Real Estate

Florida is the best rental market — should you take advantage?

This article is presented by IDG. Read our editorial guidelines for more information.

If you’re just now investing in Florida real estate, could renting be the solution to some of the known problems with the housing market in the Sunshine State?

Florida is and always has been one of the most desirable and popular real estate destinations in the country, but right now it’s not without problems for investors. Florida rental properties are good — but first, we need to find out what’s going on with the market that makes this state a good candidate for this particular type of real estate investment.

As with all other types of investment, renting can be the right choice (and perhaps even the holy grail for some), but you really need to understand when the conditions are right for this type of investment. . Let’s take a closer look at what these terms are.

When is it right to invest in rent-to-own?

An investor who is considering renting should consider two major factors. The first is whether there is a strong demand for housing where they are considering investing. The second is whether there is a large pool of potential buyers who are not yet able (or willing) to purchase the property. Typically, this is the case in hot markets that are simultaneously experiencing problems with affordability, inventory, or other key market parameters.

What you are looking for as an investor is a housing market that is currently sluggish due to tight market conditions. no Because the area is unpopular. Think about it this way: If you’ll be better off selling in a few months or years and can make more money renting instead of flipping a house now, renting may be a great option. You have to lock in a buyer now and sell at market value whenever the time is right.

Timing plays a huge role in deciding whether to invest in a rental. If you’re investing in a market that’s booming, with plenty of qualified buyers and properties selling like hotcakes, you should love the option of flipping a house. But if all is not well in the housing market—that is, many people want to buy but can’t—and it’s slowing down as a result, rent-to-own is the only option between flipping a house and renting it out long-term. may be an excellent compromise. of a property.

Why Florida is the Best Rental Market Right Now

Florida is emerging as an excellent rental market because it offers the exact combination of factors that make this an attractive investment option.

Florida’s population is growing.; In fact, Florida has the fastest population growth in the U.S. in 2022-23, with millions of new residents coming to the state each year. Urban areas like Orlando, Tampa and Miami attract the largest number of movers, but so do smaller metro areas like Sarasota and Fort Myers.

Nevertheless, the Florida home sales market remains stagnant. Even a popular destination like Miami was classified as a “not very competitive” market. Redfin; Few homes receive multiple offers, and most sell below list price (down 4% on average).

This may sound like a contradiction, but the truth is that Florida is facing an affordability crisis. Home prices continue to rise due to the ongoing shortage of inventory. The average home price in the state is now $397,137– about $43,000 more than the national average of $354,179. However, potential buyers face the highest interest rates and the highest home insurance premiums in the country.

Result? According to Moody’s Analytics housing economist Matt Walsh, “lowest housing affordability in four decades.” Newsweek that existing home sales in the state were at their “lowest level since the Great Financial Crisis.”

Despite high home prices, Florida is not currently a seller’s market. According to a recent Redfin ReportWhile home prices are rising in Florida, the number of home sales is down, and homes stay on the market an average of a full week longer than a year ago.

This does not mean that people do not want to buy a home in Florida or that the prospects for a Florida real estate market are poor. Current conditions simply mean that now is not the best time to sell. Many buyers are waiting for mortgage interest rates to drop a bit lower than they are now; Others may find solutions to home insurance crises.

Having the option to buy a home that they are currently renting will appeal to many potential buyers. They are not going. They are just waiting.

For renters, the process of buying a rental home can feel like starting months or even years in advance. This is ideal for buyers who are hesitant or need a little more time to make a down payment on their future home.

But what’s in it for you, the investor?

Investor Benefits: Cash flow and security

The most obvious advantage of renting to investors is that it provides you with stable cash flow, with rents often higher than market rates. Tenants tend to rent-to-own their properties, and higher tenant retention rates translate to less income loss from vacancies among tenants.

Additionally, tenants who live in rental properties take better care of them—after all, they plan to stay there long-term. In fact, as a rental landlord, you can often expect tenants to take on many of the responsibilities that would normally fall to a landlord. From lawn mowing to repairs, from rent to rent, there’s a lot of room for tenants to be involved in property maintenance in their leases. This is actually a great benefit for out-of-state investors or those who just want a more passive investing experience.

Additionally, the non-refundable option fee paid by tenants to secure their purchase rights increases the upfront profitability of the deal. In addition, prices have a built-in appreciation (usually around 10%) that the tenant will pay at the end of the lease term when purchasing the home.

How does rent-to-own work?

In a typical rent-to-own agreement, the buyer agrees to lease the property for a fixed period of time—usually up to five years—with an option to purchase it at a predetermined price at the end of the lease term. . During the rental period, a portion of each monthly payment can be set aside as a credit toward the down payment. Some rent-to-own agreements oblige the tenant to buy the home, while others only give them the option.

Locking in the sale price at the start of a rent-to-own contract is a great option when you’re investing in a volatile market. If you believe that home values ​​will increase significantly by the time a tenant is ready to buy, you can enter into a contract in which the final sale price will depend on the current market value of the home at the end of the contract. .

Whatever configuration you choose, always be careful to set a sale price that is profitable but not so high that the property is overvalued, as this will make it difficult for a rent-to-own buyer to obtain a mortgage.

Before preparing a rent-to-own lease, make sure you do your due diligence. This will include researching local market trends, the legal details of rent-to-own agreements and the financial stability of your potential tenant buyers.

Investors should also consider working with real estate professionals who specialize in rental properties. These experts can provide invaluable guidance on structuring fair and profitable contracts and ensure compliance with state and federal regulations.

Final thoughts

Florida is an excellent rent-to-own market for both buyers and sellers, providing the former with an alternative route to home ownership and the latter a potentially lucrative investment location. The Sunshine State is a unique real estate market with properties in high demand but presents several barriers to home ownership that are likely to persist for the foreseeable future. If your current goal here is to avoid selling early, a rent-to-own can help you generate consistent rental income from your investment while guaranteeing that you eventually sell at a great price. will do

This article is presented by IDG.

IDG 1

Investing with IDG opens doors to a history of award-winning real estate capability and leadership. As fellow investors, we understand your needs, making us your trusted ally in the realm of real estate investing. As the markets evolve, so do we. Our agility in adapting to market changes has been a key factor in our success, and we look forward to providing this knowledge to empower your success.

Note via BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.


Source link

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button