchaser does not have prior management experience. Up to 75 percent of rents from the purchased property can be used to qualify for the mortgage.
You never know when the bottom of the market is until it has passed. My bet is the bottom is happening now so now is a good time for the small investor to make a move.